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Can a Debit Card Help you Build Credit?

Can a Debit Card Help you Build Credit?

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Can I use a debit card to build my credit? This is a common question, especially among younger individuals as well as those who have had credit issues in the past. Most people are aware of the importance of an above average credit score. While this may not sound like a big deal, the higher your score the better chance you have of securing a loan in the future. Along with this, it can help in many other aspects of your life, such as when applying for a job.

The answer to this question is yes and no. There are several differences between a debit card and a credit card. The main one being that your debit card is attached to a bank account. In other words, nobody is lending you money. When you use your debit card, the funds are coming out of your account. On the other hand, with a credit card, a company (Visa, American Express, and MasterCard) is lending you money and trusting you to pay it back later. Simply put, a debit card is nothing more than an easier way to access money in your bank account.

It is important to note that debit cards do not report to credit bureaus. In turn, using one of these cannot directly help you build credit or increase your score.

That being said, it can help build your credit if you show your financial institution that you can be responsible with your money. Your bank will realize that you have been using your debit card in a responsible manner, which will work in your favor if you want to apply for a “real” credit card such as one through MasterCard, American Express, or Visa. This is not a direct way of building your credit, but over the course of many months/years it will go a long way in showing your bank that you are worthy of a credit card.

Should I use a debit card since it does not do anything to help my credit? The answer to this question is up to you. Remember, just because it does not benefit your credit doesn’t mean that everything is bad. With a debit card you have quick access to funds in your checking account, while also making it easier to manage and organize your finances.

If you are looking for a direct way to build credit you should not rely solely on the use of a debit card. Fortunately, the responsible use of a debit card can help you build your credit in the future.

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Enrolling in a Debt Management Plan to Help Your Monthly Budget

Enrolling in a Debt Management Plan to Help Your Monthly Budget

Enrolling in a debt management plan
Signing up for a debt management plan may give you more breathing room in your monthly budget, but will it hurt your credit? Not as much as you may think. Using a debt management plan to pay off debt won’t hurt your credit score, but it may make it difficult to qualify for new credit.

Debt management plan: Protecting your credit score
When you enroll in a debt management program, you write a monthly check to a credit-counseling agency and the agency pays your creditors. A debt management plan usually lasts three or four years. A notation stating that you are paying an account through a credit-counseling agency appears on your credit report and remains until the account is paid in full. Paying an account through a credit counseling agency will not hurt your credit score.

Debt management plan: Qualifying for new credit
Participating in a debt management plan could make it difficult for you to qualify for additional credit, and some debt management plans prohibit consumers from applying for new credit anyway.

Some creditors may see that a person is in a debt management plan and decide that they have all the debt they can handle. Other creditors might view participation in a debt management plan as a positive step, a sign that a consumer has taken responsibility for and is serious about paying off debt.

The more a creditor bases a lending decision on a consumer’s credit score, the less a consumer’s participation in a debt-management plan is likely to matter. A typical creditor uses the FICO score. They don’t look at notations on the account. Paying off a big chunk of debt on your own or with the help of a debt management plan will give your credit score a boost.

Debt management plan: Late payments hurt your credit score
What will hurt your credit score? Not debt management plans. Instead, being 30 or 60 days late with any payments can adversely impact your credit rating. Those negative marks hurt your credit score and can mar your credit report for up to seven years.

Debt management plan: Choose wisely
It is very important to choose a debt management plan carefully. If the agency administering the program misses or is late with a payment, it is your credit record that gets impacted. Enrollment and monthly fees for debt management plans vary widely. Some companies may charge several hundred dollars for their services, while others charge monthly fees of $20 or less.

With a debt management plan, a consumer usually gets reduced interest rates, lower monthly payments, no more late fees and fewer calls and letters from creditors. Debt-counseling agencies get their operating money by receiving a percentage of each client’s payments back from creditors.

If you are current on your bills, you may want to try negotiating new payment amounts and lower interest rates with creditors on your own. You never know what kind of deal you may land. And you may be able to make real headway on your debt by simply tightening your belt for a few months and freeing up more cash for debt payments.

Debt management plan: Monitor your debt counselor
If your situation is more serious or you just feel plain overwhelmed, you may want to talk to a debt counselor. If you decide to sign on for a debt management plan, be sure to monitor your credit bills carefully. Is the agency paying your bills on time as promised? You need to be vigilant and look at your statements regularly.

If you discover a problem with bills paid through a debt consolidation company or credit counselor, report the company to a local consumer protection agency or state attorney general‘s office. You can also file a complaint with the Better Business Bureau. For more ideas on how to monitor these companies, see some of the suggestions by the FTC on Debt Management Plans.

Examples of Debt Management Companies

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What Should A Homeowner Do Upon Receipt of a Foreclosure Notice, NOD, or Notice of Default?

What Should A Homeowner Do Upon Receipt of a Foreclosure Notice, NOD, or Notice of Default?

202px-foreclosedhome3If you are behind in your mortgage payments, it is likely you have received a Notice of Default (NOD) also known as a Foreclosure notice from your lender. A Notice of Default (NOD) is a public notice to you, as well as the world, that you have defaulted on your mortgage and the lender intends to take foreclosure action if you do not pay by the regulated redemption period. What should you do if you receive a NOD?

Immediately Contact the Lender

You must NOT ignore the NOD, other foreclosure proceedings, or your lender. Call them at once and tell them about your situation. Most lenders are willing to work with their borrowers on keeping their loan in good standing and helping through financial difficulty to ultimately avoid foreclosure. The problem arises when borrowers have financial difficulty and simply stop paying on their mortgage without any explanation to the lender.

Discuss the Mortgage Payment Options

When you contact your mortgage lender, discuss with them your financial situation and what you can do to keep your loan current. If you have a significant change in your income, or your mortgage payment was increased considerably, you may be eligible for a loan modification based on your current income.

A loan modification changes the terms of the loan, such as the interest rate or lifespan of the loan, to create a lower monthly payment. While this means less income for the lender, if you are unable to meet your current mortgage obligation, yet still have a regular income, it is a better alternative than foreclosure. You will have to provide financial information and a hardship letter to your lender. If you are not comfortable with mortgage terms and issues, hire a professional service to negotiate on your behalf.

In addition, you may discuss payment forbearance or forgiveness of past-due debt. In many cases, lenders are willing to forbear loan payments up to three to six months to help a borrower get back on his feet financially. In cases of extreme financial difficulty, some lenders may even forgive payments and fees in arrears and allow the borrower to start fresh if they promise to keep current.

Consider a Short Sale Before a Foreclosure

There is almost no reason to walk away from a home and allow a lender to foreclose. If, ultimately, you cannot afford the mortgage, you can sell the home and pay the lender what is owed on the mortgage. However, this may be more difficult if you owe more than what your home is worth on the market. Many homeowners in mortgage trouble are finding this to be the case with falling real estate market values.

However, a lender can be persuaded to accept a “short sale” on a home. In this situation, they agree to let you sell the home for the lower market value, pay them the full proceeds from the sale, and then write off the outstanding balance. Why do lenders agree to a short sale? Ultimately, it is cheaper than proceeding through a full foreclosure process, which involves attorney’s fees, holding losses, and an inevitable short sale from the lender’s end as well.

A NOD is not the end of the road for a homeowner. It is just the first legal process in foreclosure. Remember that you have the right to discuss and re-negotiate your mortgage. Although you may lose your home, there are options to sell so that the lender does not foreclose and you prevent further credit issues.

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Should I Trust My Bank or Hire a Negotiator To Modify My Mortgage?

Should I Trust My Bank or Hire a Negotiator To Modify My Mortgage?

loan-modification-should-i-trust-my-bankIf you’re having trouble keeping up with your mortgage payments, then perhaps a mortgage loan modification might be the answer. A loan modification can reduce your monthly mortgage payments and help you keep current with your mortgage based upon your financial means. However, when you talk to your bank or mortgage lender about a modification, are your or the bank’s best interest involved?

The bottom line is the answer to this question. The bottom line for the lender is to make income in the form of interest on money they lend to others. If a borrower fails to make payments as agreed in the mortgage terms, then the lender may have no choice but to foreclose on the home and recoup their losses on the resale of the home. Usually a foreclosure is a great expense to the lender in attorney’s fees, filing fees, and losses incurred while holding the property for sale. All efforts to avoid foreclosure should be taken by the lender, including modifying the loan in extreme cases to help a borrower repay the loan.

Getting Professional Modification Help

Although foreclosures are not desired by lenders, they still have many strict guidelines in making and modifying mortgages to suit the owners and investors of the lending company. Subsequently, it may appear ironic that lenders want to avoid foreclosure, but are also not willing to work with borrowers to negotiate a reasonable settlement for both parties.

A professional foreclosure help specialist company can help you with a loan modification by talking to your bank directly and working with them on your behalf to resolve a mortgage into more affordable terms. These companies are usually run by experts in the mortgage finance industry and present many advantages over a DIY endeavor:

Experience – Many of these professional modification negotiators have been operating for years and have extensive experience in negotiating new mortgage terms. They are familiar with the foreclosure and loan modification process and know what it takes to reach a deal, with even the most stubborn lenders.

Contacts – Foreclosure help specialists usually work with the biggest loan mortgage companies in the country and have many contacts within each. By having and continuing good relations with lenders, they have an upper hand in renegotiating your contract.

Results – In most cases, foreclosure help can secure an agreeable mortgage modification that is acceptable by both lender and borrower. If not, then they can work with the lender on an exit plan to avoid foreclosure by a short sale. In a short sale, you may end up selling your home for less than is owed on the mortgage, but the lender accepts the short amount and writes off the balance. This bodes much better for your credit report than foreclosure.

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FICO 101:  How to Improve Your FICO Score (Credit Score)

FICO 101: How to Improve Your FICO Score (Credit Score)

improve-your-fico-scoreAlmost every working American has a FICO score. Anyone with a Social Security number, a job, and any kind of debt is likely to have a record with one or all of the three major credit reporting agencies. This credit report history results in an algorithmic score that rates each individual’s creditworthiness. A higher FICO score means that a person is responsible in acquiring and paying debt, while a low score tells potential creditors that a person is a higher risk.

How is a FICO Score Determined?

Your FICO score is an algorithmic mathematical weighted formula. Your credit history shows how many creditors you have, what your credit limit is for each creditor, how much of your limit you have used, and also whether you pay on time and as agreed or have made late payments in the past.

Serious credit issues, such as repossession, foreclosure, and collections, will also show on your credit report, as well as financial judgments from a court of law. All these critical aspects are scored by their importance to provide a single number of your creditworthiness.

What Affects My FICO Score And How Can I Protect It?

Your FICO score must be treated with care, much like a pet. It needs constant nurturing, maintenance, and sometimes, it must be treated by a professional and bandaged for repair. A credit history can be damaged by anyone who reports your credit activity to the reporting agency without your consent. Subsequently, it is paramount to treat your creditors with respect and pay them as agreed.

Your credit report and FICO score can be damaged by the report of any of the following:

• Late Payments – If you miss a scheduled payment on a credit card, auto, or home mortgage payment, it will show on your report. Late payments are noted as simply late, and in increments of 30, 60, and 90+ late. The more days late your payment is, the lower your credit score. In fact, your credit score can drop almost overnight.

CREDIT TIP: Even if you cannot pay your creditors, you should make arrangements right away when you experience financial difficulty. Try to work with your creditors regarding a payment plan, which may prevent them from reporting a late payment on your credit score.

• Over Limit – Your credit card companies will report your maximum credit limit. If you charge more than that limit, your report will reflect it.

CREDIT TIP: Always stay well below your credit limit. Conventional wisdom says to keep your charged credit at 2/3 or below your limit for each creditor.

• Collection – If you fail to make payments for a period of time on a credit card or other debt, your account will close and be sent to a collection agency. Your credit report will show both the account closure and the new reporting by the collection agency, adding even more damage to your credit.

CREDIT TIP: Avoid collections by working with creditors directly. If you do end up in a collection account, pay it in full as soon as possible. The worst thing you could do is avoid the creditors and collection agencies.

How Can I Improve My FICO Score?

If you have had past credit issues that affect your FICO score, there are strategies you can implement to start improving your score today.

• Payoff All Problem Credit – If your FICO score is affected by negatively closed or collection accounts, immediately pay them in full as soon as possible.

• Get A Secured Credit Card – If you’re unable to get an unsecured credit card, obtain a secured card with a deposit amount. Start making charges and paying your balance in full each month. This will help build your history of reliable monthly payments.

• Get A Personal Loan – Many banks and credit unions will allow you to obtain a personal loan with a savings or CD deposit as security. Obtain a small personal loan, such as $1000, and keep the money in the bank – don’t spend it! Immediately make the first payment and continue making regular payments each month thereafter. Your bank will report your good payment status, and your FICO score can start improving.

Credit is one of the most important personal issues for every consumer. Your credit report and score can determine whether you can get a home loan, a new credit card, and even affect whether you get a job. Treat it with care and you will succeed in keeping your FICO score in a positive range.

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