Life should be rewarding but sometimes we get thrown a curve ball. The first step of the ProFactorX program is knowing where you stand so that you can make progress toward your goals. Here are some suggestions on how you can take charge of your financial life and begin reaching for your dreams.
The credit world can be a key tool for success. As smart as it is to pay cash for everything, having a healthy credit score can help in unexpected situations. Below are some ways that we have found can help repair, build or strengthen your credit.
Having a better credit score can make a serious impact for your financial future. Should you need to buy a car on loan, the difference between a poor credit score and a good score can mean thousands of dollars in interest saved. When it comes to purchasing a home, the amount of interest saved can literally be in the hundreds of thousands of dollars.
If you are brand new to the credit world the first step it to make sure that there is nothing unexpected on your credit report. A great tool are sites such as CapitalOne's CreditWise or CreditKarma, these are sites that let you check and monitor your credit score for free with no impact to your score. Once you have access to your credit report it is important that you check that everything is as is should be, medical and educational loans will show on your report. Double check to see that these are not delinquent. If so contact the loan holder and set up a payment option as soon as possible, any amount counts as a payment, even if it is only $20 a month. If there is anything amiss be sure to dispute any errors to clear your credit history.
If everything is in order, the next step is to get a checking account. Many credit cards and loan companies require you to have a checking account (typically a brick and mortar bank is the best bet, many loan companies, especially when it comes to beginner credit builders, don't always recognize online checking or prepaid Visa cards as checking accounts). Open an account and keep it in good standing for at least 90 days.
Next is to look for retail stores that offer "a same as cash" term. This is a great way to build credit for something you already need to buy. Be sure to ask if those loan companies report automatically to the credit bureaus so that you can get your credit history established. Look for retail stores that have "no credit needed" offers. Be aware that these loans may have initial application fees and extra payments may be required as the quoted payment may not pay off the loan in the zero precent interest term. Start with a small purchase. History is history, the dollar amount does not matter when it comes to recording credit. As you show responsibility and discipline your credit will grow.
Once you have a checking account, or if you already have one, getting a secured credit card can help build credit. CreditKarma offers suggestions for secured cards. Look for the approval odds associated with each card and choose based on the best option. Be aware that a card application denied can negatively affect your score. A secured card is a credit card that is designed to help new credit builders gain healthy credit history. With a secured card, you will put a predetermined amount of your own money onto the card, this will be your card's limit until you build history with the credit card company. Once you have proven yourself responsible with the money on that card, they will increase your limit and it will eventually become a regular credit card. Never let a balance roll over longer than a single month on that card. We recommend putting a small monthly bill that you pay anyway such as your phone bill, Netflix, or the internet. Then set up that secured card to autopay from your checking account that bill amount every month. Paying off this bill creates a cycle and gains you healthy credit history.
See challenge below and get rewarded for doing these steps.
If you've been around the block a few times in the credit world, this next section is for those who have credit and need to strengthen it or have had credit and need help rebuilding it.
Your credit score is an algorithm of ratios and percentages. Credit Karma and CreditWise both give a debt to credit availability ratio. That ratio is based off of how much credit you have in total versus how much you have used of that amount. This is why sites like Credit Karma will suggest you apply for certain credit cards. Applying for a new card will initially drop your score a few points but the limit you are given on that card will affect that debt ratio and can raise your score. Paying down credit cards to get that ratio down is one of best ways to raise your score. A percentage of 30% or less is the recommended amount of debt. Be aware though, paying off credit cards and not using them can do more harm than good. Credit card companies will close your accounts it it goes unused for too long. A closed account can negatively affect your score in two ways, one, the credit limit that you had on that account will affect the ratio of debt and available credit. The second is that with that closed account goes all of the positive history that you built. With a paid off card, putting a single bill that gets paid off every month is a great way to keep these accounts active and that history healthy.
Paying off debt can be overwhelming. There are many ways to pay off debt and how you do it is up to you and your situation. Two popular ways to pay credit card debt off are the snowball effect and the interest tackle.
The snowball effect is when you pay only the minimums on all your cards. Then you take your smallest debt and pay it off. With the savings from not having to pay that card the next month you pay then next smallest and so on until you pay off all debts.
The second way is to focus on high interest debts first. It is up to you to determine which of the two methods to use. Sometimes it will take a bit of both. If a credit card is racking up hundreds of dollars in interest a month it might be good to pay that card down first to avoid further interest. Once that one is paid off, assess the rest of the debts on how to best proceed.
If you have a perfect or near perfect score, some of the above suggestions can help keep your credit as healthy as possible. Being debt free is everyone's goal, however, keeping your credit healthy can be useful should anything unpredicted come up. As much as we don't want to owe anyone anything, credit isn't about debt, it's about responsibility.
These are only suggestions. Once you experience the relief of being debt free you will then have the freedom to take the steps to achieve your goals and dreams and inspire others to do the same.
Make an account with Credit Karma. This will allow you to monitor your credit growth but also be aware of and take care of any other factors that may be affecting your credit negatively. Click the button below to visit Credit Karma. Take a before screenshot of your credit score when you log in for the fist time. Save this screenshot to post later with your after credit score and submit for the challenge.
Open a checking account with a local bank or credit union near you (online banks are not always recognized as checking accounts). Keep that account in good standing for 90 days. Keep in mind, some banks may require an up-front minimum deposit into that new account to set it up. Setting that account up with direct deposit may help expedite the process of building that account history.
If you have a savings account but not a checking account you may be able to request that your bank switch your account from a savings to checking account. In this case, your savings account history may transfer over to the checking and waiting the 90 days may not be required. If you already have a checking account, move to step three.
Once you have had your checking account in good standing for 90 days, apply for a 0% interest loan. As mentioned above, if you are new to credit be sure to look for offers that say "no credit needed" or "90 days same as cash." These types of loans are made for those who need to build their credit. They usually look at your checking account history to gage loan worthiness rather than your credit score. Hence why a healthy checking account is step two. Our sponsor primary Hudson's Furniture offers such a zero interest financing plan. Visit them and use your earnings.
As you make your payments your credit history can grow each month, however when you pay off plans like these they automatically close themselves which can negatively affect your credit score. We recommend a second and even a third round of the same loan to continue your progress.
To help visualize, your credit is raising every month that you are making payments toward your loan. So for example let's say that your score raised five points every month, so at the end of the 90 days or three months your score has increased fifteen points. However, when you pay off the loan, it closes itself, and with that history lost your credit drops eight points. It is kind of like a two steps forward, one step back situation.
To avoid this we have discovered that with many of these loan companies you can go in right after you make your last payment and use the payment plan again. Because your loan stayed active, you didn't lose the previous months of history. Now another 90 days has passed and you score has gone up another fifteen point but since that account didn't close, your score didn't drop the eight points in-between rounds. This allows you to maintain constant progress without taking that "eight point step back."
After using the "90 days same as cash" loan as many times as you need, take a screenshot of your improved score and submit it with your before screenshot.
As explained above, use Credit Karma's recommendations to apply for a secured card to propel your credit building history.
Once you have a credit card, or multiple credit cards, there are ways that you can make your credit card work for you. The simplest way is to use a card that has a cash back benefit. This perk is essentially free money. Cash back cards give a percentage or number of "points" for every dollar spent with that card. By utilizing this feature, card holders can use these saved up points and get cash back, gift cards, or statement credits.
Another way of out-smarting your credit card is a term called "grace period." When you make a purchase you have until your next payment date to pay that purchase off and avoid interest fees. Knowing when your card's payment dates are and making purchases accordingly can give you the most amount of time until you have to pay back that amount.
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