Christian Credit Counselors, Credit, Credit Cards, Credit Counseling, Debit & Your Credit Score, Debt, Debt Settlement, Finance, Money Management, Personal Goals, Saving

Credit Cards: Considering Credit History

Considering Your Credit cONSUMER-cREDIT

Do you have credit card accounts that you don’t use? Are you thinking about closing these unused accounts to clean off the slate? Read this article to learn more about the effects of closed accounts on your credit history.

A Fair Isaac representative reported that closing accounts does not directly hurt one’s credit score, regardless of whether it was closed by the cardholder or the credit grantor. That’s the good news. The other side of the story, and there is always another side, is that closing accounts indirectly affects your credit history and therefore, your credit score.

Closing Credit Card Accounts

Closing unused credit card accounts can increase one’s credit utilization ratio. Credit utilization is a measurement of the difference between one’s available credit and the amount being used. This figure is calculated by taking the sum of your credit card balances and dividing that by the sum credit card limits. One’s credit utilization ratio directly affects credit scoring. Simply put, the higher one’s credit utilization ratio the lower his or her credit score.

How does this come into play with regards to cancelling unused credit cards? The unused credit cards have low utilization since the entire credit limit is available. This offsets the higher utilization that one’s other credit cards may have. Thus, it reduces one’s overall credit utilization ratio boosting his or her credit score.

Putting that into perspective, let’s say you have a credit card with a $5,000 credit limit and another card with the same. That’s $10,000 of total credit limit. Now let’s say you spend $2,500 on one card and some minor purchases on the other, which you have paid off. Your total balance, or debt, is $2,500, which equates to a credit utilization of 25%. If you were to close the card with no balance, your overall credit limit would decrease to $5,000, which would in turn increase your credit utilization ratio to 50%.

Considering Credit History

Closing credit card accounts can also lower one’s credit score by reducing the credit history age. Credit age is essentially that. How old are your accounts? In the credit scoring world, the older the better. Age is one representation of stability. Since older is better when it comes to credit card accounts and credit scoring, if you’re thinking of closing old unused accounts, think again. These accounts can actually help your credit score. Keep in mind, however, the FICO score does take into account both closed and open accounts, and closed accounts can remain on a credit history report for up to a decade.

Setting all that aside, if keeping credit card accounts open leaves an open door to more spending – close them! Better to be financially free of debt and its negative impact on your finances, which we all know can lead to increased stress. And, who needs that!?

Do you want to know more about debt and how you can make smart financial decisions now that will help you secure a more prosperous financial future? Sign up for our newsletter for monthly money tips.

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    Christian Credit Counselors, Credit, Credit Cards, Credit Counseling, Debit & Your Credit Score, Debt, Debt Settlement, Finance, Goals, Investing, Money Management, Personal Goals, Saving

    Financial Planning: A Dose of Truth and Grace

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    Planning for a Financial Planner

    So you’re considering a financial plan! Perhaps your finances have told you that you need one. Planning with purpose for your financial future is a noble task. Sure many good things come to us in unexpected surprises, but planning for a good future, especially when it comes to finances, is a wise strategy indeed! You’re reading this article because financial planning interests or excites you, and just doing so is taking the first step.

     

    Financial planning is a well marked plan to thrive financially, and I don’t know anyone who doesn’t want a secure, successful financial portfolio. It’s never too late to start making changes and never too late to pursue financial freedom. The key is: start where you are. Don’t dwell on where you have been or the mistakes and poor choices that you may have made. Everyday is a fresh start to the life you want to live, to the best you yet!

    Your Dreams, Desires, and Goals

    You have dreams, desires and goals. Everyone does. But, not everyone lives in such a way as to see them come to pass. Why do some succeed where others fail? Why do some thrive while others seem to strive after the wind? Not all of life’s answers come sugarcoated and some pills are hard to swallow. But, taking in wisdom, advice and eating humble pie is good for us all. With humility comes honor, and sometimes taking a long, hard look at ourselves is truly a humbling endeavor.

    Finances are a major test and testimony of our maturity and level of personal responsibility. It’s important in the process of self-discovery to admit the truth about your behaviors and choices and the effects they have had on both your life and the lives of those you influence, whether for good or for bad. Be sure to give yourself a healthy measure of both truth and grace. As imperfect people, who make not so perfect choices, grace is something we all need.

    Consider Your Financial Peace

    Start today by considering who you are, who you want to be. Consider what your financial situation looks like and what you want it to look like. Consider what it will take to get you there. Look at the situation objectively. Keep negative thoughts and emotions at bay. You are strategizing, planning, preparing and leading. It takes a strong mind and a strong spirit to be a good leader. The first person you lead is always yourself. And the truth is, if you can’t lead yourself, you really can’t lead others, not well, anyway.Financial grace is not a credit card with no limits and no consequences. If you charge, you owe. Same goes in life.

    Your material choices have consequences, both positive and negative. Grace goes the extra mile, however. It says, “Yes, you are where you are, but…you don’t have to stay there, and you certainly don’t have to return.” Grace gives us the opportunity to make a change, to make the change we desire. It helps us to feel empowered to walk out the lifestyle we want for ourselves and to make the daily choices that both get us and keep us there. Mary Poppins should have said a spoonful of grace helps the medicine go down.

    Planning Short and Long Term Goals

    As you begin to plan, look at both short and long term goals. Write out the steps it will take to accomplish them. With your basic plan in hand, your road map, determine if further help is needed to bring clarity or to implement your newly devised strategy. Share your newfound view with others and invite them to partner with you where appropriate. Your close family and friends are key players in the game called “your life.” And, be proud of who you are because no matter where you’ve been, what you have or have not done, you are this day, an overcomer.

    Do you want to know more about debt and how you can make smart financial decisions now that will help you secure a more prosperous financial future? Sign up for our newsletter for monthly money tips.

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      Budgeting, Christian Credit Counselors, Credit, Credit Cards, Credit Counseling, Debit & Your Credit Score, Debt, Debt Settlement, Finance, Goals, Money Management, Personal Goals, Saving

      Credit – The Four Most Common Forms

      What is credit? art-credit-cards-620x349

      Credit is defined in a couple of ways. One is the amount of money you are approved to borrow from a lending institution. With this approval comes an agreement to repay the charges, any additional fees that can or will be applied, and to abide by time restrictions.

      Credit can also be classified as your borrowing reputation. It paints a picture of your payment history and provides the lender with information regarding the likelihood of your repayment, in other words, your risk factor.

      Use of Credit

      When used responsibly, credit can be a convenient and effective financial tool. From a simple credit card to an auto or home loan, credit is the American way of life. Cashless transactions are soon becoming the way of the future, and credit cards are among the most prevalent. Understanding credit is important in order to use credit to your advantage and to prevent the common financial pitfall – debt.

      Four Common Forms of Credit

      Revolving Credit

      This form of credit allows you to borrow money up to a certain amount. The lending institution sets a credit limit, or the most you can borrow. In revolving credit, the borrower revolves the balance by rolling from month to month until it is paid in full. Interest charges typically occur for any revolving balance. As the money is paid back, the difference between the maximum credit limit and the current balance is available to be borrowed. This is the most common form of credit issued by credit cards, such as Visa, MasterCard, and store and gas cards. Credit cards are considered unsecure credit because there is no collateral securing the amount borrowed.

      Charge Cards

      This form of credit is often mistaken to be the same as a revolving credit card. However, the major difference between a credit card and a charge card is the credit card can carry a balance, whereas the charge card must be paid in full each month. If the balance is not paid on time and in full, penalty fees will be added. American Express is an example of a well-known charge card. This form of credit is advantageous against accumulating credit card debt.

      Installment Credit

      Installment credit involves a set amount borrowed, a set monthly payment and a set timeframe of repayment. Interest charges are pre-determined and calculated into the set monthly payments. Common forms of installment credit agreements are home mortgages and auto loans.

      Installment credit is also typically secure. Secure credit requires security for the lender. The borrower must provide collateral, something of value pledge in order to guarantee loan repayment. If the borrower fails to repay, or defaults on the loan, the lender may confiscate the collateral. A home is an example of collateral on a mortgage, and a vehicle on an auto loan. If the borrower were to default, the home or vehicle would be repossessed.

      Non-Installment or Service Credit

      This form of credit allows the borrower to pay for a service, membership, etc. at a later date. Generally, payment is due the month following the service, and unpaid balances will incur a fee, interest, and/or penalty charges. Continued non-payment will result in service cancellation and can be reported to the credit bureau, affecting your credit score. Service or non-installment agreements are very common in our everyday life. Cell phone, gas and electricity, water and garbage are all examples of service credit.

      Do you want to know more about debt and how you can make smart financial decisions now that will help you secure a more prosperous financial future? Sign up for our newsletter for monthly money tips.

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        Christian Credit Counselors, Credit, Credit Cards, Credit Counseling, Debit & Your Credit Score, Debt, Debt Settlement, Finance, Money Management, Personal Goals, Saving

        Money, Love, and Marriage

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        Marriage and Money

        Roses are red; violets are blue. No matter the cost, I’ll stand by you…

        Have you had the talk yet?…You know, the one about money, spending habits, future goals, budgeting…?

        If you haven’t, it should be a top priority for your relationship.  If you have, have it again.  Discussing finances should be a regular and healthy part of your lifestyle together.  Being on the same page in this area will protect your marriage (or future marriage) against the most common relational enemy.  You’ve heard the statistics.  Money and finances are the number one reason couples argue and ultimately divorce. Don’t let your marriage become a number.

        Make Finances a Joint Venture

        Regardless of you or your spouses accounting or investment skill set, planning out your financial future and implementing those strategies should be a mutual effort.  Coming together to decide matters in the area of finance will allow you both to be on the same page number…of the same book.  Couples drift away from each other day by day when they are not planning their future together.

        Relationships and matters of finance should not be left to one person alone, even if he or she is “better at it.”  This disconnects one partner from a key area and anytime one of the partners is left out of a major area of the relationship, it will lead to the two of them planning and living, by default, two separate lives.  We, as humans, are meant to be in relationship with each other, and drifters will eventually wash up on someone else’s shore.  So, make it a priority to come together and stay together in the area of financial planning.

        Tip for Financial Success

        Use this time of planning as an opportunity to build closeness into your relationship.

        Respect and Love

        The two greatest relational needs. Anytime you are communicating with your spouse, you are communicating either respect and love or their opposites.  Since the topic of finance can stir one or both of you up, be especially careful to communicate this respect, love and trust through words, tone and body language.

        Listen and Speak Lovingly

        Listen for his or her dreams, desires, goals, reasons.  Your partner has spending habits, as we all do.  Find out the why behind the what.  This will help you to understand your partner better and offer support when needed.

        Be a voice of encouragement. Speak highly of and to your spouse.  Build him or her up with your words. Remind your better-half how capable, intelligent and valued he or she is.  You have the power to build up or to tear down, and it starts with a simple comment.

        Give Financial Grace

        If this is a new process for your relationship, a new way of doing things financially.  Give yourselves grace to get through the transition. Old habits may die hard, but building new and healthy patterns into your relationship is definitely worth the initial investment!

        Do you want to know more about debt and how you can make smart financial decisions now that will help you secure a more prosperous financial future? Sign up for our newsletter for monthly money tips.

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          Money Management

          April is Financial Literacy Month

          Financial Literacy

          In a proclamation on March 31st, President Obama explained how important it is to be financially literate and to have access to trustworthy financial services and products.

          “The financial crisis was fueled by a lack of responsibility from Wall Street to Washington,” Obama said. “It devastated ordinary Americans, many of whom were caught by hidden fees and penalties or saddled with loans they could not afford. Preventing a recurrence will require both better behavior and oversight on Wall Street and more informed decision making on Main Street and in homes across our country.”

          Financial Protection Laws

          It is our duty as Americans to be financially responsible and contribute to the financial education of the men, women and children around us. It is important that they know the importance and the freedom that comes with being debt free.

          President Obama is in the process of enacting more consumer financial protections into law, continuing what he started with the Credit Card Accountability, Responsibility, and Disclosure Act and the Dodd‑Frank Wall Street Reform and Consumer Protection Act signed into law last year.

          For the remainder of the month of April, our posts will be about some basic financial education topics that we have found to be helpful. Feel free to respond in the comments below with suggestions or topics you would like to learn more about.

           

          Do you want to know more about debt and how you can make smart financial decisions now that will help you secure a more prosperous financial future? Sign up for our newsletter for monthly money tips.

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