Connect with us

Financial advice

Does Tax Debt Lower Your Credit Score? Here’s the Rundown

Published

on

Filing TaxesA good credit score can make life easier, so ensuring your decisions have a positive impact rather than a negative impact on your score is best. When it comes to your tax debt and how it can affect your credit score, it may not be clear if this type of debt affects your score, so you may have questions.

You’ll first want to make sure you understand how credit scores work if you want to fully understand what effect, if any, your tax debt can have on your credit score.

How Are Credit Scores Calculated?

When you apply for a home loan, credit card, or even auto insurance, your approval may be dependent upon your credit score. Creditors like to see that you are financially responsible, and your credit score gives them insight and answers questions about your ability to successfully manage your debts. A lot is taken into consideration when calculating your credit score, and depending on the information that is reported, your score could fall anywhere on the scale.

What Effect Does Tax Debt Have on a Person’s Credit?

Many Americans will have a tax debt they are responsible for at some point in their lives. And some may not have paid off that debt just yet. Since your credit score factors in your total amount of debt, you may assume that your tax debt is included in this amount. Although tax debt is a debt, it actually is not factored into the debts that are used to calculate your credit score.

In the past, when you owed a tax debt and failed to or refused to pay it, the IRS would file what is known as a Notice of Federal Tax Lien. Basically, this notice stated that the IRS has claimed ownership of your property until the tax debt was paid or another resolution was reached. Since this notice would tell creditors that you had not paid your federal tax debt, when creditors would see the Notice of Federal Tax Lien, it made it difficult to get approved for credit. This was likely because there would be concerns about a consumer’s ability to repay their debts.

All of this changed in 2017 when the three credit bureaus, Transunion, Equifax, and Experian, decided they would no longer list federal tax liens or judgments on credit reports. From that point on, tax liens no longer affected consumer credit scores. Past tax liens were also removed from credit reports if they were still listed.  Consumers should note that although federal tax liens no longer have an impact on your credit, a Notice of Federal Tax Lien can still be filed. 

Like any debt that you owe, you can’t ignore tax debt because there are other ways your unpaid tax debt can negatively impact your life. If you owe tax debt, rather than ignore it, you’ll want to pay it. It would be ideal for taxpayers to make their payments by the due date, but those who can’t pay in full have options that will allow you to settle your debt over a predetermined amount of time and avoid a tax lien or any other consequences of unpaid taxes.

 

 

 

Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Financial advice

Increasing Your Savings on a Low-Income Salary

Published

on

Saving Money on a Low-Income SalaryA low-income salary can create challenges when it comes to reaching your financial goals. You may want to take a vacation, buy a new car, or just put some cash away for a rainy day, but how can you do that with a limited income?

Although you may struggle to add to your savings, there are ways to gain control of your finances and ensure you have extra cash stashed away even when you don’t think you’re making enough money.

Consolidate debt

It is common for people to have debt. Between student loans, credit cards, and monthly expenses, managing your debt on a low-income salary can be challenging. Debt consolidation is an option that many people consider when debt becomes overwhelming and they are looking for a way out. When you consolidate your debt, you are combining all of your debts into one and paying them off with a loan.

Benefits of consolidating your debt include:

  • One fixed monthly payment
  • Pay off debt sooner
  • Improve/increase credit score

Track your spending

Do you know what you spend your money every month? When you want to save, you may consider cutting out certain expenses, but you need to understand what you are spending your money on before you can make any changes. By tracking your spending, you can get a better idea of where your money is going and decide if it needs to continue to be spent in the same way. You’ll likely find one or two expenses to eliminate.

Consider affordable alternatives

When you shop online or in-person at your favorite retailers and merchants, the choices that you make can be costly. As you examine how much money you spend monthly, you should note that you could be spending less by considering affordable alternatives. For example, rather than opt for a name brand cereal, reach for the generic cereal. There can be concern about sacrificing taste or quality for the price, but you may learn to appreciate how much money you save.

Seek opportunities for supplemental income

When you have a low-income salary, you don’t have to only work with the income from one job. Seeking an opportunity for supplemental income, such as a part-time job, will allow you to have money that you can put into your savings account. In fact, you can use the income from one job to cover your monthly expenses, and the supplemental income can go straight to the bank.

Consider applying for a part-time position that may offer you a flexible schedule to accommodate your full-time job such as:

  • Grocery store
  • Convenience store
  • Gas station
  • Clothing store
  • Restaurant
  • Ride-share company

Coupons

People can save a lot of money on life’s necessities when they use coupons. If you need personal care items, clothes, groceries, or other items, you can easily find a coupon. There are a number of websites that offer consumers coupons and discount codes that can be used in person and online as well as sales papers that may be delivered in the mail. Additionally, many merchants and retailers have mobile apps and programs available to customers who want to save a bit of money on their purchases and get rewarded every time they spend. Depending on the retailer, you may get cashback.

There is no need to feel defeated when you have a low-income salary. True, it may be harder to manage your finances, especially when you compare yourself to someone who is making more money, but improving your situation is possible. With a few changes, you can start to put more money away and watch as your savings grows.

 

Source link

Continue Reading

Financial advice

Managing Your Finances When Living Paycheck to Paycheck (Tips)

Published

on

Managing Personal FinancesIt is never ideal for a person to live paycheck to paycheck. And if the idea of living paycheck to paycheck sounds stressful, imagine actually living life this way. Many people who don’t have a high-paying job have to find a way to live comfortably, and learning to manage your finances is a great start.

Managing your finances may seem like a difficult task when you live paycheck to paycheck, but there are things you can do to ensure your success.

Create a budget

When you have a limited income and live paycheck to paycheck, it is important for you to create a budget. The reason being you can successfully manage your finances when you keep a close eye on your income and expenses. Additionally, you can cut out unnecessary expenses and have some extra cash.

Use the half method

The half method requires you to pay bills in two separate payments rather than one lump sum. For example, if your cell-phone bill is $100, rather than pay the full balance on the due date, you can pay $50 with one paycheck before the due date, and the last $50 with another paycheck on or around the due date. With each check, you will then have $50 to save or spend.

Pay the minimum balance

If you have credit cards, consider paying at least the minimum balance when the bill comes due. It may be tempting to just not pay it, but ignoring your credit card payment will only result in you owing more money and damaging your credit score. Between the additional amount you could pay in interest and late fees, it makes sense to just pay the minimum balance and keep your account in good standing. Of course, if you can comfortably pay the full balance, that is always an option.

Renegotiate your bills

Renegotiating your bills doesn’t mean you have to eliminate the expense but find a more affordable option for you. For example, you may be able to reduce your auto insurance payment by a few dollars if you change coverage or inquire about discounts. If you have both internet and cable, perhaps you could change the plan or discuss the possibility of a more reasonable price for your budget with your provider. Maybe even dropping cable and using online streaming services is an appealing option.

Put your savings on auto

Just because you live paycheck to paycheck, doesn’t mean you can’t save. Even if it is a small amount that you are putting away every payday, over time it will add up. Whether you are building an emergency fund in preparation for the unexpected or just saving for life, you can put your savings on auto and select an amount to automatically be withdrawn from your checking and deposited into your savings.

Why managing your finances is necessary

So, why is managing your finances necessary? Poor management of your finances will do more harm than good. In fact, if you don’t properly manage your finances, you could end up spending more money than necessary and even damage your credit score. And when your credit score is poor, you will have a difficult time getting approved for credit cards, loans, and even an apartment.

When you think about the issues that can arise when you don’t have a handle on your finances, you may think twice about your situation and what you can do to change it. When you are living paycheck to paycheck, you may feel helpless, but you have options. And with all of the financial troubles you could face leading to more stress, it could easily be avoided if you take the time to manage your finances.

Made poor financial decisions in the past that negatively impacted your credit? We can help! Contact Credit Absolute today for a free consultation. 

Source link

Continue Reading

Financial advice

Tips to Help Manage & Maintain a Good Credit Utilization Rate

Published

on

Managing Credit UtilizationWhen you think of your credit score, you may not consider how this number is calculated or how your actions play a role. Simply put, every credit score is made up of certain criteria, and each criteria can cause an increase or decrease in credit score. With credit utilization being one of the things that can impact your score, it may be time to learn how to manage your credit utilization.

In order to successfully manage your credit utilization rate, you’ll need to understand what it is and how it can negatively or positively impact your life. 

What is credit utilization rate and how is it calculated?

Credit utilization rate is a number used to compare the amount of debt you owe to the amount of credit you have available. By dividing the amount of credit that you use by the amount of credit available, you can determine your credit utilization rate. The more of your available credit you use the higher your credit utilization rate.

For example, if you have several credit cards, one with a credit limit of $500, one with a credit limit of $200, and another with a credit limit of $300, your total available revolving credit amount is $1,000. If you use $400 of the $1,000 of available credit, your credit utilization rate will be 40%. Whereas if you were to use $100 of your available credit, your credit utilization rate would be 10%.

Why does your credit utilization rate matter?

Credit utilization is one of the many factors that can affect your credit score. It actually makes up 30% of your FICO credit score, which means it is one of the most important factors that influence your credit score. Depending on the number, creditors and lenders may or may not approve your application. This is because your credit utilization rate is another way for creditors and lenders to measure your ability to manage your finances.

If you have $2,000 of revolving credit available to you between one or multiple credit cards, in order to keep your credit utilization at or below 30%, you’ll want to use no more than $600 if you don’t want to see your credit score drop significantly.

Managing your credit utilization

Since your credit utilization rate accounts for 30% of your credit score, you want to pay close attention to this number to ensure it doesn’t start to negatively impact your score. This is especially true when you want to improve your score to increase your chances of being approved for things that require good credit such as applying for a home loan or apartment.

You can successfully manage your credit utilization rate by:

  • Increasing your credit card limit
  • Paying your credit balance in full instead of just the minimum balance
  • Keeping credit accounts open even when there is little to no use
  • Pay down debts
  • Actively monitor your credit usage

Keep in mind that the goal of managing your credit utilization rate is to keep it at 30% or less. This doesn’t mean that you have to completely stop accessing your revolving credit, but you want to do so responsibly if you don’t want to see your credit score suffer.

For credit repair assistance and financial advice, contact Credit Absolute today for a free consultation!

 

 

Source link

Continue Reading

Trending