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Everything that can and can’t affect your credit score

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Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, but our reporting and recommendations are always independent and objective.

  • Your credit score is an important measure of your financial health that can be a deciding factor in getting approved for a new credit card or loan. Popular credit score models from FICO and VantageScore use a 300 to 850 scale to measure your credit.
  • There are many misconceptions about what shows up on your credit report and influences your credit score.
  • Activity on credit-related accounts like credit cards or loans generally shows up on your credit report.
  • On the other hand, things that aren’t related to lending — like checking and savings accounts — don’t affect your credit score. Your income and assets don’t affect your credit score either.
  • See Business Insider’s list of the best credit cards for average credit.

Your credit score is one of the most important numbers for your personal finances. Your credit score can be a determining factor in getting approved for a new loan. And if you’re approved, it can decide your interest rate. For a mortgage, for example, that difference in interest rate can be worth tens of thousands of dollars over the life of a loan.

Understanding what goes into your credit report — which reflects all the information factored into your score — is important for your long-term financial health. However, there are many common credit report and credit score myths and misconceptions — let’s separate fact from fiction to make sure your finances move in the right direction. Here’s a list of what can and can’t affect your credit score.

What affects your credit score

Payment history

The biggest factor in your credit score is your payment history. Paying on time every month is the single best thing you can do for your credit. Under the most popular credit score model, your payment history is 35% of your FICO credit score.

It takes seven years for a late payment to fall off of your credit report. Setting up automatic recurring payments can help you avoid an accidental late payment.

Credit balances

Your credit balances and utilization are the next biggest factor in your credit score, making up 30% of your score. As a general rule, to get the best results from this part of your credit score, you should keep your credit card and line of credit balances as low as possible.

Your credit utilization is your total outstanding credit card balances divided by your total credit card limits. Try to use less than 20% to 30% of your credit for a good credit score. Keeping it as close to 0% as possible is best for your credit.
If you have high credit card balances, one of the fastest ways to raise your credit score is to pay off your cards. That’s often easier said than done, but it’s a smart strategy if you’re able to do it.

Credit account age

A long history of well-managed credit accounts is evidence that you are a responsible borrower. The average age of your credit accounts is the third-biggest factor in your credit score, with a 15% weight.

A bunch of new accounts lowers your average account age, while accounts that you’ve had the longest help your average account age. Avoid opening new credit accounts unless you need them, and avoid closing old accounts unless to get the best results here for your credit.

Keep in mind that if you want to stop paying for a card with an annual fee, you can downgrade your card to a no-annual-fee option instead of canceling it. This will preserve the age of your original card’s account, avoiding any damage to your credit score.

Mix of credit accounts

Just as a long credit history shows you can handle credit well, a mix of different types of credit account types helps your credit score. That means you’re best off if you have credit cards and installment loans, like a mortgage or auto loan. More unique types of loans is best for your credit.

However, that doesn’t mean you should get a new loan just to help your credit in most cases. Instead, just apply for the credit you need and watch as your score slowly rises over time when you manage your loans well. Your credit mix makes up 10% of your credit score.

New credit

The last main category is the pursuit of new credit. As a general rule, new credit is bad for your credit score, but only temporarily. New credit applications lead to an inquiry on your credit report, which slightly hurts your credit score.
In addition, if you’re approved, a new credit account lowers your average age of credit. This negative impact goes down over time and eventually becomes a positive factor. But in the short term, new credit is bad for your credit.

What doesn’t affect your credit score

Bank accounts

Contrary to popular belief, bank overdrafts don’t hurt your credit. In fact, nothing from your check or savings accounts directly shows up on your credit report or in your credit score. Banks use a different system, known as ChexSystems, to track overdrafts and other banking information. You can request a free ChexSystems FACTA report here.

Utility and phone bills

Your power, water, gas, and phone bills don’t generally show up on your credit report. These companies may check your credit when you open a new account, but they typically don’t send your payment information to the credit bureaus for credit reporting. That’s slowly starting to change, however, as optional credit-boosting programs like Experian Boost start offering to give you “credit” for paying non-credit bills on time.

Your income and assets

It doesn’t matter to the credit bureaus if you make $1 per year or $1 million per year. Your credit report is all about paying your credit-related bills on-time and managing the balances well. Even if you have a ton of money in the bank, you can have a bad credit score if you miss payment due dates.

Checking your credit score yourself

Services like Credit Karma, Credit Sesame, and personal credit-reporting tools from your bank don’t hurt your credit score. These are considered soft inquiries, which are visible to you but not to lenders. When you apply for new credit, the hard inquiry on your credit report does impact your credit score.

Rate-shopping

If you’re buying a new car or home, it’s not a bad idea to shop around for the best interest rates. While each application will generate a new inquiry, the credit bureaus typically bundle inquires from a short period of time and treat them as a single inquiry for credit scoring purposes.

Anything from a non-credit account

Investments, insurance, and other accounts that don’t involve any borrowing generally don’t show up on your credit report in any way. Credit reports and credit scores have the word “credit” right in the name. Non-credit means it’s a non-factor for your credit score.

Actively manage your credit for an 800+ credit score

While you should avoid opening new accounts regularly, particularly if you plan to get a mortgage in the next six months, it’s a good idea to keep tabs on your credit and work to improve your credit score over time.

Good credit is extremely valuable for your financial health. Now that you know what’s involved, and what isn’t, you can work to join the 800+ club of excellent credit scores where you get the best rates and credit cards available. You might not need your credit today, but it’s a good asset to have while managing your financial life.

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Bad Credit

Business Loans – Make The Right Choice!

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Your business needs funding and there’s no denying that! ‘You need money to make money’ and this is most applicable in the business world! While it is fairly easy to start with an awesome idea, to make a business profitable, you need to invest a good chunk of capital.

Whether to buy equipment or hire the right minds, you need capital! And the best way to go about it is to search for the ‘right’ business loan solution. Finding the ‘right’ one amongst the plethora of available options is a tricky decision.

You’ll be under stress to match the repayment frequency. And thus, your business will suffer. Hence, finalizing the right business financing solution after analyzing your business structure, repayment terms, cash-flow, and urgency is the best practice.

Here’s a detailed breakdown of which business financing solution or small business loan will help your business better!

1. For Real Estate – SBA

SBA loan is one of the most popular loans for small business owners. This is pretty straightforward to understand but involves extensive paperwork. If you need a place to kickstart your business, this is most suited for you.

It is issued by a private lending party or a bank. But the interesting part is that this loan can be guaranteed up to 85% by the federal agency—Small Business Administration (SBA). Hence, lending institutions are free and content to give the loan.

The best things about this loan are the lowest down payments and low-interest rates. If you wish to pay in the very long term, you can do so. An SBA loan involves a lot of flexibility. The condition being you should have the right financial service provider to guide you.

2. For An Equipment Or Any One-Off Loan – Equipment Financing, Term Loan

Do you need a new computer, or a tablet for your employee, or maybe a vehicle for your business’ delivery needs? Equipment financing is best suited for such kinds of needs. You can also get up to 100% financing solutions.

But there is one drawback that you should be aware of. As long as the repayments are done on time, you’ll continue to have access to the equipment. But the moment you fail short of your commitment, the lending institution has completed control over ceasing it.

A business term loan is another solution for this kind of requirement. Term loans are based on the ‘term’ that can be anywhere from 1 to 5 years. So, the repayment has to be made in that time-frame. If you’re looking for business loans in Edgewater, NJ, this will be just about right for you!

3. Need To Balance Cash Flow – Business Line of Credit

Business Line of Credit is the best financing solution that can help you with balancing your cash flow or handling any emergencies.

You get access to a limited amount of funds for a set period of time that you need to pay with interest and as soon as you pay it back, your specific balance sheet is turned back to ‘0’. This indicates that you’re again eligible for using that fund.

You can do it repetitively. There is no drawback to this mechanism. So every time you have an emergency fund need, you can look towards the business line of credit.

The only shortcoming of this system is that the interest rate is high and may require collaterals for approval. However, it is one of the most appealing choices if you need capital and have a bad credit score!

4. Credit Card Based Businesses – Merchant Cash Advance

Do you own a business that involves payments via credit cards? If yes, then the merchant cash advance is the right solution for you.

A business like retail or food chain that makes use of credit card transactions the most, can utilize merchant cash advance to boost its business. The way this financing system works is, the lender will enquire about your daily credit card transactions to the terminal provider and get your exact details. Then, he will compare it with the asked amount. If both are in accordance, you’ll become eligible for the advance.

The repayment term is interesting for this financing solution. Instead of getting a fixed rate, the advance provider will give you the figure in percentage. So every day if you make $1000 and the decided percentage is 5, then $50 will be ‘withheld’.

A merchant cash advance acts more like an investment than a loan!

5. Have No Collateral – Invoice Financing, Equipment Financing

Not all businesses have the luxury of putting collateral on the line and getting access to the desired fund. If you fall into the same category, you do not need to worry! Invoice financing can help you out even in this crunch situation.

Your account receivables serve as collateral in this financing solution and can help you get a loan up to 85% of its worth.

The only downside is the interest rate that is marginally higher than the traditional solutions.

Bonus: For A Small Duration – Short Term Loan

What if you need a loan just for 18 months? You have some debt or need to manage the cash flow, but your requirement is small. Which loan is right for you?

Well, you can opt for a short term loan. This loan gives you instant access to a lump sum of money that should be paid within the next 18 months.

The best part about this loan is that bad credit doesn’t bother the process!

This can also support businesses that need temporary loans to manage or settle a few things. Businesses that do not need some loan that lasts for years!

But just like all other financing solutions, this loan as well comes with a few drawbacks.

The first one being the annual cost will be slightly towards the higher side and the second being that a few businesses may find it hard to cope-up with the weekly payments.

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Financial advisor Helen Baker shares the six saving tricks to help you save THOUSANDS

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A leading financial advisor has shared the saving tricks that will help you to save thousands in a short amount of time, including adopting the 50/30/20 method and never signing up for financial products on your partner’s behalf.

Helen Baker, from Queensland explained that if this year has shown us anything, it’s that you need to have some spare money in the bank in case of loss of income.

Helen revealed the top tips and tricks to help you save tens of thousands of dollars, no matter what your salary or financial goals are.

Helen Baker (pictured), from Queensland, shared the saving tricks that will help you to save thousands in a short amount of time

Helen Baker (pictured), from Queensland, shared the saving tricks that will help you to save thousands in a short amount of time

1. Use the 50/30/20 strategy to control spending

The first way that Helen said you can save a bit more than you already do is by adopting the 50/30/20 strategy to control your spending.

‘This simple yet effective budgeting method involves dividing your after-tax income into three categories,’ she told FEMAIL.

Put 50 per cent of your net income towards ‘must-haves’ like rent, utility bills, school fees and groceries, then reserve 30 per cent for your ‘wants’, like dining out, fashion and entertainment.

Finally, Helen said you need to keep 20 per cent back for loan repayments or building up your savings.

This simple approach will help you to save thousands over the course of a single year.

The first way that Helen said you can save a bit more than you already do is by adopting the 50/30/20 strategy to control your spending (stock image)

The first way that Helen said you can save a bit more than you already do is by adopting the 50/30/20 strategy to control your spending (stock image)

2. Consider salary sacrificing to superannuation

Helen’s second tip involves you voluntarily sacrificing some of your salary to your superannuation.

‘If you are looking to save a deposit for your first home, the First Home Super Saver Scheme enables you make voluntary contributions in your super fund and withdraw up to $30,000 of eligible contributions towards your home deposit,’ she said.

Concessional contributions made to an approved super fund are taxed at just 15 per cent, rather than the marginal rate of up to 46.5 per cent on your regular pay.

‘If you have an income of $70,000 and want to put $15,000 towards a home deposit, you can end up paying nearly $4,875 of that $15,000 in tax,’ she said.

By contrast, if you sacrifice $15,000 a year into your super through the First Home Super Save Scheme, you pay just $2,250 in tax per year and could have around $25,000 available for a home deposit after two years.

3. Avoid signing up for products on your partner’s behalf

It might feel tempting to sign up to products on your partner’s behalf as you are a couple, but Helen said it’s best to avoid taking out a credit card, loan or mobile phone plan on your partner’s behalf, in your name.

‘If your partner falls behind on repayments, it can affect both your credit ratings, and if you break up or your partner accumulated debt, and you are married or defacto, you will be liable for their debt,’ she explained.

Avoid rushing into joint bank accounts or co-signing loans, she added.

Even though it’s important to have joint finances and accounts when you’re in a long-term relationship or marriage, you must also have your own savings and emergency fund. 

Helen said it's best to avoid taking out a credit card, loan or mobile phone plan on your partner's behalf, in your name (stock image)

Helen said it’s best to avoid taking out a credit card, loan or mobile phone plan on your partner’s behalf, in your name (stock image)

4. Hide your savings account from yourself

When you set up a savings account, there is always a temptation to dip into it when you need a boost.

But Helen said you should set up a separate bank account for your savings, and ideally one that you can’t access with your current banking app.

‘Choose a savings account that charges withdrawal fees,’ she added – as the harder and more expensive it is to access your account, more likely you are to realise your savings goals.

5. Cut your spending instead of increasing your income

Smart spending can be just as good, if not better, than increasing your income, Helen said.

‘Look at expenses that you can cull, such as a subscription that you rarely use,’ Helen said. 

You could also cut dining out as much and look after your existing items so you can use them for a longer period. 

6. Create a bill strategy 

Helen recommends that you outline all of your bills in a spreadsheet so as to avoid incurring any late fees and pay every bill when it’s due. 

‘Ensure your calendar gives you adequate time to thoroughly check invoices and make sure you are not being overcharged,’ she said.

Try to group any bills into categories of $100, $100-$500 and $500 plus. 

‘Smaller bills, such as mobile phone plans or other monthly service utilities, can be paid by setting up automatic payments,’ she said.

‘Larger bills, such as tax, rent or mortgage repayments, require more diligence. It is also crucial to pay substantial bills on time to avoid incurring a bad credit rating.’ 

Helen is a spokesperson for money.com.au. For more information, please click here

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Additional tenant protections pass Virginia General Assembly

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Virginia lawmakers passed legislation Friday that prohibits landlords from denying applications from prospective tenants solely because of bad credit accrued during the COVID-19 pandemic or because they were evicted for an inability to pay rent during the pandemic.

House Bill 5106 would apply to tenants who received the bad credit or were evicted between March 12 and 30 days after Gov. Ralph Northam’s COVID-19 state of emergency ends.

After some lawmakers raised concerns about the effect it could have on smaller landlords, a joint conference committee made up of members of the House and Senate included a provision that the law would apply only to landlords who own more than four dwelling units or own at least a 10 percent interest in more than four dwelling units.

Lawmakers passed a bill earlier this week that would require landlords to provide tenants with a payment plan before they can be evicted. The legislation includes a similar exemption for small landlords.

Both bills will head to the governor’s desk, where he can sign them into law, veto them or amend them and send them back to the General Assembly.

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