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Flexible Spending Credit Card – Lexington Law

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

What Is a Flexible Spending Credit Card?

A flexible spending credit card is similar to a regular credit card, except you have a variable credit limit. This limit changes based on your income, credit score and payment history. It allows users to potentially go over their regular credit card limit if the purchase meets specific requirements. The card issuer will approve or deny the overspending purchases.

First, the user’s regular spending habits are analyzed, and then information such as their recent payment history and income are considered to decide if the purchase is acceptable. This is very different from a regular credit card that has a set limit. When users try to go over a standard credit card’s limit, they’re often denied the purchase and charged a fee.

A flexible spending credit card is not related to a flexible spending account (FSA) in any way, so don’t be confused about that. While the terms are similar, FSAs are saving accounts related to healthcare costs and insurance.

Flexible Spending Cards vs. No Preset Limit (NPSL) Cards

A “no preset limit” credit card (NPSL) has no stated limit attached to the credit card. In actuality, there is a limit, but that number is never shared with the cardholder. Only some NPSLs report the card limit to credit bureaus.

A flexible spending card does have a stated limit that the cardholder is aware of and that limit is reported to credit bureaus.

Both credit cards allow the user to go over their credit limit without penalty. Additionally, both kinds of cards carry some uncertainty with them. With a flexible spending card, you might not be certain that charges above your limit will be approved unless you’re confident you’ve been maintaining good credit card behavior. And with an NPSL, you never know your limit, so you’re uncertain when you’ll max it out.

Pros of Flexible Spending Cards

You Can Go Over Your Limit

With a typical credit card, you can’t go over your limit but you do get charged a fee for trying to do so. A flexible spending card lets you go over your limit (if you’ve been making frequent payments and maintaining a steady income). This is great for individuals who find themselves purchasing big-ticket items every couple of months. Rather than trying to get approved for a credit card limit increase, your flexible card lets you make the large payments when they occur.

Card Terms Are More Customized

How your flexible spending card works for you will depend on you. If you are responsible and both pay off your card every month and don’t consistently overspend for your income bracket, your occasional big purchases will be approved.

Conversely, if you start to be irresponsible with your flexible spending card, the issuer will stop approving purchases over your limit. That’s because the issuer studies your shopping habits, payment history and income to determine if you can afford to go over your limit.

Overall, a flexible spending credit card offers more customized card terms. Many people don’t want to go through the hassle of increasing their credit limit every time a big purchase comes up. Additionally, some people recognize that having a high credit limit might be too tempting. The flexible card option allows the credit card to be there as a contingency plan. You can go over when needed, but you don’t have to most of the time.

Cons of Flexible Spending Cards

You Need to Understand the Fine Print

Some of the fine print might take you by surprise. For example, these types of cards will analyze your situation every time you go over your limit. That means that just because you were approved to go over your limit before doesn’t guarantee it’ll happen the next time. Additionally, there may be fees and automatically modified limits you may want to watch out for.

Your Credit Score Might Be Affected

Unfortunately, there’s a strong possibility that a flexible spending card will negatively impact your credit score. This mostly stems from how your card’s limit is reported to the credit bureaus.

First, this type of card can impact your credit utilization ratio. Credit utilization accounts for almost one-third of your credit score. This ratio looks at how much credit you use versus how much is available to you. Ideally, you want to keep your credit utilization ratio at 30% or lower.

As flexible spending cards usually do not report the credit limit to credit bureaus, it can harm your credit score. That’s because it looks like you’re using a lot of credit without the bureau knowing your limit. For example, if you’re spending $2,000 on your flexible card when you have a limit of $10,000, that’s a decent credit utilization ratio at 20 percent. However, the credit bureau doesn’t know your limit, so it’s being recorded that you’re spending $2,000 without the benefit of the $8,000 buffer.

Alternatively, maybe your flexible spending card does report the limit to the credit bureau. In this case, if you spend way over your limit—even though it’s allowed by your card—the bureau will ding you for it. The bureau doesn’t distinguish between going over on a traditional credit card and a flexible credit card; it just sees someone that went over their allowed limit.

It’s essential you check your credit score once a month to stay on top of how your card impacts you. Note that a flexible spending credit card is sometimes reported in the “Other Debt” section of your credit report.

Where to Get a Flexible Spending Credit Card

You can get a flexible spending credit card from most major financial institutions. However, this type of card isn’t just given out to anyone. It’s typically reserved for people with an excellent credit score and a good financial track record.

If you like a card and its terms but don’t want the flexible limit, you can sometimes decline the flexibility and request a hard credit limit. However, note that if you do this, you may not be able to reverse the decision.

If you ever notice that your credit card is suddenly listed as “flexible spending” in your account, you should immediately contact your card provider for more information. This occasionally happens, but it’s not something you just have to accept. You can ask for the card to be reverted to a hard-limit traditional credit card.

Be Smart With Your Card

No matter what kind of card you have, you should always be careful with your credit cards and how you use them. Always try to keep a low credit utilization ratio, and always pay off as much of your balance(s) as you can every month. You especially want to do this because you don’t want to accrue interest. Interest on credit cards can range anywhere between 15 and 24 percent. If you’re irresponsible with your card and miss payments, make late payments or max out your card, it can impact your credit score. And if you have a low credit score, it can affect your ability to get a mortgage, car financing, student loans and more. By being smart with your credit cards, you’re showing financial institutions that you can be trusted with money. To learn more about credit and credit repair, check out Lexington Law’s resources today.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Does Getting Joint Credit Cards Have an Impact on Both Spouses’ Credit?

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couples credit history

While marriage can help you improve your financial situation, it does not automatically mean that you and your spouse will share a credit report. Your credit records will remain separate, and any joint accounts or joint loans that you open will appear on both of your reports. While this can be advantageous, it’s critical to remember that joint account activity can effect both of your credit scores positively or negatively, just as separate accounts do.

Users Who Are Authorized

An authorized user is a user who has been added to an existing credit account and has been granted the authority to make purchases. Authorized users are typically issued a card bearing their name, and any purchases made by them will appear on your statement. The primary distinction between an authorized user and a shared account owner is that the account’s original owner is solely responsible for debt repayment. Authorized users, on the other hand, can always opt-out of their authorized status, although the principal joint account owner cannot.

If your credit score is better than your spouse’s as an authorized user, he or she may benefit from a credit score raise upon account addition. This is contingent upon your creditor notifying the credit bureaus of permitted user activity. If your lender does report authorized users, the activity on your account may have an effect on both you and your spouse. However, some lenders report only positive authorized user information, which means that late payment or poor usage may not have a negative effect on someone else’s credit. Consult your lender to determine how authorized users on your account are treated.

Joint Credit Cards Have an Impact on Your Credit Score

Opening a joint credit account or obtaining joint financing binds both of you legally to the debt’s repayment. This is critical to remember if you divorce or separate and your spouse refuses to make payments, even if previously agreed upon. It makes no difference who is “responsible,” the shared duty will result in both partners’ credit histories being badly impacted by late payments. Regardless of changes in relationship status or divorce order, the creditor considers both parties to be liable for the debt until the account is paid in full.

Accounts Individuals

Whether you’re happily married or divorced, you and your spouse may decide to open separate credit accounts. Most creditors will enable you to transfer an account that was previously joint to one of your names if both of you agree. However, if there is a debt on the account, your lender may refuse to remove your spouse’s name unless you can qualify for the same credit on your own. Depending on your financial status, qualifying for financing and credit on a single income may be tough.

Considerations

While creating the majority of your accounts jointly with your spouse may make it easier to obtain financing (two salaries are preferable to one), reestablishing credit independently following a divorce or separation is not always straightforward. To make matters worse, your spouse may wind up causing significant damage to your credit rating following the separation, either intentionally or through irresponsibility – making the financial situation much more difficult.

Before you rush in and open accounts with your spouse, take some time to discuss the shared responsibility of these accounts and what you and your husband would do in the event of a worst-case situation. These types of financial discussions can be difficult, especially when you rely on items lasting a long time, but a mutual understanding and respect for each other’s credit can go a long way toward keeping your score when sharing an account.

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Should you pay down debt or save for retirement?

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rebuilding credit

While establishing a comprehensive, workable budget is undeniably one of the most important factors in maintaining a healthy financial life, it can also be one of the most difficult. For those who are struggling with personal debt, building a budget can be particularly challenging. When the money coming in has to stretch like a contortionist to cover expenses, it can be hard to determine where to focus — and where to trim.

Sometimes, the battle of the budget can come down to a choice between dealing with the present — and thinking about the future. When your income is running out of stretch, do you pay off your existing debt, or do you start saving for retirement? At the end of the day, the solution to that particular dilemma depends on the type of debt you have and how far you are from retiring.

If you have high-interest debt, pay it down

When considering how to allocate your budget, it’s important to understand the different kinds of debt you may have. Consumer debt can be categorized into two basic types: low-interest debt and high-interest debt, each with its own impact on your credit (and your budget).

In general, low-interest debt consists of long-term or secured loans that carry a single-digit interest rate, such as a mortgage or auto loan. Though no debt is the only real form of good debt, low-interest debt can be useful to carry. For instance, purchasing a home with a low-interest mortgage can actually save you money on housing costs if you do your homework and buy a house well within your price range.

High-interest debt, on the other hand, typically has a hefty double-digit interest rate and shorter loan terms, such as that of a credit card or payday loan. High-interest debt is the most expensive kind of debt to carry from month to month and should always be priority number one when building a budget.

To illustrate why you should focus on high-interest debt above everything else, consider a credit card carrying the average 19% APR and a $10,000 balance. If the balance goes unpaid, that high-interest credit card debt will cost $1,900 a year in interest payments alone. Now, compare that to the stock market’s average annual return of 7%, and it becomes clear that you’ll see significantly more bang for your buck by putting any extra funds into your high-interest debt instead of an investment account.

If you are having trouble paying off your high-interest debt, there may be some steps you can take to make it more manageable. For example, transferring your credit card balances from high-interest cards to ones offering an introductory 0% APR can eliminate interest payments for 12 months or more. While many of the best balance transfer cards won’t charge you an annual fee, they may charge a balance transfer fee, so do your research. You’ll also want to make sure you have a plan to pay off the new card before your introductory period ends.

Most balance transfer offers will require you to have at least fair credit, so if your credit score needs some work, you may not qualify. In this case, refinancing your high-interest debt with a personal loan that has a lower interest rate may be your best bet. Make sure to compare all of the top bad credit loans to find the best interest rate and loan terms.

If you’re nearing retirement, start to save

The closer you get to retirement age, the more important it becomes to ensure you have adequate retirement savings — and the more pressure you may feel to invest every spare penny into your retirement fund. No matter your age, however, paying off your high-interest debt should always remain the priority, as it will always provide the best rate of return (as well as likely provide a credit score boost).

Indeed, no matter how tempting it becomes, you should avoid reallocating money you’ve dedicated to paying off high-interest debt to save for retirement. Instead, the focus should be on re-evaluating your budget to find any additional savings you can. To be successful, you will need to make a strong distinction between want and need — and, perhaps, make some tough lifestyle choices.

Though simply eliminating your daily coffee drink won’t magically provide a solid retirement fund, saving a few bucks by homebrewing while also eliminating a pricey cable bill in favor of an inexpensive streaming service — or, better yet, free library rentals — can add up to big savings over the course of the year. The ideal strategy will involve overhauling every aspect of your lifestyle, combining both large and small cuts to develop a lean budget structured around your long-term goals.

Of course, while you should never allocate debt money to your retirement savings, the reverse is also true. It is almost always a horrible idea to remove money from your retirement account before you hit retirement age — for any reason. Withdrawing early means you will be stuck paying hefty fees for withdrawing money early and, depending on the type of account, you may also have to pay significant taxes.

Aim for both goals by improving income

As you take the necessary steps to pay off debt and save for retirement, you may have already stretched the budget so thin it’s practically transparent. In this case, it is time to consider ways to improve your overall income. Increasing the amount you have coming in not only provides extra savings to put toward your retirement, but may also speed up your journey to becoming debt-free.

The easiest solution may be to look for ways to increase your income through your current job; think about taking on additional shifts or overtime hours to earn some extra cash. Depending on your position — and the time you’ve been with the company — consider asking for a pay raise or promotion, as well.

If you do not have options to make more money at your day job, it may be time to find a second job. Look for opportunities that provide flexible schedules that will accommodate your regular job; many work-from-home positions, for example, can easily fit into most work schedules. Doing neighborhood odd jobs, such as babysitting and dog walking, may also provide a solid income boost without interfering with your existing job.

For some, the need to pay off debt and improve retirement savings can be more than just a source of stress — but a hidden opportunity to begin a new career adventure. Instead of being weighed down by yet more work, use the desire to better your budget as a reason to explore the profit potential of a passion or hobby. Starting a small online store, part-time consulting service, or other small business can be a great way to improve your income and your overall happiness.

While it may sound intimidating, starting a side business can be as simple as putting together a professional looking website and doing a little marketing legwork to spread the word. And no, building a website isn’t as scary — or expensive — as it seems, either. A number of the top website builders now offer simple drag-and-drop interfaces perfect for putting together a professional-looking web page in minutes (without breaking the bank).

Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.



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How does a loan default affect my credit?

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Nobody takes out a loan expecting to default on it. Despite their best intentions, people sometimes find themselves struggling to pay off their loans. These types of struggles happen for many reasons, including job loss, significant debt, or a medical or personal crisis.

Making late payments or having a loan fall into default can add pressure to other personal struggles. Before finding yourself in a desperate situation, understanding how a loan default can impact your credit is necessary to avoid negative consequences.

30 days late

Missing one payment can further lower your credit score. If you can pay the past due amount plus applicable late fees, you may be able to mitigate the damage to your credit, if you make all other payments as expected.

The trouble starts when you (1) miss a payment, (2) do not pay it at all, and (3) continue to miss subsequent payments. If those actions happen, the loan falls into default.

More than 30 days late

Payments that are more than 30 days past due can trigger increasingly serious consequences:

  • The loan default may appear on your credit reports. It will likely lower your credit score, which most creditors and lenders use to review credit applications.
  • You may receive phone calls and letters from creditors demanding payment.
  • If you still do not pay, the account could be sent to collections. The debt collector seeks payment from you, sometimes using aggressive measures.

Then, the collection account can remain on your credit report for up to seven years. This action can damage your creditworthiness for future loan or credit card applications. Also, it may be a deciding factor when obtaining basic necessities, such as utilities or a mobile phone.

Other ways a default can hurt you

Hurting your credit score is reason enough to avoid a loan default. Some of the other actions creditors can take to collect payment or claim collateral are also quite serious:

  • If you default on a car loan, the creditor can repossess your car.
  • If you default on a mortgage, you could be forced to foreclose on your home.
  • In some cases, you could be sued for payment and have a court judgment entered against you.
  • You could face bankruptcy.

Any of these additional consequences can plague your credit score for years and hinder your efforts to secure your financial future.

How to avoid a loan default

Your options to avoid a loan default depend upon the type of loan you have and the nature of your personal circumstances. For example:

  • For student loans, research deferment or forbearance options. Both options permit you to temporarily stop making payments or pay a lesser amount per month.
  • For a mortgage, ask the lender if a loan modification is available. Changing the loan from an adjustable rate to a fixed rate, or extend the life of the loan so your monthly payments are smaller.

Generally, you can avoid a loan default by exercising common sense: buy only what you need and can afford, keep a steady job that earns enough income to cover your expenses, and keep the rest of your debts low.

Clean up your credit

The hard reality is that defaulting on a loan is unpleasant. It can negatively affect your credit profile for years. Through patience and perseverance, you can repair the damage to your credit and improve your standing over time.

Consulting with a credit repair law firm can help you address these issues and get your credit back on track. At Lexington Law, we offer a free credit report summary and consultation. Call us today at 1-855-255-0139.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.



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