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Credit Cards

What Is the Difference Between Credit and Debit Cards?



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.

While both debit and credit cards allow users to spend money, they operate differently. Your debit card directly withdraws money from your checking account at the time of payment. When you use a credit card, you’re buying things with the promise that you’ll pay back what you spend at a later date, as well as potential interest. Since you’re essentially borrowing money, credit highly impacts your credit score, while debit doesn’t.

Credit cards v. debit cards

What Is a Credit Card?

A credit card allows you to buy things without paying out of pocket at the time of purchase. They’re accepted at most retailers, especially if issued by well-known lenders. Keep in mind that some places don’t take all credit cards. For example, many places in Europe don’t take American Express cards because the brand is less popular there and the convenience fees are high.

What you spend is covered by your credit card company until your card’s due date. A few important dates to remember are:

  • Due date: This is when you must pay at least the minimum payment noted on your billing statement.
  • Billing cycle date: This is when a new statement begins and the previous one ends.

Once made available, your billing statement will show all transaction history for the specific billing period, as well as your card balance. You can access this statement either online or by mail. 

Credit card companies can implement different types of fees to ensure that they’re paid back, as well as annual fees for benefits of using their card. The longer it takes you to pay off your balance, the higher interest and annual percentage rate (APR) you accrue. This is the percentage of interest you pay on your bill. For example, let’s say your APR is 10 percent and your outstanding balance is $600. At the end of your billing cycle, your outstanding balance would increase to $660. Interest will continue to accumulate until you pay off your card.

Credit cards have ample fraud protections built in. Your credit card may automatically freeze when your card issuer is alerted of suspicious activity until you can verify and clear the purchases. If your information is stolen and unfamiliar transactions appear on your statement, you need to contact the company immediately.

Likewise, credit cards also protect users from scams and problematic transactions. You can submit a claim for a chargeback, which is a request for returned payment. Then, your credit card company will work to investigate and reimburse you for the transaction if it is indeed found to be fraudulent.

How to Get a Credit Card

In order to get a credit card, you must apply. Not all credit cards are the same, so it’s important to research to find a card well suited for you. Applications typically ask for your personal information, streams of income and credit score to help lenders get an idea of what kind of a borrower you’ll be.

Depending on your credit, you will either be approved or declined. Lenders want to ensure you’ll be able to pay them back, and anything that causes them to think otherwise will make it harder to get approved. In most cases, having a bad credit score will make it harder to get approved. Other factors that make it difficult to be approved include:

  • Past payment delinquencies or bankruptcies
  • High loan outstanding balances
  • High credit card outstanding balances
  • Lack of an established credit history

If declined, you can still apply for other credit cards. A good rule of thumb is to wait about six months until you apply for another credit card. During this time, work on improving the factors that caused you to get declined in the first place. Just be careful—applying for too many cards within a short period of time can actually hurt your credit due to too many hard inquiries.

Once you’re approved for a card, your credit history and score will affect your credit limit. A credit limit is the maximum amount of money you can spend on your card. Once you max out your credit limit, the only way to spend more is by paying off your balance. Paying off your balance frees up space with your credit limit.

3 considerations for credit card applications

Credit Card Pros and Cons

Your credit card will come with a variety of features to make both your life and transaction process easier. However, credit cards also have guidelines in place to ensure they aren’t abused.

Some benefits of a credit card include:

  • You don’t have to pay up front. This can help you make larger purchases that you can pay off over time.
  • Increased fraud protection. As a result, your spending may be more protected than if you were to use cash or a debit card.
  • Rewards and points when you spend money. These points can be redeemed for purchases, travel perks, discounts or cash back.
  • Building good credit. If you pay your credit card on time every month, you can build good credit history.

Some drawbacks of credit cards include:

  • Associated fees. When you’re managing credit cards, it can be easy to spend a lot of money, only to find out you can’t pay back the balance plus interest.
  • Potential damage to your credit score. If you don’t stay on top of your payments, you can damage your credit score.
  • Annual membership charge for benefits you may not use. This can also contribute to the costly effects of a credit card.

What Is a Debit Card?

A debit card is a form of payment that is connected to your bank account. These transactions are made in real time, meaning money leaves your checking account at the point of purchase. Nearly every retailer in person and online takes them, and you can also use your debit card at an ATM to withdraw cash. Note that if you’re using an ATM not associated with your bank, you may run into some fees when withdrawing funds.

Debit cards are unique in that they can be processed as credit cards. At time of purchase, you will be presented with an option of selecting “debit” or “credit.” Selecting credit doesn’t require your PIN, which can help increase security if you’re worried about someone stealing information. Note that even if you select credit, there’s no impact on your credit score and money is still taken directly out of your checking account.

Debit cards are less heavy on fees than credit cards are. Generally speaking, fees depend on your bank’s specific guidelines and regulations. You may run into:

  • A monthly fee if you don’t use your card a certain amount of times
  • A monthly fee if you don’t have a minimum amount in your checking account
  • An occasional fee if your bank account has an overdraft protection set for you (when transactions go through without a sufficient amount available in your account)

A good way to stay away from fees is by using your debit card regularly and making sure you always have a sufficient balance.

Banks also work hard to protect you from debit card fraud. Notify your bank as soon as possible if you lose your debit card or it gets stolen so they can cancel the card. If you wait to report fraudulent activity, your bank may not be able to refund you all the money lost. You must make a claim with your bank for them to investigate and refund your money. The process can take longer than that of a credit card, but you’re still protected.

How to report debit card fraud

How to Get a Debit Card

In order to get a debit card, you need to go directly through your bank and you need to have a checking account.

To set up a checking account, the bank will ask for personal information and a minimum balance in the account to get started. The minimum amount needed for a card varies from bank to bank. Once your checking account is set, you should receive your debit card in the mail. From there, all there is left to do is activate it so that your card is ready for use.

Debit Card Pros and Cons

The main benefit of debit cards is that they leave users feeling more relaxed because their account activity doesn’t affect their credit score. While debit cards don’t provide as many perks as credit cards do, they can still be very appealing to users.

Debit cards are practical because they:

  • Don’t come with heavy interest rates and don’t affect credit
  • Don’t have a date to keep in mind for paying off purchases
  • Don’t charge annual membership fees for benefits users may not even use
  • Give the ability to withdraw cash from an ATM if needed

On the downside, debit cards:

  • Require money up front and in your account to make a purchase
  • Make it possible for users to fall victim to fees if they use their card without funds
  • Apply fees if users aren’t using their card very much or fall under a minimum balance
  • Don’t provide as reliable of fraud protection as credit cards do (Note: you need to stay on top of your account activity to notify your bank of fraud as soon as it happens. Otherwise, you may not be successful in getting your money back.)

How Do Credit and Debit Affect My Credit Score?

Credit cards affect your score in many ways. Everything you do with your credit card directly impacts your credit, both positive and negative. Here are some of the most common negative factors:

  • Not being on top of making payments will hurt your credit immensely. Your payment history affects 35 percent of your score, making it one of the most important factors.
  • Late or missed payments on your credit cards. This shows lenders that you may not be able to pay them back for a potential loan.
  • High credit utilization can also affect your score. A good habit to get into is keeping your credit usage at no more than 30 percent of your spending limit.

As for debit cards, not much will affect your credit score. The money you spend already belongs to you, so there is no need to pay anything back at a later date. Transactions made from your checking account aren’t reported to credit bureaus, so they don’t affect your score.

On occasion, debit card activity does affect your credit score, like if you don’t pay back an overdraft fee for a long period of time. The unpaid debt on your debit card would then be reported to the credit reporting agencies after some time has passed.

If you want to keep your credit score in tip-top shape, aim for having a debit card and a solid mix of credit cards. This is because the FICO® scoring system factors in your credit mix  as 10 percent of your overall score. The length of your credit history is also factored into your score. If you mistreat your credit cards or run into any issues, your score can be negatively impacted. To get back on track, you may need to make credit repair a priority. Credit repair can help you rebuild your credit score, as well as deal with and fix errors. Lexington Law simplifies this process and can help you achieve your credit goals.

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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Credit Cards

Should you pay down debt or save for retirement?



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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Credit Cards

How does a loan default affect my credit?



loan default

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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How to identify credit repair scams



family learning more about credit

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.

If you have poor or damaged credit and want to repair it, you may have considered using a credit repair service to help. Unfortunately, there are many companies and individuals that want to take advantage of unsuspecting consumers needing help with their credit. 

While there are legitimate companies that can help you repair your credit, there are also credit repair scams that are only after your money and your information for identity theft purposes. To keep both safe, we created this guide to help you tell the difference between legitimate credit repair companies and credit repair scams.

Five signs of a credit repair scam

There are many things credit repair companies are not allowed to do or promise customers. If it sounds like it’s too good to be true, it probably is, and you should steer clear of that company. We’ve put together a list of signs you should watch out for when working with credit repair companies.

1. Guaranteed results

Under the Credit Repair Organizations Act (CROA), credit repair companies cannot guarantee results. Here are a few common examples of false promises unethical credit repair companies might make:

  • Improvement to your credit score
  • Results in a fixed time period
  • Removal of all of negative items, even if they are accurate

2. Up-front payment is requested

The CROA prohibits credit repair companies from asking for any payment before they render services. Many scammers know that most consumers don’t know this and, as a result, promise a quick turnaround on credit repair for a large upfront payment.

Some illegitimate credit repair companies may not allow you to cancel unless you pay a fee. All credit repair companies are required by law to give you at least three days to cancel services with them and there is no penalty for canceling.

3. Claims a new identity is needed 

A credit repair company can’t promise or offer you a new identity. Anyone offering you a new identity is a fraud. Besides guaranteeing results, scammers may try to promise you a clean slate with a new Employer Identification Number (EIN) or a Credit Privacy Number (CPN).

They tell you to use these numbers on your future credit applications instead of your Social Security Number. We explain more about common credit repair scams below.

4. Don’t explain your legal rights

Credit repair companies should explain your legal rights to you from the beginning. These are a few common things an unethical credit repair company might do.

  • Tells you not to contact the credit bureaus directly
  • Doesn’t give you a copy of the contract to review before signing
  • Fails to inform you that you can repair your credit yourself without the help of a credit repair company
  • Leaves out important information from the contract, like the date services will be executed or the amount you will pay

If you feel like the company isn’t telling you everything or refusing to answer your questions, you should seek services elsewhere.

5. Asks you to misrepresent information

Finally, an unlawful credit repair company might ask you to misrepresent your information. This can range from unlawfully using an EIN or CPN number in place of your social security number to claim you are a victim of identity theft when you’re not.

five signs of a credit repair scam

Common credit repair scams 

You’ll most likely see credit repair companies illegally promising results. However, it’s important to familiarize yourself with other scams so you understand what is and is not legal. We highlighted a few common ones below.

File segregation schemes 

A file segregation scheme is when a company or individual offers to give you an Employee Identification Number (EIN) to use in place of your Social Security Number when you apply for credit. It’s illegal for companies to do this, and it’s illegal for consumers to obtain one to use in place of their Social Security Number. 

Credit privacy numbers 

Like an EIN, a Credit Privacy Number (CPN) is created by scammers to use in place of your Social Security Number when applying for credit. Simply put, a CPN is a fake Social Security Number. Usually, these are created using somebody else’s identity, and using one can be considered identity theft. 

Tradeline renting 

Tradeline renting is when you pay for authorized user status so that the tradeline shows up on your credit reports to improve your score. This doesn’t repair any negative information on your credit, but adding a positive tradeline to your credit report can boost your score.

While this isn’t necessarily illegal, it can get you into trouble. There is nothing wrong with a loved one adding you as an authorized user. However, if you pay to “rent” a tradeline from a stranger, you don’t know how it will impact your credit and it may be a scam to get your money. 

credit repair scams to watch out for

What to do if you are scammed

There are a few things you can do if you realize you’ve fallen victim to a credit repair scam. Take a look at your options below.

who to report a credit repair scam to

Can credit repair companies fix your credit?

Yes, a legitimate credit repair company can help you work to remove inaccurate negative items from your record that may be damaging your credit score. Here are ways to recognize a legitimate, expert credit repair company. Although you can work to repair your credit yourself without a credit repair company, ideally a credit repair company would make the process much easier. Here are some signs of a legitimate, expert credit repair company:

  1. They create a repair strategy custom to your unique situation. A good credit repair company will customize their course of action only after evaluating your credit reports and credit history. Everyone’s credit history is different, and their approach to repairing your credit should reflect that. 
  2. Maintain communication with you during the process. A credit repair company that maintains scheduled calls, emails or any other form of communication with you will help you stay up-to-date with their progress. They shouldn’t keep you in the dark as they’re conducting their services. 
  3. Informs you of your rights from the beginning. At the time of signing, a credit repair company should provide two documents: a disclosure of your right to repair your credit yourself and a detailed contract of services.
  4. Make realistic claims about their services. Like we said above, credit repair companies cannot guarantee results. A legitimate credit repair company will not guarantee timeframes or point changes, but they can guarantee the delivery of services—access to credit monitoring tools, or letters delivered on your behalf. 

How to safely repair your credit

Making payments on time and disputing inaccurate information on your credit reports can help you repair your credit. While you can do this on your own, a professional credit repair firm like Lexington Law Firm will make the process easier and more efficient.

Lexington Law Firm proudly adheres to CROA to make sure we give our clients the best experience possible. For over a decade, we’ve helped clients challenge information that is unfair, inaccurate and unsubstantiated. Give us a call today for a free, personalized credit report consultation.

Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

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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