How a foreclosure can impact your credit?

You know that a foreclosure on your home can be a big deal when it comes to your credit. But how big of a deal can it be? You might be surprised at how much a foreclosure can impact your credit, and how long it can take to recover, depending on the situation.

Why foreclosure can be so devastating

Foreclosure can be so devastating because it is related to your payment history. Your payment history is the largest factor affecting your credit score. Before your home goes into foreclosure, there is a good chance that you have missed at least three payments. By the time the foreclosure process is complete, you might have missed even more payments. All of these missed payments are recorded in your credit history and affect your credit score.
The more payments you miss, and the more “important” those accounts are, the bigger the impact on your score. If your score is 680 and you go through a foreclosure, you could see a drop of 85 to 105 points in your score. A higher score, of 780, could result in a drop of between 140 and 160 points.
Combining foreclosure with another problem, such as a short sale or a bankruptcy on your record, can be even more devastating and result in more difficulty as you attempt to recover your score.
                                  

Short sales and your credit

Ms. X, the financial writer behind A Matter of Life or Debt, and her husband  found out the hard way that a near-foreclosure resulting in a short sale can be just as debilitating to a credit situation. They bought a home in 2007, just before the bottom fell out from the market. Even though the couple filed for bankruptcy in 2008, Ms. X says the short sale process hurt them more.
They kept the house through the bankruptcy and started working to recover their financial situation. However, the market crash of 2008 meant that home values plummeted. Suddenly (and especially after putting in thousands for renovations), Ms. X and her husband were stuck in a home that wasn’t worth what they were paying for it.
“After finding out we were expecting our third child, we realized that we’d never bounce back if we stayed in an underwater home,” Ms. X says. “We started the short sale or foreclosure process.”

Source: Secondary

Reasons to check your credit regularly!

You’ve probably heard that you should check your credit regularly. But why is that advice given? Before you decide that you don’t really need to check your credit report, here are 4 reasons to take a look on a regular basis:

Prepare for a major purchase or life change

One of the biggest reasons that you should check your credit is in preparation for a major purchase. When you buy a home using a mortgage, the lender wants to verify that you are likely to make your payments. Another major purchase that requires a credit check is a car.
You might even need to prepare your credit ahead of moving into a rental. Many landlords want to see if there are potential red flags that could result in missed payments. Checking your credit ahead of time can be one way to prepare for what’s next.
It also makes sense to prepare for major life changes by checking your credit since there has been a movement toward including non-credit information, like utilities and rent payments, on credit reports. While such measure might be slow in coming, they could still impact you down the road. Pay attention to what is happening with credit reporting in the news so that you know what actions are likely to cause problems.

Identify and fix mistakes

Information from the Federal Trade Commission indicates that one in five consumers have an error on at least one of the reports issued by the major credit bureaus. Five percent of consumers have errors that could cost them more in terms of higher interest rates and even higher insurance rates (in some states).
You don’t want to be one of those whose credit reporting mistakes costs more money in the long run. Checking your credit report can help you catch mistakes and have them fixed. Credit reporting agencies are required by law to fix mistakes in a “timely” manner. While credit bureaus don’t have to remove negative and accurate information from your profile, they are supposed to update inaccurate information to provide a better picture of your behavior.
Check your credit report regularly and dispute inaccurate information. This should be done before you apply for credit so that you can avoid a nasty surprise while you’re sitting with the loan officer.

Look for signs of identity fraud

The FBI identifies identity theft a a major threat to many consumers. While you might not be able to prevent identity fraud in all cases, you can watch for signs to attempt to catch it early. Monitor your credit report for fraudulent accounts, which could be a clue that someone is using your name to open new lines of credit. You should also backup your efforts by checking your monthly account statements and checking your online banking for indications that your credit card numbers are being used to make fraudulent purchases.
By checking your credit report regularly, you can catch identity theft early and take steps to head off further problems. Some of these steps might include contacting local law enforcement or reporting the issue to the FTC. The longer identity fraud goes on, the harder it can be to reverse the impacts and avoid future issues.

Better understand your financial situation

Your credit report can also provide you with clues about your current financial situation. Consumer sites like Cibilconsultants offer you access to credit reporting tools that allow you an overview of where you stand financially, based on the information in your credit report. This can help you make better decisions about your finances moving forward so that you have the ability to improve your credit situation.
Checking your credit report can also help you understand how those in the financial industry view you. Try looking at your credit report as if you were a lender trying to decide whether or not you are a good risk. Understanding your credit report from that standpoint can provide you with ideas for an action plan to look better for financial industry decision makers.
                      

When to check your credit

The good news is that you can check your credit anytime, and it won’t impact your credit score or the information on your credit report. You are entitled to a free credit report every year from each of the three major credit bureaus. Additionally, there are consumer credit sites, like CIBIL Consultants, which allow you to look at information related to your credit report anytime. These resources can provide you with the ability to get a general idea of what to expect when you apply for credit, as well as stay on top of your situation. In some cases, consumer credit sites can also alert you to actions you can take to improve your situation and even save money.
While checking your credit report regularly won’t guarantee that you won’t have problems, the reality is that it is a good way to monitor your situation. At the very least, you can prepare for the most important purchases you plan to make ahead of time.
                                                                                                                                                                                                                     
Source: Secondary

Why you should teach your child about paying with plastic?

When you think about what to teach your kids about money, chances are that credit cards aren’t high on your list of necessary lessons. In fact, many parents would just as soon not teach their kids about paying with plastic. However, well-intentioned that approach might be, the reality is that your child probably needs to know how to interact with plastic if he or she is going to grow up to be able to handle money appropriately.

Help your child understand debit and credit

You don’t need to encourage your child to use credit cards and get into debt in order to help him or her understand the appropriate use of plastic. It’s a good idea to approach the subject, though, and let your children know that there is a difference between debit and credit, and that they should avoid debt. Introducing them to plastic during their teen years can help them prepare for a world that increasingly does not make use of cash or check.
Talk about the difference between debit and credit. When you swipe the card, it comes from money you already have. Also talk about how credit is different; it’s a loan. You are using money you might not have. In either case, the important thing is to encourage your child to keep track of what he or she spends using plastic, and encourage your child only to spend money he or she already has.
                        

Learning to manage plastic

If you can get your child a debit card attached to a joint checking account, you can begin to help him or her learn to track his or her spending while using plastic. Because spending with plastic (whether it’s debit or credit) tends to encourage less mindfulness, getting your child in the habit of tracking spending is a big step forward.
In some states, you can get a debit card for your child when he or she is 16 years old, as long as it is for a joint account. Other states and banks, though, may not let minors get debit cards. If this is the case, a prepaid debit card isn’t a completely terrible idea. Look for a card that doesn’t charge outrageous fees. 
When your child uses any sort of plastic, make sure that he or she records what is being spent. You can use pen and paper, or you can use personal finance software on the computer. I’ve already got an account set up for my son in our personal finance software so he can see where he stands, and keep track of where his money is going.
Plastic (or, more likely, payment via cell phone) is the wave of the future. Teaching your children to manage their money in a world where they aren’t likely to count out cash is an important skill. That way, they can learn to pay attention to spending, and avoid the pitfalls of plastic later.

Visit- www.cibilconsultants.com
Source: Secondary

Cash advances affect your credit score! Learn how?

Many credit card issuers provides a service to cardholders while allowing them to withdraw a certain amount of cash, either through an ATM or directly from a bank or other financial agency. Cash advances typically carry a high interest rate – even higher than credit card itself – and the interest begins to accrue immediately. On the plus side, cash advances are quick and easy to obtain in a pinch. Sometimes businesses with less-than-perfect credit use cash advances to finance their activities. In some instances these advances are even paid for with future credit card receipts. The amount of the cash advance depends on the credit score of a business and its credit card sales. In almost all cases, cash advances should be viewed as a method of last resort. Taking out a cash advance has no direct impact on your credit score, but it can have an indirect impact in various ways:
                                

• The interest on cash advances is significantly higher than the interest on regular purchases, and that interest will get paid off last, meaning it will collect high interest for a long time. This is true even if you are offered a no- or low-interest promotion, as it likely will not apply to the cash advance amount. If this affects your ability to pay the payment on the card, that could affect your credit score.
• It will raise your balance, which will raise your credit utilization, a measure that credit scoring models use when generating a credit score.
• A balance transfer or any of the resulting interest that puts you over the credit limit can lower your credit score. Even after the card is paid down, your credit report will show the highest balance reported, and other potential lenders will see that you were over the limit at one point, which could hurt your ability to get new credit.

All the above circumstances can lead in a cash advance negatively hurting your credit score.

Source: Secondary

Go debt free!

If you get tangled in a debt trap, what should you do? The most obvious advice you will receive is to cut down on your expenses and save up to pay off your debt. You need some quick steps in order to stay pumped enough to get out of debt completely. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.
                           

Forecast debt plan

The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first.

Low interest rate

One can low the credit card interest rates by doing a balance transfer. This refers to move your credit card to another bank that might lower the interest rate to get your business. Shop around and try to get the lowest interest rate for the longest duration.

First repay your expensive debt

You should look over the interest rates of every credit card you use to make purchases and sort them from highest to lowest. By paying off the balance with the highest interest first, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards.

Allocate your investments

You may need to do a little reshuffling. Ideally, begin by liquidating any investments, other than insurance products, that are paying you a low tax adjusted rate of return. Then pay off your higher cost debt before lower cost ones. To put it simply, the credit card bills and personal loans must be the first to go. At the same time, you would need to insure that you continue making payments of EMIs on asset loans, used to purchase a home or an automobile, etc.

Negotiate with creditors

Try to explain creditors that you got trapped in bad financial duress and about the hardship the business is going through. Then, ask if they have a plan that may provide better payment terms. If the creditor doesn’t offer one, request a payment plan or a reduced settlement amount.

Visit: www.cibilconsultants.com
Source: Secondary

Make the optimum utilisation of your credit card

Credit cards can be a convenient way to acquire life’s necessities and luxuries. But it comes at a price in the form of interest rates which, when compounded over a long period, can add up to a huge sum of money. If planned well and implemented with discipline, you can actually enjoy the benefits of credit cards otherwise they can also become financial nightmare when used inadequately. Let us go through some best ways of using a credit card:

Monitor your spending habits

Here, you get credit while you go spending or paying bills. You can use the credit limit to purchase anything you desire. But consumers often tend to over limit while using credit cards; it also puts you under pressure as a portion of your monthly income is truncated towards paying the EMI. So, keep a check on your credit card spending and avoid debt trap.

Don’t keep many cards

The more credit cards you have, the more you may be tempted to spend and the more difficult it will become to keep a track of how much you have spent and when the repayments are due. Ideally, they should be used as a temporary substitute for carrying cash. And, if that is the only motive you have when you carry a credit card, you will find that having one or at most two is quite sufficient.

Immense usage

Make the best use of credit cards while making every possible purchase even regular items with it like online purchases, bills, groceries etc. This will lead you keep a budget of your day-to-day expenses while maintaining a record. In this way you can earn maximum credit points as well.

Say ‘No’ to borrowings on cards

Just remember that credit cards are easiest way to acquire what you needed at given time but it can lead you in trouble also at the same time. They are not an additional source of money. If you get shortage of money, it’s better to avail a personal loan rather indulging in cash withdrawals through credit card. As the interest rate on personal loan is less in comparison to revolving credit on credit cards facility.

Terms and conditions

Be it a credit card, the devil is always in the details. The small print, i.e. carefully worded clauses, sets the terms and conditions of your loan, including the schedule of EMIs, the interest rate calculation method, charges and penalties in case you deviate from your repayment schedule. Unfortunately, many borrowers don’t spend much time on it and this leads to troubles later on. It’s better to read it seriously and understand it well.

Avoid paying card surcharge

It’s an important policy that merchants are not permitted to demand surcharge on customer purchases. So, neglect paying a card surcharge.

Reward points and cash backs

Whenever possible try to make the use of reward points and cash back. But do remember that you take them as an additional bonus and do not get tempted with them.

Examine your credit limit

It’s wise to have always maximum credit limit as to shed the situation of uncertainty. It’s prudent to implement self-discipline on available credit limit on your card. And try to avoid offers to increase the credit limit on your card.
Visit- www.cibilconsultants.com
Source: Secondary

Credit card cautions. Must read!

Credit cards have become a lifeline for everyone in modern times. However, this much-sought after boon can be a real bane to your finances if not used with care. Are you facing problems while managing your credit card balances? If so, don’t regret over it – you’re in the same boat as other consumers. Use these simple tips to stop adding to your existing credit card debt and start regaining control of your finances.

Don’t keep more than 1 or at the most 2 credit cards

The more credit cards you have, the more you may be tempted to spend and the more difficult it will become to keep a track of how much you have spent and when the repayments are due. Do remember that credit cards are the most expensive types of loans available in the market, and whether you miss your payment deadlines due to an oversight or because you have inadequate funds, you will have to pay heavily. So, while credit cards are extremely handy pieces of plastic, ideally, they should be used as a temporary substitute for carrying cash, And, if that is the only motive you have when you carry a credit card, you will find that having one or at most two is quite sufficient.

Beware of reward points
The rewards you can earn from credit cards, while a nice perk, are worth far less than the extra interest you’ll accrue if you can’t pay off the money you spend to earn such bonuses. Spending on your card just to gather reward points may not be very healthy. You will soon realise that even though you have high reward points on your card, you will have to pay hefty bills, sometimes even on useless items made unnecessarily.

Don’t use credit card for everyday expenses
Besides inadequate circumstances, you should have your budget under control enough that you can at least pay for your monthly necessities with your monthly income. By keeping required purchases like groceries and utility bills off of your credit card, you\’ll be taking a major step in the right direction to getting your spending under control. Always draw up your budget for such purchases and use your credit cards within this limit.

Pay more than the minimum balance

It’s convenient to pay off the minimum monthly payment when you are under financial duress. Try to avoid it as not only will you never pay off your bill, but the interest rates that credit card companies charge will actually keep your bill growing every month. Instead, send as large of a payment as you can afford to. Where possible, reduce your spending in other areas to focus on paying off your credit card debt.

Avoid cash advances.

To meet urgent needs, drawing money from an ATM through your credit card is an easy way to combat cash shortage; but have you realised the impact it will cause on your finances? Not only is the interest rate charged on the advanced amount, but this also gets charged from day one itself.
Visit www.cibilconsultants.com

Source-secondary