Credit 101 Archives - Page 3 of 153

Apache is functioning normally

June 1, 2024 by Brett Tams

Two words can send a chill down any consumer’s spine: identity theft.

In an increasingly digital world, as more and more transactions are processed online, a growing number of people have become victims of identity theft fraud. An even larger number are familiar with the tales of financial loss and the weeks, months, or even years of effort it may take to undo the damage done.

What is identity theft, specifically? It’s when someone (often a cybercriminal) steals personal credentials—like your name, social security number, or credit card information—to commit fraud or other illegal acts.

Incidents of identity theft continue to rise

The Federal Trade Commission (FTC) said nearly 1.1 million cases of identity theft were reported in 2023. In fact, identity theft is the largest category in the agency’s Consumer Sentinel Network—a secure database containing consumer reports about marketplace problems. Although the total number of identity theft cases reported was down from a 2021 peak—when identity theft cases spiked to over 1.4 million—the volume was almost double the pre-pandemic total: 649,390 cases in 2019.

“I think skyrocketing is probably even too soft of a word,” says Eva Velasquez, president and CEO of the Identity Theft Resource Center (ITRC), an organization in San Diego that provides free resources to individuals dealing with identity fraud. “During the pandemic, we saw the rates increase at such a magnitude. It was already growing. It’s been steadily growing. It’s been the number one fraud type complaint to the FTC for 20 years.”

Identity fraud causes painful financial damage—an estimated $43 billion in losses in 2023, according to financial research firm Javelin. But the emotional toll of identity fraud can be just as serious. “That feeling of isolation is only getting worse as the crime rates rise,” says ITRC chief operating officer James E. Lee, who added that some people they speak with experience symptoms of depression as a result of these crimes.

Velasquez adds: “The playing field where vulnerabilities exist that someone can exploit has grown significantly and keeps growing.”

How banks are helping with online security awareness

It’s critical to know how to protect yourself from identity theft. The good news is that as hackers become more sophisticated, technology follows suit. And with assistance from your financial institutions, you can take steps to protect your financial information online. The most straightforward tips include using unique, complex passwords for different accounts and investigating unsolicited communications from a financial institution, no matter how realistic they appear.

“We always say, ‘Go to the source,’” says Velasquez. “Not the number in the email, not the number left in your voicemail, not the number on the text, but the known number or email address or URL if you’re doing it online. Use the contact information you already know and trust to reach out to that organization.”

Your bank is also a strong ally in the ongoing battle to detect and prevent fraud. Discover^®, for example, offers a suite of online security features designed to help protect your identity and financial information.

“Banks play a very important part in protecting consumer data, and I think that role spans the life cycle of identity,” says Mary Ann Miller, fraud and cybercrime executive advisor and vice president of client experience at Prove Identity, a digital identity solutions provider in New York. “Whether it’s preventing identity theft from happening in the first place, detecting it if it’s happened, or helping consumers recover, I think banks can help their customers feel more confident in the system.”

Here are some of the ways your bank may offer additional identity theft protection:

Account alerts

Alerts are easy to set up and provide real-time monitoring of your accounts. For example, they help banks automatically notify you of suspicious activities, such as large withdrawals or changes to your contact information. Alerts can be particularly helpful in spotting potentially fraudulent activity on your debit or credit card.

“I always encourage people to set their alerts to a dollar, just so you see everything coming in and out of your account,” says Velasquez. This granular insight is increasingly important as card-not-present transactions (like online shopping) remain popular.

Tip: If you have a Discover account, you can customize alert preferences in the mobile app or through online banking.

Account freeze features

If your credit or debit card is lost or stolen, or you suspect fraud, you may be able to freeze the card to prevent further purchases or ATM activity. Most other account actions—like previously scheduled and recurring transactions, internal and external transfers, and online bill payments—will continue. You can freeze or unfreeze the card online, via phone, or through your bank’s mobile app.

If you suspect someone stole your identity, you should also freeze your credit by notifying the three major credit bureaus: Equifax, Experian, and TransUnion. Doing this can prevent new credit or loan accounts from being opened with your stolen information. “A credit freeze is the most protective thing you can do if someone has misused your financial resources,” Lee says. You may also want to place a fraud alert on your credit file. This alert notifies creditors to take extra steps to verify your identity before extending credit.

Two-factor authentication

Most bank websites will require two-factor authentication if suspicious activity is detected, such as an unfamiliar device or IP address being used to sign in to your account. In that case, the bank will send you a one-time passcode—either by text or email—that you must use before any further activity is allowed. This feature is becoming increasingly automated and cannot be opted into or out of on secure websites.

“Banks want to validate whether you just got a new phone or whether there’s actually someone trying to log in with a stolen password and User ID,” says Miller.

Biometric security measures

At present, biometrics—like fingerprint and facial recognition—are device-centric measures that prevent unauthorized users from accessing your laptop, phone, or tablet. Biometrics can also be used to access your banking app, but the institution must offer that feature for use.

There are other steps you can take to protect your financial information. For example, you can link your credit or debit card to a digital wallet, such as Apple Pay^®, Google Pay^®, or Samsung Pay^®.¹ Digital wallets use tokens, so your card information is never shared with a merchant.

How to help prevent identity theft before it happens: online privacy protection

Despite all your best efforts, your personal identity information remains at risk. “We continue to see new ways that individuals’ identity credentials, foundational identity documents, and identity in general is misused,” Velasquez says. Lee goes even further: “The information’s already been stolen,” he says.

Whether or not you’re aware that your information has been compromised, you should closely monitor the activity on all your accounts regularly. You can also sign up for an online privacy protection service, many of which are offered for no charge. These services periodically scan people-search sites to determine whether any of your information is publicly available. If your information is found, the service also will assist you in submitting opt-out requests to remove your data from the site. For more robust and comprehensive coverage—including daily monitoring of your credit report and thousands of websites—Discover offers Identity Theft Protection for a monthly fee.

Recovering from identity theft

If you become a victim of identity theft, all is not lost. Federal law generally limits losses from use to $50 for credit and debit cards, provided the bank is notified within two business days. Separately, most card networks, including Discover, offer a policy of “$0 liability for unauthorized debit card purchases” as a safety measure for their customers. In addition, the FTC’s IdentityTheft.gov website provides step-by-step advice on how to limit the damage from identity theft and repair your credit.

Recovering from identity theft can be a long and challenging process, so you should take every precaution possible to avoid it from happening in the first place. Your bank and its technology and resources will be an important partner in this process.

From account alerts to paperless statements, Discover is committed to equipping you with tools to stay safe from identity theft and other fraudulent attempts. Learn more at our Online Banking Security Center.

Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.

¹ Apple Pay^® is a trademark of Apple Inc. Samsung Pay is a registered trademark of Samsung Electronics Co., Ltd. Google, Google Pay, and Android are trademarks of Google LLC.

Source: discover.com

Apache is functioning normally

May 24, 2024 by Brett Tams

They say “Cash is king,” but these days, it seems like people are swapping cash for any of the many readily available digital payment options. Still, while it may feel like we’re headed for a cashless society, having a few dollar bills on hand is always a good idea.

The good news is that you have options for withdrawing cash. When you keep money in your checking account, you can quickly access your funds in several convenient ways, including by using a debit card and an ATM network. In this article, we’ll go over how to withdraw money from a checking account in three easy ways whenever you need cash.

Earn cash back with your debit card

Discover Bank, Member FDIC

1. Use an ATM

One of the easiest ways to quickly withdraw cash from the bank is to use an automated teller machine (ATM). Not sure how to withdraw money from an ATM? Insert your debit card into an ATM and verify your identity by entering your 4-digit security PIN to access your funds. Remember that while most ATMs accept all cards, withdrawing from an ATM outside your bank’s network usually comes with a small fee, and your bank likely has a maximum daily limit on withdrawals from those machines.

Avoid paying ATM fees by only withdrawing cash from machines affiliated with your financial institution. Use your bank’s ATM locator to find machines closest to you, or look for no-fee ATMs at local retailers or gas stations. Discover^® customers can access over 60,000 no-fee ATMs and easily find affiliated machines through the Discover mobile banking app.

2. Cash a check

If you receive a check from an employer or someone else, you can cash or deposit it in several ways. The easiest way to cash a check with no fees is to deposit it into your checking account and wait until the funds are available to withdraw the cash. With a Discover Cashback Debit account, you can do this from anywhere—usually in less than a minute—via mobile check deposit.

Wondering how to withdraw money from the bank immediately? You can “cash” that check—versus making a deposit and then withdrawing cash from your account—if your bank has a convenient brick-and-mortar location. Simply present the endorsed check and your ID to the teller, and you’ll be able to cash either the entire check amount or a portion of it. Warning: If that check doesn’t clear the issuer’s account, your bank will reverse the transaction.

Alternatively, you may be able to cash the check at the bank that issued it—although, depending on the bank, there may need to be enough money in the account to cover the check; you may also have to pay a fee. Some large grocery stores or retailers will exchange a check for cash, but again, you’ll likely have to pay a fee for the convenience.

Another way to receive cash immediately is to write a check for cash withdrawal against your checking account. In this case, you write “cash” on the payee line of one of your checks and hand it to a teller at your bank. You can also write a check to purchase a prepaid debit card, but keep in mind the fees associated with a prepaid card can be steep.

3. Use a debit card to get cash back at stores

Depending on who you bank with and where you shop, you can also withdraw money from your checking account when you pay with your debit card in person. First, confirm which retailers and grocery stores offer cash back at checkout, then verify how much cash you can withdraw for no additional fee.

If you often shop with your debit card, consider a card that rewards you each month for your purchases. By using your Discover Cashback Debit card, you can earn 1% cash back¹ on up to $3,000 of debit card purchases every month and have access to our network of more than 60,000 no-fee ATMs.

Never be caught without cash on hand again

Digital payment methods like credit cards and mobile services may be growing in popularity, but cash will likely be a widely accepted form of payment for the foreseeable future. With a checking account and debit card readily available, you can withdraw cash from your bank account when you need it and avoid extra fees.

Make cash withdrawals even easier and stay free of extra fees when you open a Discover Cashback Debit account today.

Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.

¹ See Deposit Account Agreement for details on transaction eligibility, limitations, and terms.

Source: discover.com

Apache is functioning normally

May 18, 2024 by Brett Tams

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.

Key takeaways:

Child identity theft occurs when fraudsters use a minor’s personal information to illegally obtain credit.
You can contact the credit bureaus to check if your child has a credit report.
Placing a credit freeze on your child’s credit can stop fraudsters from opening credit accounts in your child’s name.

Identity theft is a widespread issue that can happen to anyone, even children. In fact, a Javelin survey revealed that approximately 1.7 million, or 1 in 43 children, were victims of identity fraud in 2022.

Since minors generally don’t have credit reports, they may not realize they’ve become victims until much later, thus making the consequences worse. Therefore, credit monitoring for minors is crucial for protecting your children’s financial future.

Read on to learn more about child identity theft and how to protect your children from becoming victims of this crime.

Table of contents:

What is child identity theft?

Child identity theft occurs when an individual steals a child’s personal details, such as their name, date of birth or Social Security number, to illegally secure credit or similar benefits. Identity thieves will use this information to open a credit card account, apply for a loan or even attempt to get government assistance.

Lack of age verification by creditors means this crime can remain hidden until a child turns 18 and applies for credit, only to discover that their credit score is much lower than it should be. Therefore, it’s important to take proactive steps to monitor your child’s credit so you’re alerted to potential signs of child identity theft.

What is credit monitoring?

Credit monitoring is a method of tracking updates to your credit report so that you can quickly address anything that seems suspicious. While it’s common for adults to keep track of their credit, many people are unaware that credit monitoring for minors is also recommended.

The three credit bureaus and some other financial companies offer child credit monitoring services. Typically, these companies charge a small fee of $10 – $20 per year to monitor your minor’s Social Security number to detect new credit accounts. Many credit monitoring products bundle children with adult subscriptions so your whole family is protected.

When you enroll your child in a credit monitoring service, you’ll get alerted if they find something suspicious so you can take quick action. Early detection is key when it comes to minimizing the damage of child identity theft.

How to check if your child has a credit report

Typically, children under the age of 18 don’t have credit reports. If your child does have a credit report, this could be a sign that their personal details have been compromised.

While you cannot access online credit reports for minors 13 years old or under due to the Children’s Online Privacy Protection Act, you can write to the three credit bureaus to request that they check if your child has a credit report. In your letter, you’ll need to provide copies of the following documents:

Minor’s birth certificate
Minor’s Social Security card
Your driver’s license or other government-issued identification
If you’re not the minor’s parent, provide proof of legal authority, like foster care certification or guardianship papers

After you’ve compiled the necessary documents, send your request to the following addresses:

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Equifax	Experian	TransUnion
P.O. Box 740241 Atlanta, GA 30374-0241	P.O. Box 2002 Allen, TX 75013	P.O. Box 2000 Chester, PA 19016

Source: lexingtonlaw.com

Apache is functioning normally

May 11, 2024 by Brett Tams

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.

Even if you have bad credit, you can still get student loans. Most federal loans don’t require a credit check, which means you can borrow funds for education regardless of your credit history.

The Education Data Initiative found that the average cost of college is $36,436 per year in the United States. This includes tuition, living expenses, books and supplies. This isn’t the same at all colleges, and you can pay significantly less. The average cost for in-state tuition is $9,678, but over the years spent in school, these costs add up. Many people don’t have this kind of cash on hand, so many take out student loans.

If you have a bad credit score, you may want to know about student loans for bad credit, but you may have better options. Bad credit loans come with much higher interest rates, so it’s beneficial to research all of the options so you don’t graduate with more debt than necessary.

Today, you’ll learn about how to get student loans with bad credit as well as which options are right for you.

How to get a student loan with bad credit

If you have a bad credit history, you have two options if you want to take out a student loan. You can apply for federal student loans or find a cosigner for a private student loan.

Federal student loans are funded by the U.S. Department of Education, and they’re basically no-credit student loans since you can apply regardless of your credit history.
Private student loans are offered by a variety of nongovernment financial institutions, and they’re often limited to people with higher credit scores or cosigners.

Federal student loans are often the better option because they’re low-interest loans for students with no credit or bad credit. Private student loans have much higher interest rates, which makes them more expensive as a whole. In some cases, students may need to take out both of these loans, depending on the cost of their school.

In order to receive a federal student loan, you need to meet the eligibility requirements first. Some of the requirements include:

Proof of financial need
Proof of U.S. citizenship
Have a valid Social Security number
Enrolled in a degree or certificate program

Your financial aid is based on need. This is known as “need-based aid,” which uses a calculation to determine how much you can receive based on your Student Aid Index (SAI) and Expected Family Contribution (EFC).

In addition to United States citizens, DACA recipients may also qualify for federal student loans.

Federal student loans for bad credit

Federal student loans are an excellent option for many people, including those with bad credit, because they are based on financial need rather than credit scores.

You may be eligible for any of the following types of federal student loans:

Direct Subsidized Loans: These loans are available based on financial need, and they include the benefit of having the Department of Education pay interest while you’re enrolled in school as an undergraduate.
Direct Unsubsidized Loans: Unsubsidized loans are offered regardless of financial need, and they will accrue interest even when you’re enrolled in school. With these loans, you don’t need to show financial need.
Direct PLUS Loans: These loans are available to graduate students or the parents of undergraduates, and they are the only federal loans that require a credit check. You may still qualify with a bad credit score, but these have higher interest rates than other federal loans.
Direct Consolidation Loans: These loans enable you to combine all of your federal loans into a single loan, which can reduce the complexity of your payments.

Private student loans for bad credit

Your credit score matters if you want a private student loan. To apply for a private student loan, you can go through regular lenders like banks or credit unions. Unlike many other private loans, you may not be able to find bad credit loans for student loans.

One of the best ways to qualify for a private student loan with no credit or bad credit is to find a cosigner. A cosigner is someone with a good credit score, so the lender uses their score rather than yours. The cosigner needs to have a good credit score to help you qualify, and it’s important to note that if you miss your payments, it can harm both of your credit scores.

Federal loans vs. private loans

Federal student loans are typically the best option if you’re trying to figure out how to get a student loan with bad credit. You don’t need to find a friend or family member to cosign on the loan with you, and the interest rates are lower. If the school you choose is more expensive, you may need to take out a private loan in addition to your federal student loan.

It’s also beneficial to understand the difference between the interest rates. The average interest rate for fixed-rate student loans is between 4.8 and 12 percent. If the private loan has a variable interest rate, the average is between 5.9 and 15 percent. However, the average interest rate for federal student loans is only 5.5 percent.

For example, the average student loan debt is $37,787. If you took out a federal student loan for this amount and paid it off over the course of 10 years, it would cost a total of $49,211, including interest. That same loan could cost as much as $73,156 with a private student loan.

How FAFSA works

The Free Application for Federal Student Aid (FAFSA®) is what student borrowers use to receive federal student loans. When taking out federal student loans, you need to fill out the FAFSA each year because it’s a needs-based program, so the amount may vary depending on different factors. They’re mainly looking at your personal finances and your family’s financial situation.

Each year, enrollment for the FAFSA opens on October 1st, and the deadlines are on the FAFSA website. Deadlines can vary by state and by college, so the site also lists additional information for every state.

How to improve your credit before applying for a student loan

You may need to take out student loans regardless of your situation, and one of the best things you can do is improve your credit score. When you have good credit, you can worry less about finding bad credit student loans and get better interest rates as well.

The following are some simple ways you can start improving your credit:

Make your payments on time
Pay off your debts
Pay off collection accounts
Keep your credit utilization low
Piggyback on someone’s credit as an authorized user

How to apply for bad credit student loans

Prior to applying for federal or private student loans, there are some steps you can take to make the process a little easier:

Calculate the loan amount: Before applying, you should know how much you’ll need.
Fill out the FAFSA form: Federal student loans are often the better choice, so it’s helpful to start here. If you need more, you can consider private student loans.
Compare private student loans: If you need additional money from a private student loan, shop around. Compare the loans to find the lowest interest rate and best loan terms.
Try to find fixed-rate loans: Variable interest rates mean the interest can change. A fixed-rate loan means that your payments will stay consistent.
Assess repayment options: Understand your loan as best as possible. Look into the grace period and if there are enrollment restrictions on the loan. Some federal loans require you to be enrolled to qualify for deferred payments.
Find a cosigner: Talk to potential cosigners before applying for private student loans for bad credit.

Alternatives to student loans for bad credit

Whether you get a federal student loan, a private loan or both, it’s always best to minimize your debt. Some alternatives to student loans you can consider include:

Working while attending school: Some schools cost less than others, especially in-state schools. You may be able to afford school by working and paying your tuition with cash.
Work-study programs: You may be able to do a work-study program, which allows you to work part-time for the school while attending. This gives you experience and a way to earn money.
Scholarships: There are many different scholarships out there. With some time and research, you can apply for different scholarships to help cover the cost.
Personal loans: Although these are also loans, this is a good option if you have some college savings and only need to borrow a small amount for a shorter period of time.

Check your credit before applying for student loans

Another way to work on your credit is to check your credit report for any errors harming your credit score. Inaccurate derogatory marks can usually be challenged and removed from your report.

Lexington Law Firm has a team of credit professionals who could help you address errors on your credit reports, and if you’re unsure of your credit score, you can get your free credit assessment today.

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.

Source: lexingtonlaw.com

Apache is functioning normally

May 9, 2024 by Brett Tams

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.

Ask your property manager to report utilities or utilize a third-party reporting service to have your utility bill payments, such as electricity and water, reflected on your credit report.

Most landlords and utility companies don’t report your utility payments to the credit bureaus, so they don’t typically impact your credit. However, if your payments are in default or delinquent, the debt will likely be reported to one or all of the three major credit bureaus and negatively affect your credit.

While credit accounts, like credit cards, automatically appear on your credit report, utilities such as water and gas are becoming more easy to report.

You can now add the following utility bills to your credit report:

Rent
Electricity
Water
Gas
Phone and internet

Including your utilities and rent in your credit report can be an effective strategy for building credit if you consistently make on-time payments. In this guide, you’ll learn how to add utilities to your credit report and alternative ways to build your credit.

Table of contents:

Ask your property manager to report payments

Ask your leasing company or property manager about their ability to report utilities to credit bureaus. Some property managers utilize rent reporting services that report on rent payments, utility payments or both.

Some property managers will automatically enroll their renters in a reporting service when they sign their leases. Alternatively, it might be optional, and the renter may request to be enrolled in the service. Depending on the type of service and whether payments require verification, they may be free of charge or require an enrollment fee for renters.

Utilize a third-party reporting service

Alternatively, you can independently use a rent-reporting service. If your property manager doesn’t utilize such a service, there are tenant-only rent-reporting services you can enroll in.

To report your payments, you’ll likely need verification from your property manager. There may be additional fees associated with using a third-party service. You’ll need to pay an additional fee to utilize the service. Options for alternative credit reporting services include Experian Boost® and ExtraCredit from Credit.com®. These services allow users to provide credit bureaus with additional financial information by linking their bank accounts to their credit profile.

When adding your utilities to your credit report, consider your payment habits. If you can’t consistently pay your utility bills on time, using a reporting service may not be the best option for building your credit.

How can utility bills hurt your credit score?

If you use a reporting service and then fail to pay your utility payments on time, your payment history, which affects 35 percent of your FICO® score, will be negatively affected.

Additionally, if you miss enough payments on any utility account, the company can consider it delinquent and send it to collections.

The collection account will then become part of your credit file and will likely negatively impact your credit health. Collections and missed payments are considered derogatory marks and can stay on your credit report for up to seven years.

While paying the collection debt won’t remove the derogatory mark from your credit file early, we recommend settling the debt as soon as possible to avoid accumulating additional fees.

Alternative ways to build your credit

There are alternative routes to consider aside from including your utility bills in your report to build credit. Below are a few recommendations we suggest for building credit.

Credit builder loans

Credit builder loans allow borrowers to build a credit history or improve their credit score. With a credit builder loan, your payments go toward a savings account until the loan term ends. These payments are typically reported to the credit bureaus, demonstrating that you’re a reliable borrower and improving your credit and history.

When selecting a credit builder loan, it’s crucial to choose a realistic loan amount that you know you’ll be able to afford. You must complete the loan payments on time to see a positive impact on your credit history and to avoid penalties.

Credit cards

Credit cards are another convenient method to begin building credit, as payments are automatically reported to the credit bureaus. If you have bad or little credit history, consider applying for a secured credit card.

Unlike traditional credit cards, a secured credit card is backed by a cash deposit, which acts as collateral in case of a missed payment. You can improve your credit by using the card responsibly, maintaining low credit utilization and making timely payments.

Add a cosigner

If you’re having difficulty getting approved for a credit card due to a lack of credit history, consider adding a cosigner to your credit card application. A cosigner is considered equally responsible for any card utilization and accrued debt.

Having a cosigner signals lower risk to the lender, increasing the chance of approval. However, any missed payments will negatively impact both your credit and your cosigner’s.

FAQ

Below are commonly asked questions about how utility bills affect credit scores and are reported to credit bureaus.

Can I add utilities to Equifax or Experian?

Typically, utility bills aren’t automatically reported to Equifax® or Experian® by your utility provider or property manager. However, you may utilize a reporting service through your property manager or independently to add them to your credit history. Doing so can demonstrate positive financial behavior and potentially improve your credit.

How do I add rent and bills to my credit report?

You can include your rent and bills in your credit report through a reporting service. These services are either tenant-only or managed by property managers. Check to see if your property manager utilizes a reporting service. If they do, ask to be added to the service to report your rent and utility payments to the credit bureaus.

If they do not use one, consider using a tenant-only reporting service. Keep in mind that there is likely a fee associated with using the service. Lexington Law Firm offers assistance in repairing your credit, providing services ranging from obtaining a free credit assessment to addressing errors on your credit reports. Take the first step toward improving your credit by signing up today.

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.

Source: lexingtonlaw.com

Apache is functioning normally

May 9, 2024 by Brett Tams

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.

Learning how to build credit as a student is important so you’re ready for life after graduation. Focus on building healthy credit habits—paying bills on time, keeping your credit utilization low and avoiding common credit mistakes.

While the government considers you an adult at 18, many people consider graduating college and starting their first job as the first real marker of adulthood. However, adulthood comes with responsibilities, many of which require a credit score—putting utilities in your name, renting your first apartment, putting car insurance in your name and even buying a car.

Read on to learn about some of the ways you can build credit as a student so you can graduate college with a degree and healthy credit.

Become an authorized user on a credit card

For many students, the first step to building credit is using a credit card to build credit. Unfortunately, it can be challenging to get a credit card if you don’t have any credit.

Often, a person’s first credit card isn’t actually theirs. Instead, they become an authorized user on someone else’s credit card. An authorized user is someone who is added to another person’s credit card account with full spending privileges. Responsibility for paying the credit card bill will still belong to the primary cardholder, who is usually a parent, close friend or relative.

The advantages to being an authorized user don’t end with being able to use the card like it’s your own. You also piggyback credit because the credit card’s account and payment histories are added to your credit report. This extends the length of your credit history, builds your payment history and increases the amount of credit available to you, which should all help improve your credit.

If you want to ask someone to make you an authorized user on their account, make sure they have a good credit history. You don’t want to be added as an authorized user to a primary cardholder who doesn’t pay their bills on time, since that would hurt your credit more than help it.

Open a student credit card

If you can’t become an authorized user on someone’s credit card, you can open a student credit card instead. A student credit card is a type of credit card specifically geared for students looking to build credit.

Often, the only difference between a traditional credit card and a student credit card is that they have a lower credit limit. Some also offer rewards for students, such as incentives for good grades and other cashback and rewards offers.

Open a secured credit card

Another type of credit card to consider as a student is a secured credit card. With this type of credit card, you make a deposit to cover your credit limit, which minimizes the risk to the issuer. As a result, credit card issuers are more likely to offer credit to someone with no or low credit.

As you use the credit card and pay your bill on time, you’ll build credit and eventually graduate to an unsecured credit card.

Develop healthy credit habits

College is full of great experiences, but the costs can add up quickly, and being financially responsible can be challenging. Throw in access to credit for the first time, and it’s easy to see why many students struggle with credit initially.

While students may want to take advantage of that new credit limit, it’s important to use your credit card wisely. Only use it for emergencies or small, regular expenses that you have the cash to pay for. These actions seem small, but they will establish the skills you need to keep your credit high throughout your life.

From the moment you have your new credit card, do the following:

Keep your balance low. This keeps your credit utilization rate low, which is one of the factors impacting your credit health. Experts recommend only using 30 percent or less of your credit limit. An easy way to stick to this is to use your credit card for small, regular purchases each month. For example, put all your subscription services on your credit card or only use it for gas. This habit will also prevent you from overspending or spending money you don’t have on nonnecessities.
Pay your balance each month. While you are only required to pay off the minimum balance each month, you’ll owe interest on the unpaid balance. The interest is applied to your balance, which can hurt your credit utilization rate, not to mention cost you more over time. Get in the habit now of paying off your entire balance every month.
Avoid opening too many accounts. Don’t open too many credit cards at once. New credit can damage your credit score, and having too many credit cards can make it harder to monitor your spending.

Take out a credit builder loan

Your credit mix, or the types of credit you have, play a role in your credit score. So, just having a credit card may not be enough to build credit quickly—you need other types of debt. Instead of taking out a loan for a car you don’t need, consider a credit builder loan.

The sole purpose of a credit builder loan is to build credit, so you won’t get money to put toward something else. Instead, the bank will put the money you’re borrowing into a savings account. You’ll make regular payments to repay the loan, and once you’ve satisfied the loan terms, the money in the savings account is yours.

Get a cosigner

When you’re starting to build credit, it may be difficult to get lenders to let you borrow money on your own. You can add a cosigner, someone with a better credit history than you who agrees to take responsibility for the loan if you miss payments. The cosigner minimizes the risk to the lender, making them more likely to lend to you.

As long as you make your monthly payments on time, you can build your credit history and payment history with a cosigner.

Get credit for rent and utility payments

Usually, only credit cards and installment loans such as a student loan or car loan affect your credit. Monthly bills like rent, utilities, and cell phones won’t appear on your credit report unless they’re delinquent.

A few programs and services enable you to add some of your monthly bills to your credit report to track on-time payments and build your credit. For example, ExtraCredit® is a program that reports utility and cell phone bills to credit bureaus, and rent reporting services will add your rent payment history to your credit report.

Only add these bills to your credit report if you pay them on time. Adding them to your credit report and then missing payments will hurt your credit more than help it. Be aware that some of these programs and services may charge a fee.

Think carefully about your student loans

Student loans seem to be a fact of modern life, with over 43.5 million Americans carrying $1.7 trillion in student loan debt. While the exact amount varies, the average student graduate has more than $37,000 in student loan debt.

Using your loan as income might be necessary, but if you can help it, only take out enough to cover your education expenses. Look into work-study or student aid options as alternatives to an oversized loan.

Monitor your accounts carefully

Keep an eye on your accounts to protect yourself from identity theft. By monitoring your account using the credit card app, you can shut down the card as soon as you see fraudulent activity, preventing the problem from escalating.

If you are the victim of identity fraud, you can remove fraud from your credit account.

Check your credit report annually

Experts recommend that you check your credit report and score annually or more often to ensure they’re accurate. AnnualCreditReport.com will give you one free credit report from each of the three credit bureaus at least once every 12 months (currently, you can see your credit reports once a week!).

You can sign up for credit monitoring services if you want to review your credit report more often than once a year. Keep in mind that building credit takes time, and even though you may be able to check your credit score every 14 days with some services, it will still take time to see results.

Avoid these common credit mistakes

Being a student means learning, and so does building credit. You’ll want to keep the five factors that impact your credit in mind when making decisions. Those five factors are:

Payment history: 35 percent
Amounts owed: 30 percent
Length of credit history: 15 percent
Credit mix: 10 percent
New credit: 10 percent

While mistakes are part of the learning process, you’ll want to avoid these common credit mistakes to avoid long-term consequences to your credit.

Mistake #1: Waiting too long to start building credit

Credit factor: Payment history

Most experts agree that the best time to start building credit is at age 18. The length of your credit history determines 15 percent of your FICO credit score. If you start building credit at 18, you’ll have around four years of credit history by the time you graduate and need to start putting bills and loans in your name.

Mistake #2: Using your credit card for nonessentials

Credit factor: Amounts owed

When you don’t see the physical money you’re spending, it can be easy to lose track of your spending and spend more money than you have. Avoid this by limiting credit card purchases to essential items only. Use it to pay for groceries and gas, not expensive vacations.

Mistake #3: Maxing out your credit cards

Credit factor: Amounts owed

Maxing out your credit cards hurts your credit utilization rate. The less money you carry from month to month, the better it is for your credit.

If you have a low credit limit, you can avoid maxing out your card by paying more often than the monthly payment due date. For example, if you buy gas and groceries over the weekend, check your balance on your credit card app a few days later and pay it off.

Mistake #4: Missing payments

Credit factor: Payment history

If you aren’t used to them, remembering to pay monthly payments at first might be rough. But you want to avoid late payments at all costs because they can hurt your credit for up to seven years.

Avoid missing payments by setting up automatic payments or calendar reminders on your phone. If you missed the payment because it didn’t line up with your paycheck and you didn’t have the money, you may be able to change your payment date with the credit card company.

Mistake #5: Closing accounts too soon

Credit factor: Length of credit history

If you open a student or secured credit card and graduate with a traditional credit card, it might be tempting to close those other accounts. But if you don’t have any additional credit beyond those initial credit cards, closing them can actually hurt your credit health by minimizing the length of your credit history.

Instead of closing them and opening new credit cards, see if your credit card issuer can convert the student or secured credit card account to a traditional one. That way, you can keep the account active and preserve the length of your credit history.

If you can’t convert the account, hold onto it and make a small purchase every month to keep it active. After you’ve had the new credit card for a while, you can cancel your initial credit cards.

Mistake #6: Taking out too much credit

Credit factor: Amounts owed

Just because someone offers you credit doesn’t mean you should take it. Sometimes lenders offer more money than you need because they make money off your interest payments. When considering credit offers, look carefully at monthly payments and consider your budget. Only take out credit for the amount you need and can reasonably afford to pay back each month.

For example, when you apply for an auto loan for your first car after college, the lender might preapprove you for $20,000. Run the numbers and ensure that’s a monthly payment you can afford. You’ll probably find that you can only comfortably afford to borrow a lower amount.

FAQ

Here are some answers to common questions about how you can build credit as a student.

How long does it take for a student to build credit?

Typically, it takes about six months to a year to build up some credit. Your exact timeline may vary based on your specific situation and how responsible you are with credit-building techniques like a student credit card.

How can a college student build credit with no income?

Usually, you’ll need income to qualify for credit, but there are a few ways around it. You can use a cosigner for a loan or ask someone to add you as an authorized user to their credit card. As an authorized user, you won’t have to make any payments with your credit card to get the card put on your credit report.

Trust Lexington Law Firm to fight for your credit

Building credit is tough—it’s hard to build from scratch but frustratingly easy to damage. Don’t let a lack of credit or a few credit mistakes destroy your confidence. The credit repair team at Lexington Law Firm could help you challenge inaccuracies affecting your credit. Learn more about our services to see how we can help.

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.

Source: lexingtonlaw.com

Apache is functioning normally

May 8, 2024 by Brett Tams

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.

Revolving credit, like credit cards, allows you to borrow up to your limit and then again once you pay down the outstanding balance. Home, auto and personal loans are installment loans, which means you receive a lump sum that you pay back over a set period.

If you’re one of the millions of Americans who has outstanding debt, it can be helpful to better understand the difference between installment loans vs. revolving credit. Although debt can harm your credit, responsibly managing a mix of installment and revolving debt can help build your credit. Read on to learn more about installment loans vs. revolving credit and how to use them to your benefit.

	Installment debt	Revolving credit
Definition	A borrowed lump sum that is paid back over time on a set schedule	A line of credit that enables for spending up to a predetermined limit
Examples	Mortgage, student loan, auto loan or personal loan	Credit cards and personal lines of credit
Interest rates	Typically fixed when the loan is established	Usually variable, and often higher overall
Payments	Consistent monthly payments on a set schedule	Payments vary based on spending
Effect on credit score	May increase credit score due to improved mix of credit, payment history and length of credit	Tends to have a larger effect on credit score, and score increases are possible with responsible usage

What is revolving credit?

Revolving credit allows you to spend up to a certain limit. As you pay down your outstanding balance each month, you can re-borrow up to the credit limit. If you need to borrow more, you can request a credit limit increase. It not only gives you access to more funds, but when used responsibly, it can also help improve your credit by reducing your credit utilization ratio.

When you have a revolving credit account, you can pay the monthly minimum or choose to pay more. Many lenders charge interest, but some lines of credit come with introductory offers, like 0 percent interest for a certain amount of time.

One way revolving credit is different from installment credit is that your account stays open until you close it. As you continue to make your payments and don’t spend more than the limit, you can continue to use your revolving credit.

Pros and cons of revolving credit

The biggest benefit of revolving credit is its flexibility, which can also be a downside. You can borrow up to your credit limit, but the ability to increase it may tempt you to overspend and get into debt. Below, we break down some of the additional pros and cons, starting with the benefits:

Flexible borrowing
Bigger impact on your credit when paid on time
Ability to only borrow what you need
Some credit cards come with periods of 0 percent interest
Can easily access funds

Some of the downsides to revolving credit accounts include:

Higher interest rates
Set borrowing limits
Due to ease of access, it can be tempting to spend more
Inconsistent monthly payments due to variable interest

How revolving credit accounts affect your credit

Revolving credit accounts typically affect your credit score more. With the FICO® scoring model, your payment history accounts for 35 percent of your score, and your utilization accounts for 30 percent of your score.

Your credit utilization is the amount you owe vs. your max credit limit. To benefit from this, you should keep your utilization below 30 percent. This is based on the credit limit of all your revolving accounts minus the amount you owe.

For example, if you have two credit cards, one with a $5,000 limit and one with a $3,000 limit, your total limit is $8,000. To stay lower than 30 percent, you would never want to owe more than $2,400. If you opened up a new credit card with a limit of $10,000, you could then spend up to $5,400 (30 percent of $18,000).

What is installment credit?

An installment loan account allows you to borrow a lump sum of money and pay it back in installments. Unlike revolving credit accounts, you have a set amount of money to pay back with interest before the account closes.

There are various installment loans, and you may need additional funds. Rather than increasing the loan amount, you would need to apply for a new loan.

Pros and cons of installment credit

Although credit cards are the most common form of credit, it’s helpful to have at least one installment credit account. One aspect of your FICO® credit score is “credit mix,” which accounts for 10 percent of your overall credit score.

The following are some of the additional benefits:

Predictable payments
Lower interest rates
You can receive a lump sum
Flexible terms for repayment

Some of the downsides include:

May not help credit score as much
Need to apply for a new loan to borrow more
Stricter qualification requirements
Some require collateral

How installment credit accounts affect your credit

Those who only open revolving credit accounts are missing out on the benefit of credit mix and improving their credit. Having installment credit accounts like auto or student loans can help improve your credit mix. Installment loans can also help with your credit history if they’re open for a long time, like when you get a home loan.

Similar to revolving credit accounts, you want to make your payments on time each month to improve your payment history. This is a positive signal of creditworthiness to future lenders.

Examples of installment credit

Now that you understand what installment credit accounts are, it can be helpful to see some examples:

Personal loans are forms of installment credit as well, but you often won’t need to use the funds for a specific purpose. Many people use personal loans to pay for large purchases or expenses, consolidate their debt or pay for home repairs.

Examples of revolving credit

The most common forms of revolving credit accounts include:

Credit cards. These are the most common form of revolving credit. People typically use credit cards for everyday purchases, and they can also be helpful in an emergency when you don’t have access to cash.
Home equity lines of credit (HELOCs). If you’re a homeowner, you can use a HELOC to borrow against the value of your home. People often use a HELOC for home renovations and repairs.
Personal line of credit. A personal line of credit works like a credit card but without one. To borrow the money, you go to your bank or credit union to withdraw money up to your maximum limit.

Can you get approved for revolving and installment credit accounts?

Whether you’re hoping to open a revolving or installment credit account or both, the first step is to have good credit. Good credit not only improves your chances of getting approval but can also help you get lower interest rates, saving you thousands of dollars. To start working on your credit score, first find out what it is. Lexington Law Firm offers a free credit assessment, and if you have errors on your credit report, we provide additional services to challenge them on your behalf. To get started, sign up today.

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.

Source: lexingtonlaw.com

Apache is functioning normally

May 2, 2024 by Brett Tams

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.

A 1099-c cancellation of debt form is issued when a lender forgives or cancels a debt. The 1099 c form helps the IRS account for canceled debts from the previous tax year.

The 1099-C cancellation of debt form deals with canceled or forgiven debt from the previous tax year. This form exists to ensure accuracy when reporting taxes and to help filers determine if they owe debt forgiveness taxes.

Cancellation of debt happens when a creditor discharges or forgives a debt you haven’t paid off. The IRS notes that cancellation can occur when the creditor gives up on collecting because it’s exhausted its resources and is unable to collect. In some cases, cancellation can come about as an agreement between you and the creditor.

Here, we’ll answer several common questions about this form and explain how canceled debt relates to taxes.

Key Takeaways:

The IRS requires 1099-C forms because forgiven debt contributes to your gross income.
Receiving and filing a 1099-C form won’t affect your credit score positively or negatively.
Certain forgiven debts, such as mortgage forgiveness, are exempt from 1099-C requirements.

What Is a 1099-C Form?

Form 1099-C is a tax form required by the IRS in certain situations where your debts have been forgiven or canceled. Forgiven debt contributes to your gross income for the given tax year. The IRS requests 1099-C forms to account for those funds and debt forgiveness tax if need be.

If you received a 1099-C form in the mail, it’s because of a debt cancellation that occurred at some point during the previous tax year. Box 6 on the document contains a code to help you determine why you received the form.

Reasons why a cancellation might occur include:

A creditor stops trying to claim a debt.
Your mortgage is modified.
A property is foreclosed or repossessed.

You can also learn more about the 1099-C cancellation of debt processes and why you might receive such a form if you’re unsure whether yours is accurate.

Is a 1099-C Form Good or Bad for Your Credit?

The 1099-C form shouldn’t have any impact on your credit. However, the activity that led to the 1099-C probably does impact your credit. Typically, by the time a creditor forgives a debt, you’ve engaged in at least one of the following activities:

Failed to make payments for an extended period of time
Negotiated a settlement on the debt
Entered into a program with the creditor because you can’t pay the debt, such as a home short sale or voluntary repossession
Been sent to collections
Had a foreclosure or repossession
Gone through bankruptcy

All those are negative items that can impact your credit report and score for years. So, while getting a 1099-C itself doesn’t change your credit at all, you’ve probably already experienced a negative hit to your score.

What Should You Do with a 1099-C Form?

First, find out whether the type of debt cancellation on the 1099-C form is excluded from taxable income. The IRS provides a list of exclusions; if your debt is included on this list, you won’t have to worry about the 1099-C form.

Some of the items on this list include:

Canceled amounts that were gifts or inheritances
Certain student loans and student loan discharges
Qualifying purchase price reductions

If you ultimately need to claim the income, you must incorporate the 1099-C into your federal tax filing and report the canceled debt as “other income”. Forgiven debt can increase your gross income for that tax year, which might reduce your refund or increase the taxes you owe.

In cases where the 1099-C canceled debt falls under an IRS exclusion—which means you don’t have to pay taxes on all or some of the income—you still may need to file a form. The creditor that sent you the 1099-C also sent a copy to the IRS.

Some types of debt cancellation on the 1099-C form are excluded from taxable income. The IRS provides a list of exclusions, which include debts that were forgiven because you were insolvent or involved in certain types of bankruptcies. You may want to double-check with your bankruptcy lawyer about whether you need to claim 1099-C income relevant to your bankruptcy discharge.

Call out box “Pro Tip:” link

If you don’t acknowledge the form and income on your tax filing, it could result in a tax audit. Luckily, the IRS provides a form for this purpose. It’s Form 982, the Reduction of Tax Attributes Due to Discharge of Indebtedness.

Who Can File a 1099-C Form?

According to the IRS, you can file a 1099-C form if you’ve forgiven or canceled at least $600 in debt for an individual or entity in the previous tax year. You must also be an applicable financial entity, such as a bank or credit union.

For example, you don’t need to file a 1099-C form if you loaned your brother $1,000 and then told him on his birthday you’ve decided he doesn’t have to pay you back.

How to File a 1099-C Form

How you include your 1099-C depends on how you already file your taxes. Online tax filing programs include options for adding the 1099-C form when you file. Typically, you do this when entering various types of income.

You may need to file form 982 if you have exclusions to ensure you don’t pay more than you need to. You can work with a tax professional or use software to file taxes yourself. Both options can help you minimize mistakes and maximize your refund.

How to Read a 1099-C Form

Knowing how to read your 1099-C may help you understand why you got one and what you have to do with it. Here’s a breakdown of what each box means:

Codepen Link for 1099-C instructions

Codes that might be included in Box 6 on the 1099-C:

A. Bankruptcy Title 11
B. Other judicial debt relief
C. Statute of limitations or expiration of deficiency period
D. Foreclosure election
E, Debt relief from probate or similar proceeding
F. By agreement
G. Decision or policy to discontinue collection
H. Other actual discharge before identifiable event

What Is the Mortgage Forgiveness Debt Relief Act?

The Mortgage Forgiveness Debt Relief Act of 2007 generally excludes all forgiven debt on the mortgage of your primary residence. That means you may not have to include canceled debt on your mortgage as part of your income on your taxes.

For example, if your debt is reduced through a restructuring of your mortgage or in connection with a foreclosure, it may be excluded. This is one of the most common exclusions, but there are a few other situations where you don’t have to include canceled debt.

1099-C Cancellation of Debt FAQ

Receiving a 1099-C form is a rare occurrence, which is why people often have so many questions about it. Here are several frequently asked questions we’ve encountered about this rare tax document.

What If You Receive a 1099-C Form on an Old Debt?

There aren’t statutes of limitations on the cancellation of debt, though the IRS does have rules about when these forms should be filed. The creditor must file a 1099-C the year following the calendar year when a qualifying event occurs. That just means the creditor must file the next year if they discharge or forgive a debt.

If the creditor files a 1099-C with the IRS, it typically must provide you with a copy by January 31 so you have it for tax filing purposes that year. This is similar to the rule for W-2s from employers and other tax forms.

However, there’s no rule for how long a creditor can carry debt on its books before it decides it’s uncollectible. So, if your debt isn’t canceled via repossession, bankruptcy or other such processes, cancellation could happen at any time. The creditor doesn’t have to tell you about it other than sending the 1099-C.

What If You Don’t Get Your 1099-C?

You may not receive a 1099-C or might receive it after you already filed your taxes. If you receive the form after you file, you should file an amended return. That’s true even if the 1099-C doesn’t change your tax obligation, as you want to get a Form 982 detailing the reasons for exclusion on record for documentation purposes. If you don’t receive a form at all, it may mean the creditor didn’t send one and you don’t have to file.

What If You Have a Canceled Debt That Is Less Than $600?

Canceled debt less than $600 still needs to be reported as income on your taxes, though you may not receive a 1099-C for it. Working with tax professionals may be a good idea if it’s unclear which form you should use and what income you need to claim.

What If You Misplaced Your 1099-C?

You should be able to contact the associated creditor for a copy of your 1099-C form if you lose it. If you can’t reach them or retrieve a copy, you may have to call the IRS to resolve the issue.

What If Your 1099-C Form Is Incorrect?

If your form is incorrect, you should contact the creditor to send a corrected version. If the creditor doesn’t send it before the tax deadline so you can file with the correct information, you’ll need to file an amended return when you receive it.

Though receiving a 1099-C doesn’t hurt your credit, the canceled debt that led to it probably will. It’s best to find other solutions to debt than delinquency or cancellation. You may be able to negotiate, refinance, or restructure your debt to make it more manageable.

Can a Creditor Still Collect After Issuing a 1099-C?

Yes, a creditor can still try to collect the debt a person owes even after a 1099-C has been issued. Even if a lender issues a 1099-C form, they can still choose to pursue delinquent funds if they simply want to collect the money you owe.

If you find yourself in this situation, reach out to your creditor as soon as possible and try to negotiate a new agreement.

What to Do If You Received a 1099-C Form after Filing Your Taxes

If you don’t know a 1099-C form is coming, you could make a mistake on your tax return by filing too early. If you receive the form after you file, you should file an amended return. That’s true even if the 1099-C doesn’t change your tax obligation, as you’ll want to get the Form 982 on record for documentation purposes.

The IRS also allows amended tax returns to be e-filed, making it even easier to quickly file an amendment. However, you can only amend 2020, 2021, and 2022 returns in this manner.

Enrich Your Personal Finance Knowledge with Credit.com

Learning more about taxes and financial matters is easier than ever. You can always consult Credit.com’s expansive personal finance guide to learn more about topics like unpaid taxes, credit reports, and debt-to-income ratios.

Receiving and filing a form 1099-C shouldn’t affect your credit, so you check your credit report if you notice any strange fluctuations in your score. Use Credit.com’s ExtraCredit® subscription for a full view of your credit profile—you can even get started with a free seven-day trial.

Your seven-day trial will begin after agreeing to these terms and submitting your ExtraCredit® sign-up. After your trial period, your subscription will automatically continue on the same day every month as the day you started your trial membership. The free trial is available for new ExtraCredit customers only. The credit card you provided will be charged $24.99 (plus any applicable tax) on the next business day and monthly; after your trial period unless you cancel. You may cancel at any time by downgrading your service level in your settings or by contacting us at [email protected]. Dishonored payments will result in an automatic downgrade to the free credit.com product.

Source: credit.com

Apache is functioning normally

April 25, 2024 by Brett Tams

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.

Being an authorized user can positively, negatively or minimally impact your credit score, depending on the primary cardholder’s financial actions surrounding monthly payments, credit history and credit utilization.

Whether you’re just starting to build your credit or have made some financial choices that have negatively impacted your credit, you’ve likely noticed that building credit isn’t easy. However, adding yourself as an authorized user on someone else’s credit card account is a useful way to establish new credit.

So, how does being an authorized user affect your credit? Let’s explore the various ways being an authorized user can impact your credit and how to start building credit using this strategy.

Table of contents:

What is an authorized user on a credit card?

An authorized user is an individual who is attached to another person’s credit card account but is not the primary cardholder. Authorized users are not legally responsible for credit card charges or ensuring on-time payments. They typically receive a credit card issued under their name, which is linked to the cardholder’s account.

However, the primary cardholder will receive the monthly statement for the card, not the authorized user. It’s the cardholder’s responsibility to complete payments for that card. Some credit lenders split charges by card so the cardholder can see which charges are being made by the authorized user.

How does being an authorized user affect your credit?

Being an authorized user on someone else’s account can both negatively and positively impact your credit. You’re taking a risk based on trust and communication that the primary cardholder will consistently complete payments on time and maintain a good credit history. Below are a few ways being an authorized user can affect your credit.

1. Help build your credit

If the primary cardholder consistently submits monthly payments on time and maintains a low credit utilization, you should see a positive impact on your credit. Before asking to be added to the account, ensure that the cardholder has a good credit history and that the credit lender they use reports it to the three major credit bureaus—Equifax®, Experian® and TransUnion®. This way, your authorized user account will eventually show up on your credit report.

2. Hurt your credit

Becoming an authorized user on someone else’s account, regardless of their relationship to you, involves taking a risk. Your credit can be negatively impacted if the primary cardholder fails to make timely payments or accumulates a high credit balance. If this happens, it’s best to remove yourself from the account to prevent any further impact on your credit.

3. Minimally impact your credit

If the card’s lender doesn’t report authorized user activity, the account won’t appear on your credit report. As a result, you won’t see any impact, positive or negative, on your credit.

How to build credit as an authorized user

Becoming an authorized user is a great way to start building credit or repairing a bad credit score. Follow the steps below to better your chances of successfully building credit through this method.

1. Choose the right credit card holder

Carefully consider who you want to ask to add you as an authorized user on their credit card account. Choose a relative or close friend who you can trust to make timely payments and who has a good credit history and low credit utilization.

2. Request to be added to the account

Kindly ask the primary cardholder to add you as an authorized user on their account. Keep in mind that not all credit lenders report authorized users to credit bureaus, so research the credit lender before proceeding with the approval process.

3. Monitor account activity and payments

Whether you’re using the credit card account or not, it’s important to communicate with the primary cardholder about payments and spending limits. While you aren’t legally responsible for submitting payments on time, you want to ensure that you’re not overspending on the account and increasing the utilization ratio—this ratio represents the proportion of your total credit limit that you’re using.

4. Regularly check your credit report

Regularly check your credit report to ensure that your authorized user activity is reported accurately and is positively affecting your credit. If you notice a negative impact on your credit, check to see if the primary cardholder is making timely payments and maintaining low credit utilization. If they aren’t, consider removing yourself from the account before your credit health worsens.

Authorized user FAQ

Below are answers to some common questions about how being an authorized user can affect your credit.

Who can be an authorized user?

Anyone can be an authorized user of a credit account. However, typically authorized users are family members, close friends, employees and legal guardians. Most commonly, authorized users are young individuals who want to build credit or have a poor credit history.

Who should you ask to add you as an authorized user?

While anyone can add you as an authorized user on their account, it’s best to ask someone you can trust and are close with. Relatives and close friends who have excellent credit and demonstrate a history of timely payments are good choices, as this behavior can further increase the likelihood of improving your credit.

Will adding someone as an authorized user hurt my credit?

Adding an authorized user to your credit account shouldn’t negatively impact your credit. If you maintain full control of the account and make payments on time, both you and the authorized user will benefit. However, if the authorized user misuses your credit on your account, both you and the authorized user can be negatively impacted.

Does removing an authorized user hurt their credit score?

Removing yourself as an authorized user on an account may affect your credit score. Removing yourself from an account with a good payment history may cause a slight decrease in your credit score, as you’re no longer benefiting from the credit account.

However, opening your own credit card as soon as you remove yourself from the other account can minimize the impact on your credit history. Additionally, if the primary cardholder isn’t making payments on time or is maxing out the card, removing yourself as an authorized user can benefit your credit. That’s why it’s important to carefully consider whose credit account you add yourself to.

What’s the difference between joint credit cards and authorized users?

Joint credit cards function exactly like a normal credit card, but they are shared by two people rather than one primary cardholder. The biggest difference between joint account holders and authorized users is that with a joint account, both parties are legally responsible for making payments on the account.

Additionally, those who apply for a joint credit card can expect to have their credit history and other financial information considered during the application process, whereas the authorized user’s typically isn’t considered.

How long until an authorized user account shows on your credit report?

The amount of time it takes for an authorized user account to show on your credit report depends on the credit bureau and when it’s reported. However, it’ll typically show up within 30 days of adding the authorized user to the account. Ultimately, being an authorized user can be a valuable tool for building credit, but it’s important to weigh the benefits and risks carefully. Not sure where to start but need help building your credit? Learn more about services offered at Lexington Law Firm and start repairing your credit today.

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.

Reviewed By

Sarah Raja

Associate Attorney

Sarah Raja was born and raised in Phoenix, Arizona.

In 2010 she earned a bachelor’s degree in Psychology from Arizona State University. Sarah then clerked at personal injury firm while she studied for the Law School Admissions Test. In 2016, Sarah graduated from Arizona Summit Law School with a Juris Doctor degree. While in law school Sarah had a passion for mediation and participated in the school’s mediation clinic and mediated cases for the Phoenix Justice Courts. Prior to joining Lexington Law Firm, Sarah practiced in the areas of real property law, HOA law, family law, and disability law in the State of Arizona. In 2020, Sarah opened her own mediation firm with her business partner, where they specialize in assisting couples through divorce in a communicative and civilized manner. In her spare time, Sarah enjoys spending time with family and friends, practicing yoga, and traveling.

Source: lexingtonlaw.com

Apache is functioning normally

April 10, 2024 by Brett Tams

The short answer: In most cases there isn’t an instant fix for improving your credit score. Building, improving or even repairing credit takes time.

Your credit score is like a snapshot that lenders use to determine your financial trustworthiness. Whether you’re applying for a loan, a credit card, or even renting an apartment, your credit score plays a crucial role in the decisions made about your financial future. But what if you’re in a pinch and need to improve your credit quickly? Can you fix your credit in just a week?

Why Do Credit Scores Take So Long To Update?

How often do you check your credit score? Everyday? If you have, maybe you’ve noticed in the past how long it takes your credit score to update. The credit reporting process is another reason why it would take longer than a week to update your score – it takes a while for lenders, banks, and the bureaus to record your activity.

Here’s what you should consider about the reporting process:

1. There are consistent reporting periods

Creditors typically report your account information to the credit bureaus at the end of each billing cycle. This means that any changes you make to your credit behavior, such as paying off a credit card balance or opening a new account, won’t immediately reflect on your credit report. Instead, you’ll have to wait until the next reporting period for these updates to be included.

2. The bureaus need time to verify your information

Even when creditors submit information to the credit bureaus, there is processing time involved. The credit bureaus need to receive, verify, and process the data before updating your credit report. This process isn’t instantaneous and can take several days to weeks, depending on various factors such as the volume of information being processed.

Additionally, the bureaus have specific schedules for updating credit reports, which may vary depending on factors like the bureau’s workload and the frequency of data submissions from creditors.

3. There’s a lag between when your credit reports update and when your score updates

Even after the credit bureaus update your credit report, there may still be a lag before your credit score reflects these changes. This is because your credit score is calculated based on the information in your credit report. While some credit scoring models may update more frequently, others may only update periodically, resulting in delays in your credit score reflecting recent changes.

4. Not everything is strong enough to impact your credit score

Additionally, your credit score may not change significantly if there hasn’t been much recent activity on your credit accounts. For example, if you haven’t made any new credit applications or incurred new debts, your credit report may remain relatively unchanged.

The Reality of Fixing Credit

While some changes to your credit report may occur relatively quickly, significant updates to your credit score typically take time to reflect accurately. It’s essential to be patient and continue practicing responsible credit habits while waiting for your credit score to update.

While you may not be able to fix your credit in a week, there are some strategies you can try to start improving it immediately:

Always Try to Pay Your Bills on Time

Making on-time payments is one of the most important factors in your credit score. Even a single late payment can have a negative impact, so prioritize paying your bills by their due dates.

Pay Down Credit Card Balances

If you have high credit card balances, paying them down can improve your credit utilization ratio, which in turn can positively affect your credit score.

Check Your Credit Report for Errors

Errors on your credit report can drag down your score. By reviewing your report and challenging any inaccuracies, you can potentially see an impact to your score. You can request a free copy of your credit report from each of the three main credit bureaus at AnnualCreditReport.com .

Become an Authorized User

If you have a trusted family member or friend with good credit, asking to become an authorized user on one of their credit accounts can help boost your score. Just be sure that the primary account holder has a history of responsible credit usage.

Report Rent and Utilities

Rent, utilities, cell phone bills are examples of regular payments you may be making each month that don’t show up on your credit. If you feel confident that you can continue making those payments each month, you can always sign up for a rent and utility reporting service in order to get credit for paying your bills on-time.

The Importance of Patience

Unfortunately, the idea of fixing your credit overnight or even in a week is mostly a myth.

While it’s understandable to want to improve your credit as quickly as possible, it’s essential to approach the process with patience and realistic expectations. By focusing on making responsible financial decisions over time, you can gradually raise your credit score and achieve your financial goals.

Source: credit.com