While you can use aÂ debit card toÂ pay for almost all the things you would use a credit card for, these cards aren’t the same type of thing. AÂ debit card is tied to existingÂ money, either prepaid on the card itself or in your savings orÂ checking account. A credit card lets you make purchases on credit, and you won’t be able to do this with aÂ debit card.
Can You Use YourÂ Debit Card as Credit?
When youÂ pay at the register, you’re often asked whether you’re making aÂ debit or credit payment. This isn’t a question about whether you’re paying with existingÂ checking account funds or if you’ll be borrowing theÂ money from a credit card lender. It’s a question about how you want theÂ payment processed. And most of the time, yes, you can use yourÂ debit card as credit at check out.
What Happens When You Use aÂ Debit Card as Credit?
When make aÂ purchase and select to process yourÂ payment as credit, it’s an offlineÂ transaction. “The funds for offline transactions are deducted after the merchant settles theÂ purchase with the credit card processor and typically take 2-3 days to be reflected in your account balance,” MasterCard says.
According to MasterCard, when you use aÂ debit card and your PIN (personal identification number), theÂ transaction is completed in real time. That’s also known as an onlineÂ transactionâ you authorize theÂ purchase with your PIN, and theÂ money is immediately transferred from your bank account to the merchant. These areÂ debit card transactions.
But in reality, the difference betweenÂ debit and credit transactions have little real impact on your bottom line. There may be some differences inÂ fees paid by the retailer or processor, but thoseÂ fees are rarely passed on to the consumer directly.
Some individuals choose to use their debit cards as credit at the register to avoid having to enter their PIN. Itâs commonly believed that this creates some additional securityÂ against someone learning that number and having one more piece of information to supportÂ credit card fraud.
While you certainly want to protect your PIN, simply being aware of who is around you and keeping the keypad covered duringÂ debit transactions can help keep you secure if you do decide toÂ pay this way. It may seem like an unnecessary precaution, but you can never be too careful when it comes toÂ debit card fraud.
Can I Use MyÂ Debit Card if I Have NoÂ Money?
One thing that’s important to note is that you can’t usually use yourÂ debit card for credit. If you are short onÂ cash, your credit card still works if you have available credit on it. If there’s noÂ money in your bank account, yourÂ debit card may get declined when you attempt toÂ pay. So make sure there’sÂ cash in your bank account anytime you use yourÂ debit card.
There’s one exception to this rule. Some banks offerÂ overdraft protection. If you qualify for this protection, the bank covers your charges up to a certain amount and you simply rectify the situation later. That way, you avoid potentially embarrassing declines â for a cost inÂ overdraft fees, which can be $15 to $30 perÂ overdraft.
Can I Use MyÂ Debit Card as Credit at Walmart?
Whether or not you can choose toÂ pay as credit with aÂ debit card depends on each retailer andÂ payment system setup. Many WalmartÂ payment systems are set up to allow this, but they default to debit. When this happens, tell the cashier you want toÂ pay as credit or select the option for changingÂ payment method and choose toÂ pay as credit and sign for your purchases instead of entering your PIN.
Does Using MyÂ Debit Card Build Credit?
Paying with yourÂ debit card doesn’t really impact yourÂ credit score, regardless of theÂ payment type you select. That’s because yourÂ debit card is simply a stand-in forÂ money you actually have on hand (or in the bank). It’s not credit and doesn’t provide any type of illustration of your likelihood of making payments in a timely manner or using credit responsibly. Therefore, it won’t impact yourÂ credit history.
If you use yourÂ debit card to overdraw your bank account on a regular basis or do so and leave the negative balance long-term, it could negatively impact yourÂ credit score. Banks do report checking and savings details like this to the credit bureaus.
The Bottom Line on Debit Cards as Credit Cards
Whether you use yourÂ debit card asÂ credit or debit, the funds will still be withdrawn from yourÂ checking account. You can use yourÂ debit card to make aÂ payment processed as credit, but you can’t use yourÂ debit card for credit in most cases. And even when you can, it’s via the limited fail-safe ofÂ overdraft protection, which is not meant for regular use and can be quite expensive.
Debit cards are wonderfulÂ money-management tools that provide a lot of modern convenience. But for many people, it’s a good idea to have at least one credit card in your wallet too for those times when debit just doesn’t quite cut it. Just make sure to check yourÂ credit score, understand how credit cards workÂ and apply for the card that provides you the best perks at the lowest cost.
The post Using Debit Card as Credit appeared first on Credit.com.
Saving for retirement is easy to put off, but delaying ultimately can make your life harder. Even if your work does not provide any retirement savings plan, you can still make it happen. It may seem frustrating to watch your friends add up their matching 401(k) contributions, but you do not have to be any further from post-work bliss than they are. Check out these tips on saving for retirement without your employerâs help.
Identify Your Goal
Carefully consider how you plan to live after you leave work so you can calculate how much savings you need for retirement. Once you have an amount in mind, you can figure out a realistic payment plan to reach it. A good rule of thumb is stashing 10% to 15%Â of your income for retirement. If that isn’t affordable, you can start with a smaller amount andÂ grow your savings from there. One tactic is to just get started with a number you can afford and increasing your savings by 1%Â every year.
Know Your Options
Even without employer help, there are plenty of ways to save for retirement. An IRA, or individual retirement account, is the most common non-employer plan and opening one should be your first step in most cases. Contributions to a traditional IRA are tax-deductible, while nondeductible Roth IRAs are tax-free on withdrawal so investigate carefully which is best for you. Before investing, consider the risks, timing, fees and your liquidity needs âÂ a financial professional can help youÂ construct a portfolio.
Put Your Savings on Autopilot
No matter what type of account you use, itâs a good idea to have the amount automatically transferred from your checking account once you get paid. This way you cannot make a decision that something else is more important than retirement saving and you can more easily stick to your commitment. It is also a good idea to increase your monthly deposit with every raise or bonus so you will likely have what you need to retire how and when you want.
The most important part about retirement planning is saving early and often âÂ whether you have help from your employer or not, itâs important to get educated about retirement saving and take control of your finances. You can establish and maximize your retirement fund no matter how difficult or far away it may seem.
More Money-Saving Reads:
Whatâs a Good Credit Score?
Whatâs a Bad Credit Score?
How Credit Impacts Your Day-to-Day Life
The post How to Save for Retirement Without Your Employer’s Help appeared first on Credit.com.
Taking out a life insurance policy is a great
way to protect your family’s financial future. A policy can also be a useful
financial planning tool. But life insurance is a notoriously tricky subject to
One of the hardest challenges is deciding
whether term life or whole life insurance is a better fit for you.
Not sure what separates term life from whole
life in the first place? You’re not alone. Insurance industry jargon can be
thick, but we’re here to clear up the picture and make sure you have all the
information you need to make the best decision for you and your family.
Life Insurance = Financial
Protection for Your Family
Families have all sorts of expenses: mortgage payments, utility bills, school tuition, credit card payments and car loan payments, to name a few. If something were to happen and your household unexpectedly lost your income or your spouse’s income, your surviving family might have a difficult time meeting those costs. Funeral expenses and other final arrangements could further stress your familyâs financial stability.
That’s where life insurance comes in. Essentially, a policy acts as a financial safety net for your family by providing a death benefit. Most forms of natural death are covered by life insurance, but many exceptions exist, so be sure to do your research. Death attributable to suicide, motor accidents while intoxicated and high-risk activity are often explicitly not covered by term or whole life policies.
If you die while covered by your life
insurance policy, your family receives a payout, either a lump sum or in
installments. This is money that’s often tax-free and can be used to meet
things like funeral costs, financial obligations and other personal expenses.
You get coverage in exchange for paying a monthly premium, which is often
decided by your age, health status and the amount of coverage you purchase.
know how much to buy? A good rule of thumb is to multiply your yearly income by
10-15, and that’s the number you should target. Companies may have different
minimum and maximum amounts of coverage, but you can generally find a
customized policy that meets your coverage needs.
In addition to the base death benefit, you can enhance your coverage through optional riders. These are additions or modifications that can be made to your policyâwhether term or whole lifeâoften for a fee. Riders can do things like:
Add coverage for disability or deaths not commonly
covered in base policies, like those due to public transportation accidents.
Waive future premiums if you cannot earn an income.
Accelerate your death benefit to pay for medical bills
your family incurs while you’re still alive.
riders may offer access to membership perks. For a fee, you might be able to
get discounts on goods and services, such as financial planning or health and
final note before we get into the differences between term and life: We’re just
covering individual insurance here. Group insurance is another avenue for
getting life insurance, wherein one policy covers a group of people. But that’s
a complex story for a different day.
Term Life Policies Are Flexible
The “term” in âterm lifeâ refers to
the period of time during which your life insurance policy is active. Often,
term life policies are available for 10, 20, 25 or 30 years. If you die during
the term covered, your family will be paid a death benefit and not be charged any future
premiums, as your policy is no longer active. So, if you were to die in year 10
of a 30-year policy, your family would not be on the hook for paying for the
other 20 years.
Typically, your insurance cannot be canceled
as long as you pay your premium. Of course, if you don’t make payments, your coverage will lapse, which typically
will end your policy. If you want to exit a policy you can cancel during an
introductory period. Generally speaking, nonpayment of premiums will not affect your credit score, as
your insurance provider is not a creditor. Given that, making payments on your
life policy won’t raise your credit score either.
The major downside of term life is that your
coverage ceases once the term expires. Ultimately, once your term expires, you need to reassess
your options for renewing, buying new coverage or upgrading. If you were to die
a month after your term expires, and you haven’t taken out a new policy, your
family won’t be covered. That’s why some people opt for another term policy to
cover changing needs. Others may choose to convert their term life into a
permanent life policy or go without coverage because the same financial
obligationsâe.g., mortgage payments and college costsâno longer exist. This
might be the case in your retirement.
The Pros and Cons of Term Life
Even though term life insurance lasts for a
predetermined length of time, there are still advantages to taking out such a
Comparably lower cost: Term life is usually the more affordable type of life insurance, making it the easiest way to get budget-friendly protection for your family. A woman who’s 34 years old can buy $1 million in coverage through a 10-year term life policy for less than $50 a month, according to U.S. News and World Report. A man who’s 42 can purchase $1 million in coverage through a 30-year term for just over $126 a month.
Good choice for mid-term financial planning: Lots of families take out a term life policy to coincide with major financial responsibilities or until their children are financially independent. For example, if you have 20 years left on your mortgage, a term policy of the same length could provide extra financial protection for your family.
Upgrade if you want to: If you take out a term life policy, you’ll likely also get the option to convert to a permanent form of life insurance once the term ends if your needs change. Just remember to weigh your options, as your rates will increase the older you get. Buying another term life policy at 50 years old may not represent the same value as a whole life policy at 30.
There are some drawbacks to term life:
Coverage is temporary: The biggest downside to
term life insurance is that policies are active for only so long. That means
your family won’t be covered if something unexpected happens after your insurance
Rising premiums: Premiums for term life
policies are often fixed, meaning they stay constant over the duration of the
policy. However, some
policies may be structured in a way that seems less costly upfront but feature
steadily increasing premiums as your term progresses.
Young Families Often Opt for Term Life
The rate you pay for term life insurance is
largely determined by your age and health. Factors outside your control may influence the rates you
see, like demand for life insurance. During a pandemic, you might be paying
more if you take a policy out amid an outbreak.
Most consumers seeking term life fall into
younger and healthier demographics, making term life rates among the most
affordable. This is because
such populations present less risk than a 70-year-old with multiple chronic
conditions. In the end, your rate depends on individual factors. So if
you’re looking for affordable protection for your family, term life might be
the best choice for you.
Term life is also a great option if you want a
Grants you some flexibility for
future planning, as you’re
not locked into a lifetime policy.
Can replace your or your spouse’s
income on a temporary basis.
Will cover your children until
they are financially stable on their own.
Is active for the same length as
certain financial responsibilitiesâe.g., a car loan or remaining years on a
Whole Life Insurance Offers
Like with term life policies, whole life
policies award a death benefit when you pass. This benefit is decided by the
amount of coverage you purchase, but you can also add riders that accelerate
your benefit or expand coverage for covered types of death.
The biggest difference between term life and
whole life insurance is that the latter is a type of permanent life insurance.
Your policy has no expiration date. That means you and your family benefit from
a lifetime of protection without having to worry about an unexpected event
occurring after your term has ended.
The Pros and Cons of Whole Life
As if a lifetime of coverage wasn’t enough of
advantage, whole life insurance can also be a highly useful financial planning
Cash value: When you make a premium payment on
your whole life policy, a portion of that goes toward an account that builds
cash up over time. Your
family gets this amount in addition to the death benefit when their claim is
approved, or you can access it while living. You pay taxes only when the money
is withdrawn, allowing for tax-deferred growth of cash value. You can
often access it at any time, invest it, or take a loan out against it. However, be aware that anything
you take out and don’t repay will eventually be subtracted from what your
family receives in the end.
Dividend payments: Many life insurance
companies offer whole life policyholders the opportunity to accrue dividends
through a whole life policy. This works much like how stocks make dividend
payments to shareholders from corporate profits. The amount you see through a dividend payment is
determined by company earnings and your provider’s target payout ratioâwhich is
the percentage of earnings paid to policyholders. Some life insurance
companies will make an annual dividend payment to whole life policyholders that
adds to their cash value.
Some potential downsides to consider include:
Higher cost: Whole life is more expensive than
term life, largely because of the lifetime of coverage. This means monthly
premiums that might not fit every household budget.
Interest rates on cash value loans: If you need emergency extra
money, a cash value loan may be more appealing than a standard bank loan, as
you don’t have to go through the typical application process. You can also get
lower interest rates on cash value loans than you would with private loans or
credit cards. Plus, you don’t have to pay the balance back, as you’re basically
borrowing from your own stash. But if you don’t pay the loan back, it will be
money lost to your family.
Whole Life Is Great for Estate Planning
Who stands to benefit most from a whole life
Young adults and families who can
net big savings by buying a whole life policy earlier.
Older families looking to lock in
coverage for life.
Those who want to use their policy
as a tool for savings or estate planning.
To that last point, whole life policies are particularly advantageous in overall financial and estate planning compared to term life. Cash value is the biggest and clearest benefit, as it can allow you to build savings to access at any time and with little red tape.
you can gift a whole life policy to a grandchild, niece or nephew to help
provide for them. This works by you opening the policy and paying premiums for
a set number of yearsâlike until the child turns 18. Upon that time, ownership
of the policy is transferred to them and they can access the cash value that’s
been built up over time.
If you’re looking for another low-touch way to leave a legacy, consider opening a high-yield savings account that doesn’t come with monthly premium payments, or a normal investment account.
What to Do Before You Buy a
Make sure you take the right steps to finding
the best policy for you. That means:
Researching different life insurance companies and their policies, cost and riders. (You can start by reading our review of Bestow.)
Balancing your current and long-term needs to best protect your family.
Buying the right amount of coverage.
If you’re interested in taking next steps, talk to your financial advisor about your specific financial situation and personal needs.
The post Term Life vs. Whole Life Insurance: Which Is Best for You? appeared first on Credit.com.
Hackers steal more than 1 million records globally every hour. And improvements in technology make it easierânot harderâall the time for cyber thieves to access your personal and financial information. While identity theft is a scary thought, you arenât helpless.
ExtraCredit provides tools to help you not feel helpless. Sign up for dark web monitoring and $1 million identity theft insurance for proactive alerts and support if the worst happens.
The three major credit bureausâExperian, Equifax and Transunionâoffer three ways to help you protect yourself from someone opening an account in your nameâa fraud alert, credit freeze and a credit lock. Though they sound the same, each one provides a different level of protection and impact and each has different requirements.
What Are Fraud Alerts?
A fraud alert is a basic form of credit protection. It acts as a roadblock that makes it harder for thieves to open an account in your name. If you have a fraud alert in place, a lender or other business isnât supposed to open an account for you without first taking steps to verify that the account is, in fact, for you and not someone pretending to be you.
Unlike with a credit freeze, your credit file is still accessible to business and lenders. Thereâs just an added step that must be taken before the lender or another business opens an account in your name.
Because you provide your contact information when you set up the alert, inquiring banks often use your telephone number to contact you if someone, including you, is trying to open a new account in your name. This gives you the opportunity to confirm or deny that you applied for the account.
Three Types of Fraud Alerts
There are three different types of fraud alerts that you can add to your credit reports at the three credit bureaus.
An initial fraud alert can be added by anyone at any time and for any reason. You can add it at any one of the three reporting agencies. The bureau you request an alert from has to let the other bureaus know about The other two then have to add an initial fraud alert to your report as well. An initial alert automatically expires after a year.
An extended fraud alert requires that you verify that youâre a victim of identity theft or fraud. Verification involves sending an identity theft report with a copy of a police or other law enforcement report. Requesting an extended alert, as with an initial fraud alert, can be done at one of the reporting agencies who then has to alert the other two bureaus on your behalf. An extended fraud alert stays on your report for seven years.
An active-duty alert or active-duty fraud alert is used for active military service members. Like an initial fraud alert, it lasts for one year but can be extended if the service member remains deployed. Like the other alerts, opening an active-duty at one bureau requires that reporting agency share it with the other two.
What Is a Credit Freeze and Credit Lock?
While a fraud alert instructs businesses to take steps to verify your identity before opening a new account, it doesnât keep them from looking at your credit file. A credit lock or credit freeze, also called a security freeze, does prevent anyone from looking atâor making a hard inquiry onâyour credit report.
A lock or freeze prevents a business or lender from even considering you for a loan or account, where an alert lets them see your credit report. With an alert, they can get to the point of wanting to extend you the loan or account, but not actually opening it without first verifying youâre the one who wants the loan or account.
With a freeze or lock in place, the lender can still make a soft inquiry against your credit report. So you can still get pre-approved credit card offers or have a prospective employer check your credit.
Initial fraud alerts and credit freezes are covered by government laws, specifically the Economic Growth, Regulatory Relief, and Consumer Protection Act, which requires they be free for one year.
Credit locks are not necessarily free or covered by laws. They are credit industry products.
Locks and freezes last until you lift them. Ending a freeze requires a PIN you receive when you place the freeze. Ending a lock can be done simply by asking the company who placed the lock usually online or by phone.
When to Place a Fraud Alert
Requesting a credit card fraud alert is easy and wonât hurt your credit score or affect your reports. Itâs okay to request one at any time. Because an alert only lasts a year, you may want to reserve requesting one for when you think you might be in jeopardy, such as:
You notice fraudulent activity on any of your accounts.
You think you are a victim of fraud.
Your information may be at risk in a data breach.
Your wallet, credit card, Social Security card, etc. was lost or stolen.
You want to take extra precautions against identity theft.
When in doubt, a fraud alert gives you some reassurance. If youâre planning to take out aÂ loan or apply for a credit card soon, an alert gives you some protection without restricting your ability to apply for financing.
If you have a credit freeze or lock in place and you apply for a loan or credit card, youâll have to at least temporarily lift the freeze or lock and take extra steps. Those steps arenât cumbersome but will take a small amount of time. If you choose a lock or freeze, simply know that youâll have to do some workâmore than answering a phone callâif you need a new loan or credit card and have one in place.
How to Apply for a Fraud Alert
Experian lets you submit a fraud alert request online. You can enter either your personal information or identifiers from a recent credit report. If youâd prefer not to input your Social Security number, you have the option to upload other documents to verify your identity.
TransUnion lets you request a fraud alert online through TransUnion by creating an account and completing the online form.
Equifax lets you create an account and file for a fraud alert online. With Equifax, you can also mail in an application or set up an alert by phone at 800-525-6285.
What Else Can You Do to Protect Yourself?
A fraud alert, credit freeze or credit lock are just some of the tools you can use to protect yourself from identity theft. Another tool you can use is your credit score. Using a service, such as Credit.com, to monitor your credit score can alert you to any changes in your score which can indicate somethingâor someoneâhas abused your credit.
You can sign up for a free Experian VantageScore credit score or a $1 FICO credit score from Credit.com. Your score includes access to a free credit report cardâshown belowâthat tracks the five key areas that go into your scoreâpayment history, debt usage, credit history, account mix and inquiries. Â Your score and your report card are updated every two weeks, so you can see any changes and take action if needed, including adding a fraud alert, freeze or lock when needed.
The post How Is a Fraud Alert Different from a Credit Freeze or Lock? appeared first on Credit.com.
What do you need your credit score for? In a nutshell, a lot. Credit cards, loans, mortgages, APR, even renting an apartmentâwhether or not you qualify is based largely on your credit score. If your credit is less-than-ideal, you know it can make your life just that much harder.
Having a bad credit score can hold you back. It can keep you from feeling in control of your life. You might feel like youâre in a vicious cycle: you apply for credit to improve your score, get denied, suffer a hard inquiry, watch your credit score drop and try again. And it starts over.
We get it. And we want to help. Enter ExtraCredit, the newest product from Credit.com. ExtraCredit is a comprehensive credit solution, with specific and encompassing features that helps you with every dimension of your credit.
But ExtraCredit isnât your typical credit solution. Think of it as a lifestyle change. Think of it as a way for you to take your life back.
Check Out ExtraCredit
ExtraCredit is your one-stop-shop for all things credit. Need identity protection? ExtraCreditâs got it covered. Want a look at your FICOÂ® Score? Sure! An exclusive discount with one of the leaders in credit repair? Yep, weâve got that too. Ready to add more to your credit? Weâve got your back. ExtraCredit is here for you, no matter what your credit score is. ExtraCredit helps you own your lifeâstarting with your credit.
ExtraCredit has five features, each created to help you get where you want to be. Hereâs the lowdown on each:
So you decided to sign up for ExtraCredit. Smart choice! Because youâve made such a smart choice, weâll send you an ExtraCredit card loaded with $5. Thatâs real money. And thatâs what Reward It is all about.
It doesnât end there. When you sign up with ExtraCredit, we start sending relevant financial offers your way. Letâs say you get approved for one of those financial offers. Thatâs a big deal! And we want to celebrate with you. Which is why weâll load your ExtraCredit card with up to $200. Thatâs rightâup to two hundred dollars. All for you, because of your smart financial decisions.
Learn More about Reward It
There are a lot of credit scores out there. And there are a lot of apps and services that claim to have the score. You know, the one and only completely accurate score you need. But the thing is, that doesnât exist. So the score you might be seeing on one of those other apps isnât the same as the FICOÂ® Score that lenders see. In fact, you have at least 28 credit scores. Thatâs a lot to keep track of.
Thatâs where Track It comes in. ExtraCredit will keep track of your 28 FICO credit scores, so you can keep track of every single one. But it goes one step further by showing you what each score is used for. Plus, youâll get access to your credit reports from all three major credit bureausâExperian, TransUnion and Equifax.
Learn More about Track It
Here are some statistics for you: in 2019, 14.4 million consumers were victims of identity fraud. Sure, that might not sound like a lot of people. But when you realize that it comes out to about 1 in 15 people, it feels like a much bigger threat. In total, 33% of adult Americans have been victims of identity theft.
You might think that youâve got all the protection you need. And maybe you have set up a few precautions here and there. But criminals nowadays are smart. Just look at those stats! They know what theyâre doing. But donât sweat itâso do we. Guard Itâs here to save the day.
Guard It provides services to keep you nice and safe. Thereâs Dark Web Monitoring, which will continually scan hidden websites and file-sharing networks for data breaches. Then thereâs Compromised Account Monitoring thatâll catch unauthorized bank changes and accounts opened with a stolen identity. And last, but not least, thereâs Identity Theft Insurance. Thatâll help protect you from financial danger with a $1,000,000 policy. Better safe than sorry.
Learn More about Guard It
We all know that credit card payments play a major role in your credit score. But thatâs just half the story. What about all the other bills that you pay, like rent and utilities? Shouldnât those count? We definitely think so, which is where Build It comes in.
Build It uses Rent & Utility reporting to match transactions from your bank account. Think about that for a secondâBuild It will help you add more to your credit profile whenever you pay your rent on-time. How easy is that?
From there, Build It continues to report your payments to all three major credit bureaus each month.
Learn More about Build It
So your creditâs not where you want it to be. And you need help. The good news is, youâre in the right place. Restore It will connect you with one of the leaders in credit repair. Youâll get an exclusive discount for CreditRepair.com, a credit repair service that has a killer track record. If they are not available in your area, you will get that discount with another leader in credit repair.
Learn More about Restore It
Okay, we know that there are a lot of credit solutions out there. Youâve probably seen other services, like credit repair, ID protection and credit monitoring. But hereâs the thingâno one offers a comprehensive service like ExtraCredit.
With ExtraCredit, you get five killer features all wrapped up in a box with a bow on top. Hereâs a breakdown of how much the ExtraCredit services would typically cost on their own:
Basic Credit Repair: $24.95+
Rent Reporting: $9.99
ID Protection: $34.99
FICO Scores: $19.99
Altogether, thatâd add up to a cool $89.92. But with ExtraCredit you get all five services at $24.99 a month, plus real cash back for select offers.
The Bottom Line
Sure, there are a lot of credit solutions out there. But hereâs the thingâExtraCredit impacts every dimension of your credit. So you could go with one-dimensional services provided by the other guys. Or you could go with ExtraCredit, which offers so much more than the basics.
ExtraCredit is here for you. Itâs like a team of credit pros, all focused on monitoring your credit and satisfying your credit score needs. All you have to do is sit back, relax and let ExtraCredit do the work.
ExtraCredit is the last credit solution you’ll ever need. Join the revolution today.
The post Why You Need ExtraCredit in Your Life appeared first on Credit.com.
According to Experian, the average credit score in the United States was just over 700 in 2019. Thatâs considered a good credit scoreâand if you want a good credit score, you have to consider your revolving utilization. Revolving utilization measures the amount of revolving credit limits that you are currently using, and it accounts for a large portion of your credit score.
Find out more about what revolving utilization is, how to manage it, and how it impacts your credit score below.
What Is Revolving Credit?
To understand revolving utilization, you first have to understand revolving credit. Revolving credit accounts are those that have a “revolving” balance, such as credit cards.
When you are approved for a credit card, you are given a credit limit. If you have a credit card with a limit of $1,000 and you use it to buy $200 worth of goods, you now have a $200 balance and an $800 remaining credit limit.
Now, if you pay that $200, you again have $1,000 of open credit. If you pay $150, you have $950 of open credit. But your credit revolves between balance owed and how much open credit you have available to use. How much you have to pay each monthâknown as the minimum paymentâdepends on how much your balance owed is.
Other forms of revolving credit include lines of credit and home equity lines of credit. They work similar to credit cards.
What Isn’t Revolving Credit?
Unlike revolving credit, installment loans involve taking out a lump sum and paying it back in an agreed-upon fashion over a set term of months or years. Typically, you agree to pay a certain amount per month for a certain number of months to cover the amount you borrowed plus any interest.
With an installment loan, the amount of your monthly payment is determined by your loan agreement, not the balance due. Common types of installment loans include vehicle loans, personal loans, student loans, and mortgages.
What Is Revolving Utilization?
Revolving utilization, also known as âcredit utilizationâ or your âdebt-to-limit ratio,â relates only to revolving credit and isn’t a factor with installment loans. Utilization refers to how much of your credit balance you’re using at a given time.
Hereâs how to determine your individual and overall credit utilization:
Look at your credit reports and identify all of your revolving accounts. Each of these accounts has a credit limit (the most you can spend on that account) and a balance (how much you have spent).
To calculate individual utilization percentage on an account, divide the balance by the credit limit, and multiply that number by 100.
$500/$1,000 = 0.5
5*100 = 50%
To calculate overall utilization (all revolving accounts), add up all of the credit limits (total credit limit) and all of the balances (total spent) on your revolving accounts. Divide the total balance by total credit limit, and multiply that number by 100.
If you have a credit card with a $1,000 credit limit and a balance of $500, your utilization rate is 50%, for example. For the same card, if you have a balance of $100, your utilization rate is 10%.
When it comes to your credit score, revolving utilization is typically calculated in total. For example:
You have one card with a limit of $1,000 and a balance of $500.
You have a second card with a limit of $4,000 and a balance of $400.
You have a third card with a limit of $3,000 and a balance of $600.
Your total credit limit across all three cards is $8,000.
Your total utilization across all three cards is $1,500.
Your revolving utilization is around 19%.
How Can You Reduce Revolving Utilization?
You can reduce revolving utilization in two ways. First, you can pay down your balances. The less you owe, the less your utilization will be.
Second, you can increase your credit limit. If you apply for a new credit card but don’t use it, you’ll have more open credit, and that can reduce your utilization. You might also be able to ask your credit card company to review your account for a credit increase if you’re an account holder in good standing.
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What Is Revolving Utilization’s Impact on Your Credit Score?
Your revolving utilization rate does impact your credit. It’s the second-largest factor in the calculation of your credit score. Your utilization rate accounts for around 30% of your score. The only factor more important is whether you make your payments on time.
Why is credit utilization so important to your score? Because to lenders, it can say a lot about you as a borrower.
If you’re currently maxed out on all your existing credit, you may be struggling to pay your debts. Or you might not be managing your debts in the most responsible fashion. Either way, lenders might see you as a riskier investment and be less inclined to approve you for loans or other credit.
How Do You Know If You Have a Revolving Utilization Problem?
Sign up for Credit.comâs free Credit Report Card. It provides a snapshot of your credit report and gives you a grade for each of the five areas that make up your score. That includes payment history, credit utilization, age of credit, credit mix, and inquiries. The credit report card makes it easy for you to see what might be negatively affecting your credit score.
You can also sign up for ExtraCredit, an exciting new product from Credit.com. With an ExtraCredit account, you get a look at 28 of your FICO scores from all three credit bureausâplus exclusive discounts and cashback offers as well as other featuresâfor less than $25 a month.
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