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A 2015 study found that older adults lose more than $36 billion every year to financial scams. Unfortunately, con artists see the elderly population as an easy and vulnerable target.
The American Securities Administrators Associationâs President, Mike Rothman, explains that scammers take this approach because the current elderly population is one of the wealthiest weâve seen with such hefty retirement savings. Where the money goes, the con artists follow.
With so many scams targeting older adults, itâs essential to make yourself and your loved ones aware of the different types of cons. Here is a list of common financial scams that specifically target the elderly and how you can prevent them:
The Grandparent Scam
The grandparent scam is common because it appeals to older adultsâ emotions. Scammers get the phone number of a senior and they call pretending to be a grandchild. Making their lie seem more believable, the con artist will playfully ask the older adult to guess what grandchild is calling. Of course, the first reaction will most likely be for the senior to name a grandchild and then the scammer can easily play along, acting like they guessed right. Now the grandparent thinks they are talking to their grandchild.
The scam artist will then begin to confide in the grandparent, saying they are in a tough financial position and they need the grandparentâs help. Asking them to send money to a Western Union or MoneyGram, they plead for the grandparent not to tell anyone. If the grandparent complies and sends the money, the scammer will likely contact the senior again and ask for more money.
Avoid this scam:
- Never send money to anyone unless you have 100 percent proof that it is who you think it is. Scammers can find out quite a bit of information from social media and other methods, so donât think that just because they know a couple pieces of information about you and your family that it is legit.
- Verify that it is actually your grandchild on the phone by texting or calling the grandchildâs real phone number and verifying if it is him or her.
- Call the parent of the supposed grandchild and find out if the grandchild really is in trouble.
- Talk to your family members now and compile a list of questions only you and your family know the answers to. If a family emergency really does happen, you can ask the questions and know if it is your family member based on the answers.
âClaim Your Prize Now!â Sweepstakes Scam
The sweepstakes scam is when con artists contact the elderly either by phone or email and tell them they have won something, whether that be a sum of money or another type of prize. To claim the prize, scammers tell them they have to pay a fee. Once the senior agrees, scammers send a fake check in the mail. Before the check doesnât clear and seniors can realize it is a scam, they have already paid the âfee.â
Avoid this scam:
- Do not give out any financial information over the phone or email.
- Practice Internet safety by protecting your passwords, shopping on encrypted websites, and avoiding phony emails.
- Be skeptical of any message that says you have randomly won a prize and you must do something before you can claim it. Unless you specifically enter a contest, you most likely arenât going to randomly win a monetary prize.
Because of the Affordable Care Act that allows seniors over the age of 65 to qualify for Medicare, scam artists donât have to do much research about seniorsâ healthcare providers. This makes it simple for scammers to call, email, or even visit seniorsâ homes personally and claim to be a Medicare representative.
There are a variety of ways these con artists use this Medicare scam to target the elderly. One way is telling seniors they need a new Medicare card and to do so, they need to tell the âMedicare representativeâ what their Social Security number is. An additional way is they can tell seniors there is a fee they need to pay to continue their benefits.
Avoid this scam:
- Do not give out any information to someone you have not verified is from Medicare. Real Medicare employees should have your information on file so if you are skeptical, ask the person some questions to verify it is legitimate.
The âWoodchuckâ Scam
A common scam to target seniors who live alone is the âwoodchuckâ scam. Scam artists will claim to be contractors and will complete house projects if seniors agree to let them.
The scammers will gain seniorsâ trust and eventually come up with a variety of fake repairs that need to be done, such as a roof repair. This often results in seniors giving the fake contractors thousands of dollars.
Â Avoid this scam:
- Make sure the person doing your home repairs is a professional. Find out what company they work for and call and verify they are indeed a legitimate contractor.
Con artists are using senior homeownership to their benefit. The mortgage scam is when scammers offer a property assessment to seniors, telling them they can determine the value of their home. This scam has become increasing popular as housing confidence is hitting record highs and people are putting a large chunk of their income towards saving for new homes.
The scam artists make the process look legitimate by finding the homeâs information on the Internet and sending seniors an official letter detailing all of the found information. The scammers do this because it is an easy way to con seniors into paying a fee for the requested information.
Â Avoid this scam:
- Ensure the property assessment is legitimate by asking what company they work for and following up with the real company to verify.
Talk to Your Loved Ones
Older adults are often too embarrassed to tell authorities or a family member they have been scammed. Talk to the seniors in your life and let them know they can confide in you and let you know if they have been scammed. You can also have them read through this article and make themselves aware of the scams that could potentially target them in the future.
Check Your Credit Regularly
Check your credit regularly so you are aware of any suspicious activity with your accounts. You can check your credit for free on Credit.com and receive a free credit score updated every 14 days along with a credit report card, which is a summary of what is on your credit reports.
Get It Now
The post Financial Scams That Target the Elderly and How to Prevent Them appeared first on Credit.com.
If you want to whip your finances into shape, hereâs a good New Yearâs resolution: improving your credit score.
A lot of New Yearâs resolutions fail because theyâre so extreme. Think of all the bonkers weight-loss and money-saving goals that surface at the start of every year.
This resolution is different. No extreme measures are required. But there arenât any shortcuts. Building good credit is a goal you need to commit to 12 months a year.
How to Build Good Credit in 10 Steps
Ready to make 2021 the year you finally prove your creditworthiness? Or are you looking to recover from a 2020 setback? Hereâs how to build good credit in 10 steps.
1. Stay on Top of Your Credit Reports
Itâs essential to monitor your credit reports, especially if you received a hardship agreement from a lender due to COVID-19. Under the CARES Act rules, lenders are supposed to report your account as paid in full while the agreement is in effect, as long as you werenât already delinquent. But mistakes happen. Even in normal times, about 1 in 5 credit reports contained inaccurate information.
Through April 2021, you can get one free credit report per week from each bureau. (Typically, youâre only entitled to one free credit report per year from each bureau.) Make sure you access your reports at AnnualCreditReport.com, rather than one of the many websites that offer âfreeâ credit scores but will make you put down your credit card number to sign up for a trial. File a dispute with the bureaus if you find anything you think is inaccurate or any accounts you donât recognize.
Your credit reports wonât show you your credit score, but you can use a free credit-monitoring service to check your score. (No, checking your own credit doesnât hurt your score.) Many banks and credit card companies also give you your credit scores for free.
If the bureaus agree to remove information from your credit reports, expect to wait about 30 days until your reports are updated.
2. Pay Your Bills. On Time. Every Single Month
Yeah, you knew we were going to say this: Paying your bills on time is the No. 1 thing you can do to build good credit. Your payment history determines 35% of your score, more than any other credit factor.
Set whatever bills you can to autopay for at least the minimums to avoid missing payments. You can always pay extra if you can afford it.
A strong payment history takes time to build. If youâve made late payments, theyâll stay on your credit reports for seven years. The good news is, they do the most damage to your score in the first two years. After that, the impact starts to fade.
3. Establish Credit, Even if Youâve Made Mistakes
You typically need a credit card or loan to build a credit history. (Sorry, but all those on-time rent and utility payments are rarely reported to the credit bureaus, so they wonât help your score.)
But if you have bad credit or youâre a credit newbie, getting approved for a credit card or loan is tough. Look for cards that are specifically marketed to help people start or rebuild credit. Store credit cards, which only let you make purchases at a specific retailer, can also be a good option.
4. Open a Secured Card if You Donât Qualify for a Regular Card
Opening a secured credit card is one of our favorite ways to build a positive history when you canât get approved for a regular credit card or loan. You put down a refundable deposit, and that becomes your line of credit.
After about a year of making your payments on time, youâll typically qualify for an unsecured line of credit. Just make sure the card issuer you choose reports your payments to the credit bureaus. Look for a card with an annual fee of no more than $35. Some secured card options we like (and no, weâre not getting paid to say this):
- Discover it Secured
- OpenSky Secured Visa Card
- Secured Mastercard from Capital One
5. Ask for a Limit Increase. Pretend You Never Got It
Increasing your credit limits helps your score because it decreases your credit utilization ratio. Thatâs credit score speak for the percentage of credit youâre using. The standard recommendation is to keep this number below 30%, but really, the closer to zero the better.
If you have open credit, ask your current creditors for an increase, rather than applying for new credit. That way, youâll avoid lowering your length of credit, which could ding your score.
The downside of a higher credit limit: Youâll have more money to spend that isnât really yours. To get the biggest credit score boost from a limit increase and avoid paying more in interest, make sure you donât add to your balance.
Donât believe the myth that carrying a small credit card balance helps your credit score. Paying off your balance in full each month is best for your score, plus it saves you money on interest.
6. Prioritize Credit Card Debt Over Loans
Tackling credit card debt helps your credit score a lot more than paying down other debts, like a student loan or mortgage. The reason? Your credit utilization ratio is determined exclusively by your lines of credit.
Bonus: Paying off credit card debt first will typically save you money, because credit cards tend to have higher interest rates than other types of debt.
7. Keep Your Old Accounts Active
Provided you arenât paying ridiculous fees, keep your credit card accounts open once youâve paid off the balance. Credit scoring methods reward you for having a long credit history.
Make a purchase at least once every three months on the account, as credit card companies often close inactive accounts. Then pay it off in full.
8. Apply for New Credit Selectively
When you apply for credit, it results in a hard inquiry, which usually drops your score by a few points. So avoid applying frequently for new credit cards, as this can signal financial distress.
But if youâre in the market for a mortgage or loan, donât worry about multiple inquiries. As long as you limit your shopping to a 45-day window, credit bureaus will treat it as a single inquiry, so the impact on your score will be minimal.
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9. Still Overwhelmed? A Debt Consolidation Loan Could Help
If youâre struggling with credit card debt, consolidating your credit card debt with a loan could be a good option. In a nutshell, you take out a loan to wipe out your credit card balances.
Youâll get the simplicity of a single payment, plus youâll typically pay less interest since loan interest rates tend to be lower. (If you canât get a loan that lowers your interest rate, this probably isnât a good option.)
By using a loan to pay off your credit cards, youâll also free up credit and lower your credit utilization ratio.
Many debt consolidation loans require a credit score of about 620. If your score falls below this threshold, work on improving your score for a few months before you apply for one.
10. Keep Your Credit Score in Perspective
All the credit-monitoring tools out there make it easy to obsess about your credit score. While itâs important to build good credit, look at the bigger picture. A few final thoughts:
- Your credit score isnât a report card on the state of your finances. It simply measures how risky of a borrower you are. Having an emergency fund, saving for retirement and earning a decent living are all important to your finances â but these are all things that donât affect your credit score.
- Lenders look at more than your credit score. Having a low debt-to-income ratio, decent down payment and steady paycheck all increase your odds of approval when youâre making a big purchase, even if your credit score is lackluster.
- Donât focus on your score if you canât pay for necessities. If youâre struggling and you have to choose between paying your credit card vs. paying your rent, keeping food on the table or getting medical care, paying your credit card is always the lower priority. Of course, talk to your creditors if you canât afford to pay them, as they may have options.
Focus on your overall financial picture, and youâll probably see your credit score improve, too. Remember, though, that while credit scores matter, you matter more.
Now go crush those goals in 2021 and beyond.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to DearPenny@thepennyhoarder.com.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
In the age of paperless transactions, identify theft is something that virtually all of us are susceptible to. If your identity is stolen, the consequences can be severe, and in some cases, can take years to recover from. One way to be proactive against fraud and defend yourself from identity theft, is to freeze your credit report with each of the three major credit bureausâExperian, TransUnion, and Equifax.Â
Placing a credit freeze on your credit report will stop identity thieves from being able to open new accounts, lines of credit, or make any large purchases in your name, regardless of whether or not they have your Social Security number or any other sensitive information.Â
What a credit freeze means
A credit freeze is a process that shuts off access to your credit reports at your request. Without your verified consent, your delicate information cannot be acquired. This means that if someone were to attempt to apply for credit in your name, your report would come up as âfrozen,â and therefore the creditor would not be able to see the information needed for the application to be approved.
You can unfreeze your credit at any time by using a PIN or a password.Â
Reasons to freeze your credit
It might be a good idea to freeze your credit if youâre experiencing any of the following situations:
- Your data has been compromised in a data breach: It happens. If youâve been a victim of a data breach and personal information related to your identity has been leaked or made vulnerable to cyber criminals, a credit freeze can offer you some extra protection.Â
- You have reason to think youâve been a victim of identity theft: Perhaps youâve checked your credit recently and noticed open accounts that you donât recognize. Maybe youâve been getting phone calls from collections agencies requesting payments from accounts you know you didnât open. While a credit freeze wonât be able to stop them from using accounts a thief has already opened, it can stop them from opening any more.Â
- You want to protect your child from identity theft: According to the Economic Growth, Regulatory Relief and Consumer Protection Act, parents and legally guardians of children 16 years old and younger have the right to open a credit account for their child with the sole purpose of putting a freeze on it to protect them from identity theft.Â
How to freeze your creditÂ
The process of freezing your credit is simple but does require a few steps. You will need to get in touch with each of the three major credit bureaus one by one and request a credit freeze:
- Experian: Contact by phone at 800-349-9960 or go to their website.
- Equifax: Contact by phone at 888-397-3742 or go to their website.
- TransUnion: Contact by phone at 888-909-8872 or go to their website.Â Â
The credit bureaus will ask you for your Social Security number, your date of birth and other information to verify your identity.
Once you freeze your credit, your file will be unattainable even if a thief has sensitive information such as your social security number or date of birth. If you need to use your credit file, you can unfreeze your credit report at any time.Â
How to unfreeze your credit
Once youâve frozen your credit file, it will be remain blocked until you decide that you would like to unfreeze it. You will need to unfreeze your credit report in order to open a new line of credit or make a major purchase.Â
Unfreezing your credit file is simple. All you will need to do is go online to each credit bureau website and use the personal identification number (PIN) that you used to place the freeze on the account. If you donât want to complete this task online, you can also unfreeze your credit file over the phone or through postal mail.Â
When the unfreezing process is done online or by phone, it is completed within minutes of submitting the request. However, if you send your request via mail, it will take much longer.Â
Keep in mind that you donât necessarily need to unfreeze your credit through all three of the major credit bureaus if you donât want to. For instance, letâs say you plan to apply for credit somewhere. You can ask the creditor which credit bureau it will go through to pull up your report, and only unfreeze that one credit bureau.Â
You may also have the option to unfreeze for a specific amount of time. Once the time is up, your credit file will automatically freeze again.Â
Credit freeze pros and cons
There are a few reasons why you might want to freeze your credit in this day and age, but just like with anything else, there are pros and cons to credit freezing. Here is a general breakdown of the benefits and downfalls of putting a freeze on your credit report:
- It prevents thieves from opening new lines of credit: With a credit freeze placed on your account, no one will be able to open a new line of credit or any other type of account requiring a credit check using your personal data. Anyone trying to commit fraud will be stopped in their tracks as soon as lenders notice that the report is frozen.Â
- It wonât affect your credit score: Freezing your credit report will not damage your credit score. Additionally, if youâve been a victim of identity theft, freezing your credit report could actually protect your credit score from being damaged due to fraud.Â
- Itâs free: It used to be the case that some credit freezes would cost a fee, but that is no longer the way it works.Â
- It requires some effort: Putting a credit freeze on your credit report takes some effort. You will need to get in touch with all three credit bureaus.Â
- You will need to remember your PINs: A PIN is required to lift or freeze your credit report. If you lose it, you will need to jump through extra hoops to create a new one.
It canât stop thieves from accessing your existing accounts: Credit freezes can only stop fraudsters from opening new accounts using your information. If youâve already been a victim of identity theft, a credit freeze canât block thieves from committing fraud with your current accounts. This means that thieves can still make a purchase using a credit card they stole from you.
Freezing Your Credit is a post from Pocket Your Dollars.
Credit card issuersÂ have consumers right where they want them, lending money at high-interest ratesÂ and earning money from many different fees. Even reward cards benefit the issuers, because all the additionalÂ perksÂ and rewards they provide are covered by the increased merchant fees, which essentially means theÂ credit card companyÂ offers you extra money to incentivize you to spend, and then demands this money from the retailers.
It’s a good gig, but some consumers believe they can beat the credit card companiesÂ and one of the ways they do this is via something known asÂ credit card churning.
What isÂ Credit Card Churning?
Many reward cards offerÂ sign-up bonusesÂ to entice consumers to apply. Not only can you get regularÂ cash back, statement credit, and air miles, but you’ll often get a reward just for signing up. For instance, manyÂ rewards credit cardsÂ offer a lump sum payment to all consumers who spend a specific sum of money during the first three months.
Credit card churningÂ is about taking advantage of these bonuses, and getting maximum benefits with as little cost as possible.
“Churners” will sign up for multiple different reward cards in a short space of time, collect as many of these bonuses as they can, clear the card balance, and then reap the rewards.
DoesÂ Credit Card ChurningÂ Work?
Credit card churningÂ does work, to an extent. Reward credit cards typically don’t require you to spend that much money to receive the sign up bonus, with most bonuses activated for a spend of just $500 to $1,000 over those first three months. This is easily achievable for most credit card users, as the average spend for reward cards is over $800 a month.
If you haveÂ good credit, it’s possible to sign up to multiple credit cards, collectÂ bonus offersÂ without increasing your usual spend, and get everything from hotel stays to free flights,Â cash back,Â gift cards, statement credit, and more.
However, it’s something that manyÂ credit card companiesÂ are trying to stop, as they don’t benefit from users who collectÂ sign-up bonuses, don’t accumulate debt, and then pay off their balance in full. As a result, you may face restrictions with regards to how many bonuses you can collect within a specified timeframe.Â
What’s more, there are several things that can go wrong when you’re playing with multipleÂ new accountsÂ like this, as all information is sent to theÂ credit bureausÂ and could leave a significant mark on yourÂ credit report.
Dangers of Churning
Even if theÂ credit card companiesÂ don’t prevent you from acquiring multipleÂ new credit cards, there are several issues you could face, ones that will offset any benefits achieved from those generousÂ sign-up bonuses, including:
1. You Could be Hit with Hefty Fees
Many reward credit cards haveÂ annual fees, and these average around $95 each, with some premiumÂ rewardsÂ cardsÂ going as high as $250 and even $500. At best, these fees will reduce theÂ amount of moneyÂ you receive, at worst they will completely offset all the benefits and leave you with a negative balance.
Annual feesÂ aren’t the only fees that will reduce your profits. You may also be charged fees every time you withdraw cash, gamble, make a foreign transaction or miss a payment,
2. YourÂ Credit ScoreÂ Will Drop
Every time you apply for aÂ new credit card, you will receive aÂ hard inquiry, which will show on yourÂ credit reportÂ and reduce yourÂ FICOÂ scoreÂ by anywhere from 2 to 5 points. Rate shopping, which bundles multiple inquiries into one, doesn’t apply toÂ credit card applications, soÂ credit cardÂ churnersÂ tend to receive manyÂ hard inquiries.
AÂ new accountÂ can also reduce yourÂ credit score. 15% of your score is based on the length of your accounts while 10% is based on how manyÂ new accountsÂ you have. As soon as thatÂ credit card accountÂ opens, your average age will drop, you’ll have anotherÂ new account, and yourÂ credit scoreÂ will suffer as a result.
The damage done by aÂ new credit cardÂ isn’t as severe as you might think, but if you keep applying and adding thoseÂ new accounts, the score reduction will be noticeable. You could go fromÂ Excellent CreditÂ toÂ Good Credit, or from Good to Fair, and that makes a massive difference if you have a home loan or auto loan application on the horizon.
Your credit utilization ratio also plays a role here. This ratio is calculated by comparing your total debt to yourÂ available credit. If you have a debt of $3,000 spread across three credit cards with a totalÂ credit limitÂ of $6,000, your credit utilization ratio is 50%. The higher this score is, the more of an impact it will have on yourÂ credit score, and this is key, as credit utilization accounts for a whopping 30% of your score.
Your credit utilization ratio is actually one of the reasons yourÂ credit scoreÂ doesn’t take that big of a hit when you openÂ new cards, because you’re adding a newÂ credit limitÂ that has yet to accumulate debt, which means this ratio grows. However, if you max that card out, this ratio will take a hit, and if you then clear the debt and close it, all those initial benefits will disappear.
You can keep the card active, of course, but this is not recommended if you’re churning.
3. You’re at Risk of AccumulatingÂ Credit Card Debt
EveryÂ new cardÂ you open and every time yourÂ credit limitÂ grows, you run the risk of falling into a cycle of persistent debt. This is especially true whereÂ credit card rewardsÂ are concerned, as consumers spend much more on these cards than they do on non-reward credit cards.
Very few consumers accumulateÂ credit card debtÂ out of choice. It’s not like a loanâitâs not something they acquire because they want to make a big purchase they can’t afford. In most cases, the debt creeps up steadily. They pay it off in full every month, only to hit a rough patch. Once that happens, they miss a month and promise themselves they’ll cover everything the next month, only for it to grow bigger and bigger.
Before they realize it, they have a mass ofÂ credit card debtÂ and are stuck paying little more than the minimum every month.Â
If you start using a credit card just to accumulate rewards and you have several on the go, it’s very easy to get stuck in this cycle, at which point you’ll start paying interest and it will likely cost you more than the rewards earn you.
4. It’s Hard to Keep Track
Opening one credit card after another isn’t too difficult, providing you clear the balances in full and then close the card. However, if you’re opening several cards at once then you may lose track, in which case you could forget about balances, fees, and interest charges, and miss your chance to collectÂ airline milesÂ cash back, and other rewards.
How to Credit Churn Effectively
To credit churn effectively, look for theÂ best rewardsÂ and most generousÂ credit card offers, making sure they:
- Suit Your Needs:Â A travelÂ rewards cardÂ is useless if you don’t travel; a store card is no good if you don’t shop at that store. Look forÂ rewards programsÂ that benefit you personally, as opposed to simply focusing on the ones with the highest rates of return.
- AvoidÂ Annual Fees:Â AnÂ annual feeÂ can undo all your hard work and should, therefore, be avoided. Many cards have a $0Â annual fee, others charge $95 but waive the fee for theÂ first year. Both of these are good options forÂ credit card churning.
- Don’t Accumulate Fees:Â Understand how and why you might be charged cash advance fees and foreign transaction fees and avoid them at all costs. The fees are not as straightforward as you might think and are charged for multiple purchases.
- Plan Ahead:Â Make a note of theÂ bonus offerÂ and terms, plan ahead, and make sure you meet these terms by theÂ due datesÂ and that you cover the balance in full before interest has a chance to accumulate.
- Don’t Spend for the Sake of It:Â Finally, and most importantly, don’t spend money just to accumulate more rewards. As soon as you start increasing your spending just to earn a few extra bucks, you’ve lost. If you spend an average of $500 a month, don’t sign up for a card that requires you to spend $3,000 in the first three months, as it will encourage bad habits.Â
What Should You do if it Goes Wrong?
There are many ways thatÂ credit card churningÂ could go wrong, some more serious than others. Fortunately, there are solutions to all these problems, even forÂ cardholdersÂ who are completely new to this technique:
Spending RequirementsÂ Aren’t MetÂ
If you fail to meet the requirements of the bonus, all is not lost. Your score has taken a minor hit, but providing you followed the guidelines above, you shouldn’t have lost any money.
You now have two options: You can either clear the balance as normal and move onto your next card, taking what you have learned and trying again, or you can keep the card as a back-up or a long-term option.Â
Credit card churningÂ requires you to cycle through multiple issuers andÂ rewards programs, never sticking with a single card for more than a few months. But you need some stability as well, so if you don’t already have a credit card to use as a backup, and if that card doesn’t charge high fees or rates, keep it and use it for emergency purchases or general use.
Creditor Refuses the Application
Creditors can refuse an application for a number of reasons. If this isn’t your first experience of churning, there’s a chance they know what you’re doing and are concerned about how the card will be used. However, this is rare, and in most cases, youâll be refused because yourÂ credit scoreÂ is too low.
Many reward credit cards have a minimumÂ FICOÂ scoreÂ requirement of 670, others, including premiumÂ American ExpressÂ cards, require scores above 700. You can find more details aboutÂ credit scoreÂ requirements in theÂ fine printÂ of allÂ credit card offers.
YourÂ Credit ScoreÂ Takes a Hit
As discussed already, credit card churning can reduce yourÂ credit scoreÂ by a handful of points and the higher your score is, the more points you are likely to lose. Fortunately, all of this is reversible.
Firstly, try not to panic and focus on the bigger picture. WhileÂ new accountsÂ and credit length account for 25% of your total score,Â payment historyÂ and credit utilization account for 65%, so if you keep making payments on your accounts and don’t accumulate too muchÂ credit card debt, your score will stabilize.
You Accumulate Too Much Debt
Credit card debtÂ is really the only lasting and serious issue that can result fromÂ credit card churning. You’ll still earn benefits on a rolling balance, but your interest charges and fees will typically cost you much more than the benefits provide, and this is true even for theÂ best credit cardsÂ and the most generous reward programs.
If this happens, it’s time to putÂ credit card churningÂ on the back-burner and focus on clearing your debts instead. Sign up for aÂ balance transferÂ credit card and move your debt to a card that has a 0% APR for at least 15 months. This will give you time to assess your situation, take control of yourÂ credit history, and start chipping away at that debt.
What is Credit Card Churning? Dangers and Benefits is a post from Pocket Your Dollars.
If youâre serious about your credit score, you need to pay your bills on time. One late payment can have a devastating effect on your credit score. Hereâs what you need to know about late payments and your credit score, and what you can do to protect yourself.
How Late Payments Affect Credit Scores
Your payment history is the biggest factor in determining your credit score, so itâs imperative that you pay your bills on time whenever possible. If you do make a late payment, there are three factors that determine how much it will affect your credit score.
- Your credit score and credit history
- How long ago the late payment was
- How severe the late payment was
According to FICOâs credit damage data, one recent late payment can cause as much as a 180-point drop on a FICO score, depending on your credit history and the severity of the late payment.
Your Credit History and Late Payments
The impact of a missed payment on your credit score varies significantly depending on your circumstances. The better your credit, the more you may feel the sting of a late payment. In fact, that 180-point drop mentioned earlier is most likely to happen to an individual with excellent credit who is 90 days late on a payment. Because individuals with good and excellent credit donât have a history of risky behavior, one mistake sends up a red flag that can drop their score more dramatically.
Individuals with a shorter credit history will likely see a dramatic decrease in their score after a late payment as well. Because there is less information available on your financial behavior, a late payment is a bad sign. On the other hand, individuals with lower credit scores already have a history of risky behavior, so one more late payment wonât drop their score as much.
How Time Affects Credit
The more recent a late payment is, the more severely it will affect your credit score. A missed payment remains on your credit report for up to seven years from the date it occurred. The overall impact of the late payment diminishes over time and goes away completely when the missed payment ages off your report.
Your score won’t necessarily jump 100 points simply because a late payment ages off or is removed. Even though a late payment might have originally dropped your score by a good number, the impact of that late payment changes over time. How much your score goes up when a late payment is removed depends on a variety of factors, so youâll want to continue practicing smart financial habits like making payments on time and keeping your credit utilization low.
How Severity Affects Credit
If you missed your credit card payment by one day, you probably don’t need to sweat it. In most cases, lenders and creditors have grace periods that can range from a few days to up to 10 days. Grace periods are meant to account for minor mistakes and lag in mailing or posting payments. If your payment arrives within that time period, the lender may not count it as late.
Most lenders donât report missed payments until your account is 30 days past due. After 90 days, the effect on your credit score will be even more drastic.
Make sure to read the fine print on your account agreement, though, to know if you have a grace period. And avoid falling into the habit of relying on the grace period. If you’re used to paying your bill five days after the actual due date, you could miss the grace period if you experience a personal emergency. Also keep in mind that interest and fees may still apply during the grace period, even if your payment isnât reported as late to the credit bureaus.
How to Protect Your Credit History Against Late Payment Impact
Payment history is a huge part of your credit score. It accounts for around 35% of your scoreâover a third. Take action to ensure late payments aren’t impacting your score when they don’t need to. Here are three tips for doing so.
1. Check Your Credit Score and Report Regularly
Check your credit reports frequently to ensure late payments aren’t being reported inaccurately. A simple clerical error is enough to cause your score to go down. If you see inaccurate information on your credit reports, you can and should challenge it and ask for verification.
You can get a free credit report annually from each of the three credit bureaus. Due to the COVID-19 crisis, you can get your free credit report once a week through April 2021. When you request your credit report from AnnualCreditReport.com or the individual credit bureaus, you wonât also see your credit score. If you want to see both at the same time, consider signing up for ExtraCredit. Youâll see 28 of your FICO scores from all three credit bureaus, plus your credit reports from each.
2. Use Tools to Help You Make Timely Payments
Avoid late payments by using resources that ensure you make payments on time each month.
- Sign up for auto payments. Your lender may offer this option, letting you enter a credit or debit card or checking account and taking payments out of that account each month. The benefit is that you can set and forget your payments, never worrying that they’re late. The disadvantage is that you have less flexibility in when you pay each month, and you have to ensure you keep a balance in your account to cover the charges.
- Use apps or phone alarms. Remind yourself to make payments with app notifications that let you know the payment date is arriving soon. Many credit card companies and other lenders offer options for receiving such notifications directly from them.
- Make smaller, more frequent payments. If you’re struggling to save enough to cover a large bill each month, pay a portion of what’s owed every week. This can help simplify your budget, though you do need to ensure you’re not being charged convenience fees or other amounts every time you make a payment.
3. Ask for One-Time Late Payments to Be Forgiven
Life happens, and creditors are aware of this. So if you do find yourself making a one-off late payment, contact your creditor.
Apologize for the late payment, let them know it’s not a normal occurrence for you and point to your previously pristine payment history. Ask the creditor to waive late fees and interest charges as a courtesy and not report the late payment to the credit bureaus. It’s a tool you must use sparingly, but creditors may to oblige if you really do normally pay on time.
Your Credit Score Will Thank You
Making all your bill payments on time is one of the best ways to keep your credit score happy and healthy. Keep track of how youâre doing by signing up for ExtraCredit.
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