The Cost of Credit2017 was a bad year for the credit industry- data breaches
and multiple lawsuits. But it’s becoming
apparent that Americans overall are going to have a worse 2018 compared to last
year as the trend of acquiring more debt increases. Aside from having to shell out money for
damages caused in 2017, the credit industry will have a very lucrative 2018
even after paying fines and settlements thanks in part to the American
consumer.
Factors contributing to increasing credit card debt among
Americans includes more access by those considered ‘subprime borrowers,’ increased
costs for food and housing and continuous spending on unnecessary items. After all, we are a society that values keeping up with the Jones’ which causes many to borrow to achieve the
lifestyle they desire. But at what
expense?
If your debt level has outpaced your savings, it may be time
you take a serious look at your financial picture. You should be decreasing your debt and
increasing your savings (retirement, personal, emergency) over time. The latest Financial Security Index Survey from Bankrate shows the opposite is happening.
Surprisingly 17% of Americans indicated that they have no credit card
debt, but also have no savings to show for it!
Americans are failing to realize that their savings need to outpace
their debt. Preparing by having an
emergency fund to offset a health-related condition that prevents working or
retirement planning to someday retire without decreasing lifestyles can only
happen when debt is under control or eliminated.
Here are a few facts about credit you need to consider:
1. Having your credit
score accessed frequently will affect your score. You will lower your score due to multiple
inquiries if the inquiries are to obtain credit, not for other reasons such as
employment. Avoid accepting every credit offer you’re getting at the check-out.
2. Only paying the
minimum payment each month will hurt you.
The higher the balance and the length of time you carry a balance has a
negative effect on your financial health and credit score over time.
3. Not every credit
score that you access online is a true FICO score and may not be the one your
lender uses. If you apply for credit,
the lender has to provide you a copy of the score they received when they pulled
your credit; don’t be fooled into believing credit cards are the access point
to bank lending for home, auto, and other loans.
4. Late payments
lower your score. Even one a year has a
negative result on your ability to secure loans.
5. Employment history
doesn’t affect credit scores, but some lenders look at employment history to
determine if you’re financially stable enough to make monthly payments.
6. The more you make
and save doesn’t help a credit score.
Your bank accounts and investment accounts are not a part of the FICO (debt)
calculation, but if you don’t have anything left over at the end of the month
because of your debt, you can’t save and invest.
7. Bad Credit never
goes away. It takes seven years to
remove bankruptcy and collections on credit, but over time it does go away, and
your score can improve if you’ve managed your credit positively. Click here for printable version
|