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Five Tips To Manage Your Credit Score

Your credit score, often called your FICO score, represents to a lender how likely you are to pay your bills on time. It may determine whether you can get a loan, a job, an apartment, or insurance. A low score may prevent you from obtaining the lowest borrowing rates or the best loan terms.

Your credit score is based on information provided by your creditors to the three credit reporting agencies: Equifax, Experian, and TransUnion. Because each agency may have different information about you, your score may differ slightly among the three.

What affects your credit score? Although judgments, liens, and bankruptcies can have a damaging effect on your score, it is the little things that count. Fully 65 percent of your FICO score is based on two key factors: your payment history and the amount of debt you carry versus the amount available to you (i.e., your credit card limits). Also important is your length of credit history, how much new credit you have applied for, and your mix among credit types. For more detailed information, visit www.myfico.com/crediteducation.

Tip #1: Get your score.

Although you can get a free credit report once every 12 months through www.annualcreditreport.com, the report does not include your score. You only get a free score if you have been denied credit or insurance. Many lenders will provide your score upon request, after your application has been approved. If you want to know your score before applying, you can pay a small fee to one of the credit reporting agencies or go to www.myfico.com. Offers for free scores are usually tied to monthly credit monitoring services.

Tip #2: Correct your information.

It is a good idea to check your credit reports annually to ensure that they are accurate. Correct mistakes immediately, with both the institution and the credit reporting agencies; they have a responsibility to correct errors under the Fair Credit Reporting Act. Be sure to send copies of supporting documentation and keep a record of your request.

Tip #3: Understand your rating.

FICO scores range from 300 to 850, with 850 the best possible score. In 2015, the median credit score in the U.S. was 723. As a general rule, a FICO score above 700 is very good; scores below 600 indicate a high credit risk.

Tip #4: Know how to improve your score.

You can take the following actions to help improve your score:

 

· Pay bills on time.

· Pay down credit card balances. Reduce the credit card balances you carry to below 35 percent of your available credit limit; 10 percent is ideal.

· Cut up unnecessary cards but don’t close the accounts. Because your utilization rate counts as 30 percent of your FICO score, don’t reduce your available credit by closing old accounts. Instead, train yourself not to carry unnecessary cards or cut them up.

· Remember that the trend is your friend. As your credit “blips” recede into the past, your new habits have more weight.

 

Tip #5: Avoid debt negotiation companies.

Don’t be taken in by ads for companies that offer to get you out of debt by negotiating with creditors. You may get a reduction in your credit balance, but not without paying a high price. Moreover, if the company encourages you to walk away from your debt, you will also likely damage your credit score and wind up paying additional taxes.

You don’t need a third party to work out a modified repayment plan. Call the number on the back of your credit card, explain your situation, and ask to restructure your payments.

Take Charge of Your Student Debt Repayment Plan

Student loans are a lot like a ball and chain, slowing down what could be a perfectly good financial plan. Outstanding student loan debt in the United States has tripled over the last decade, surpassing both auto and credit card debt to take second place behind housing debt as the most common type of household debt. Today, more than 44 million Americans collectively owe more than $1.4 trillion in student debt. Here are some strategies to pay it off.

Look to your employer for help

The first place to look for help is your employer. While only about 4% of employers offer student debt assistance as an employee benefit, it's predicted that more employers will offer this benefit in the future to attract and retain talent.

Many employers are targeting a student debt assistance benefit of $100 per month.3 That doesn't sound like much, but it adds up. For example, an employee with $31,000 in student loans who is paying them off over 10 years at a 6% interest rate would save about $3,000 in interest and get out of debt two and a half years faster.

Understand all your repayment options

Unfortunately, your student loans aren't going away. But you might be able to choose a repayment option that works best for you. The repayment options available to you will depend on whether you have federal or private student loans. Generally, the federal government offers a broader array of repayment options than private lenders. The following payment options are for federal student loans. (If you have private loans, check with your lender to see which options are available.)

 

Standard plan: You pay a certain amount each month over a 10-year term. If your interest rate is fixed, you'll pay a fixed amount each month; if your interest rate is variable, your monthly payment will change from year to year (but it will be the same each month for the 12 months that a certain interest rate is in effect).

Extended plan: You extend the time you have to pay the loan, typically anywhere from 15 to 30 years. Your monthly payment is lower than it would be under a standard plan, but you'll pay more interest over the life of the loan because the repayment period is longer.

You have $31,000 in student loans with a 6% fixed interest rate. Under a standard plan, your monthly payment would be $344, and your total payment over the term of the loan would be $41,300, of which $10,300 (25%) is interest. Under an extended plan, if the term were increased to 20 years, your monthly payment would be $222, but your total payment over the term of the loan would be $53,302, of which $22,302 (42%) is interest.

Graduated plan: Payments start out low in the early years of the loan, then increase in the later years of the loan. With some graduated repayment plans, the initial lower payment includes both principal and interest, while under other plans the initial lower payment includes interest only.

Income-driven repayment plan: Your monthly payment is based on your income and family size. The federal government offers four income-driven repayment plans for federal student loans only:

 
 
  • Pay As You Earn (PAYE)

  • Revised Pay As You Earn (REPAYE)

  • Income-Based Repayment (IBR)

  • Income-Contingent Repayment (ICR)

 
 

You aren't automatically eligible for these plans; you need to fill out an application (and reapply each year). Depending on the plan, your monthly payment is set between 10% and 20% of your discretionary income, and any remaining loan balance is forgiven at the end of the repayment period (generally 20 or 25 years depending on the plan, but 10 years for borrowers in the Public Service Loan Forgiveness Program). For more information on the nuances of these plans or to apply for an income-driven plan, visit the federal student aid website at studentaid.ed.gov.

 

Can you refinance?

Yes, but only with a new private loan. (There is a federal consolidation loan, but that is different.) The main reason for trying to refinance your federal and/or private student loans into a new private loan is to obtain a lower interest rate. You'll need to shop around to see what's available.

If you refinance, your old loans will go away and you will be bound by the terms and conditions of your new private loan. If you had federal student loans, this means you will lose any income-driven repayment options.

Watch out for repayment scams

Beware of scammers contacting you to say that a special federal loan assistance program can permanently reduce your monthly payments and is available for an initial fee or ongoing monthly payments. There is no fee to apply for any federal repayment plan.

Still Need Help?

Student loans can be complicated and can have a significant impact on your long-term financial success. It’s important to develop the right plan for your unique situation. Don’t let your student loan debt derail your financial progress Contact Us for a free consultation.