Concerned About Your Credit Score? Here’s What You Need to Know

Concerned About Your Credit Score? Here’s What You Need to Know

Nelson Smith |Mar 16, 2020

How to Improve Your Credit Score

Unless you’re independently wealthy or have a generous benefactor on speed-dial, the concept of how to improve your credit score is important.

A lousy credit score can impact your life in some significant ways. You’ll pay more for loans with a poor credit score, of course, assuming you can even get credit at all. Once you pass a certain point, no reputable lender wants to deal with you. That means no car loans, or a credit card. And you can kiss your dreams of owning a home good-bye.

There are other less obvious ways your credit score can impact your well-being, too. If you move to a new state, utility companies will often require a big upfront deposit to hook up services, something that you can easily get waived if you have good credit. This could add thousands to an already expensive move. The best cell phone plans are reserved for folks with good credit as well.

Many people with credit issues are often forced to pay more for insurance as well, since insurers are convinced poor credit can easily leech into other parts of your life.

Needless to say, it is important to keep your credit score strong. It’ll save you money and generally make your life easier. But what if that ship has already sailed, and you’ve made some mistakes that have impacted your score?

Don’t sweat it. Here are some easy ways you can improve your credit score.

The Importance of Knowing Your Score

Keeping an eye on your credit score is important, and not just so you can save money the next time you get a loan.

The most important reason to monitor your credit score is to guard against identify theft. Various companies have access to your personal information, and some of them likely aren’t storing it very securely. Hackers can steal some of your vital data and use it to fraudulently take out credit in your name.

Creditors aren’t the only people who are checking your score. Besides Googling you or checking out your Facebook profile, many companies will spend the cash to get access to your credit report. Some employers swear by this strategy, citing a link between poor credit and lackluster job performance. Imagine losing out on your dream job because of an unpaid bill five years ago.

Another reason to keep an eye on your score is to make sure you’re not accidentally sabotaging yourself. Credit scores are complicated; staying on top of yours will be worth the effort the next time you apply for a loan.
Saying that, however, most folks don’t keep a close eye on their credit score, and it doesn’t really affect them. While I ultimately recommend keeping an eye on yours, there’s really no reason to get too excited unless you’re actively trying to improve it.

What Influences Your Score

The exact formula that is used to determine your credit score is a tightly guarded secret of the Equifax Corporation. But we do know some general factors that will affect your score.

The first, and most obvious factor that impacts your credit score is whether you’ve paid your bills. If you’re late on a credit card payment even once, it will hurt your credit. You’ll start to see a serious impact on your score if you’re late multiple times, with it really tanking if you’re behind more than a month or two.

Another thing that influences your credit score is the number of credit accounts you have open. You won’t get penalized if you have a few different sources of credit, but anything more than 3-4 and the algorithm will begin to think you have a credit addiction, deducting points from your score accordingly.

A third factor that will impact your credit score is something called credit utilization ratio. This measures how much of your available credit you’ve used up. If you have two credit cards with a combined $20,000 limit and you currently owe $19,500, that will negatively impact your score. On the other hand, you’ll be rewarded for a lower utilization ratio.

Another thing that can damage your credit score is applying for credit. If you apply once a year or so, don’t sweat it; it won’t impact your score that much. But, if you’re shopping for a loan and end up with five inquiries on your report in just a month or two, that can push your score down. To further complicate things, some folks looking at your credit will do a soft pull (which doesn’t affect your score), while others will do a hard pull (which does).

Finally, your credit score will be affected by how long you’ve had the same credit lines open. If you’ve had the same credit card for a decade without issue, for example, that will help keep your score high.

How to Improve Your Score

Now that we know what goes into your credit report, improving your score is a relatively straightforward exercise. Just do what the credit monitoring company wants.

We know that paying our bills on time is important. Make sure you do that, even if you can’t afford to pay the entire balance of your credit card bill off all at once. The only real downside to this strategy is it takes time, especially if your credit is especially bruised.

Another way to boost your score is to improve your credit utilization ratio. The best way to do this is to pay down your debt, of course. But some people prefer a sneakier way, which is to simply apply for more credit. In certain situations, getting another credit card and transferring some of your debt onto it can improve your credit score. However, this is not a recommended strategy, as it will not solve your credit issues, and it has no long-term benefit.

If you’re planning to drop an unused credit card that you’ve had for a while, I’d suggest holding off. The better solution would be to hang on to that card and use it sparingly, which will keep its positive influence on your credit report.

If your credit score is close to the line of not being able to qualify for the best mortgage rate, be wary of applying for too many loans. Perhaps it’s best to use a mortgage broker in this situation, a person who can use the same credit report for multiple lenders.

The Bottom Line

The overriding thing to remember is this: some of these moves will improve your credit score over the near-term, but the best long-term strategy is to budget wisely and pay your bills on time. This will take time if your score is weak today, but it’s the best way to build a sustainable good credit score.

Our Most Valuable advice

How to Apply for a Business Credit Card

Myles Leva | March 16, 2020

Paying for Business Expenses Applying for a business credit card is something a small business should seriously consider for itself. Business credit cards can provide a range of benefits to a business. They allow a company to build up credit for better borrowing conditions down the road. They’re also quite easy to apply for. In this article, we’ll go over how to apply for a business credit card and other important points to note. What Is a Business Credit Card? A business credit card is a credit card that is intended for business expenses. These cards are not meant for any individual’s personal use, but they are available to businesses of all sizes. What Is a Business Credit Card Used For? Business credit cards are meant for business expenses, and as such, they come with several perks that you wouldn’t get with a normal credit card. Business credit cards typically have far higher credit limits than normal cards, but they are also harder to qualify for. [youmaylike] As a business phenomenon, business credit cards vary their offers greatly, and certain cards are meant for certain businesses. They are also highly customizable when it comes to individual payment terms. Businesses don't always have consistent incomes like individuals do, and business credit cards handle this problem. These cards are used to gain access to a long line of credit, to control employee spending on business expenses and more. One of their other common uses is to make accounting easier, as putting all business expenses on one separate account makes reporting to the Internal Revenue Service easier. In the end, there are many uses for a business credit card. Why Would I Need a Business Credit Card? You might not need one, but if you run a business, you’ll be leaving money on the table by not at least looking into them. Business credit cards can solve many of the problems business owners face. If you need employees to make purchases for the business, a business credit card is the safest option. These cards can be given to authorized users, a status you can easily give to any of your employees. From here, these cards make it easy to monitor employee spending and spot any discrepancies. You can attach customized user privileges to each card to limit spending and place limits on where the card can be used. As mentioned, if you feel like your credit is too limited, business credit cards are a sure way around low credit. According to the American Bankers Association, the average monthly payment on a business credit card is twice as high as the average payment on a normal one. If you’ve found yourself annoyed with the Internal Revenue Service over the complicated reporting processes for business owners, you’re not alone. This is where a business credit card can solve another problem. Simply handing over your business credit card statements to your accountant will make them love you. It will also provide them with the information they need to predict future spending. Another great use for a business credit card is lifting your liability for debts. Liability for credit card debt is determined by the liability offered by the card. If you’re using a personal credit card for business expenses, you are liable for all debts. On the other hand, if you use a business credit card with commercial liability, your business is liable for any debts, which changes the game. Keep in mind that some cards offer joint liability, which leaves both you and your business liable for any debts. Make sure you know what you’re getting into before signing any paperwork. Lastly, just as personal credit cards offer rewards programs, so do business cards. The main difference here is that business credit card rewards are tailored to your business needs. How to Apply for a Business Credit Card Before you apply for a business credit card, you should make sure you’re eligible. For the most part, you only require the following to be able to apply for one: A legal name for your business. A business structure to apply with, such as a Limited Liability Corporation. An explanation of the nature of your business. You’ll typically be given a list of industry types to choose from. A tax ID number issued by the Internal Revenue Service Your roll in the business you’re representing Various business/financial information including: Annual revenue. Number of employees. Length of time in business. Estimated monthly expenses. If you have this information ready, you can apply for a business credit card. At this point, it would be wise to shop around and find the best option for your business. Your decision on the business credit card you choose will have larger ramifications than your choice of a personal credit card. Applying for a business credit card is much the same as applying for a personal one. There are a few differences, but the main thing to remember is that business credit cards are taken more seriously than normal ones, so you’ll have to face a higher bar of entry. This doesn’t mean getting a business credit card is hard, but it does mean you need to arrive more well-prepared than you normally would. To make things easier, you can prepare for certain obstacles in advance. You may need to sign a personal guarantee that you will pay off any debts. Also keep in mind that if you’re the one applying for a business credit card, and your business doesn’t already have one, they will conduct a personal credit check. It may be best to try to optimize your personal credit if you plan on applying for a business credit card in the future. Some Options at a Glance Here are some of the most popular options for small business credit cards: Chase Inc Business Preferred This is a great option for a few reasons. With the Business Preferred card from Chase Inc, you get 80,000 ultimate reward points when you spend $5,000 with the card in the first three months. The card also provides generic, but highly useful benefits for business owners. Business Platinum Card from American Express The Business Platinum is ideal for businesses that spend a lot on flights and travel. This card offers numerous rewards on flight and hotel expenses and makes sure you get something serious back if you use it for these expenses. Chase Inc Business Unlimited The Chase Inc Business Unlimited offers unlimited 1.5% cash back. While we’ve said enough already, they also offer several other perks that are overshadowed by their first one.

Everything You Need to Know About Filing Your Own Taxes

Katie Macomb | March 16, 2020

It's Not Fun, but It Has to be Done Benjamin Franklin wrote a 1789 letter that states, “But in this world nothing can be said to be certain, except death and taxes.” Even at the United States’ early beginnings, federal taxes were a necessary evil to fund various public projects and administrative costs. Today, federal taxes serve much of the same purpose. While virtually no one likes to prepare and file their taxes, it is a necessity if you want to avoid fines and further hassle. It is no secret that preparing and filing your taxes is notoriously complicated. Many people lament that it should not be so difficult to pay the government. However, some of the complications allow people to save money if they discover specific tax benefits. Knowing how to file your own taxes may be a good option if your tax situation is relatively straightforward, or if you are willing to learn the process. Why Do You Need to File Your Taxes Every Year? The short answer is that federal law requires that most individuals file taxes annually. Income taxes are assessed every year based on your income earned during that period. You then pay a percentage of that income to the government, less any deductions, adjustments, or credits that you qualify to receive. If you do not file (and pay) your taxes, then you may be assessed penalties and interest. The Internal Revenue Service (IRS) can even go as far as garnishing your wages and repossessing your property if you do not file and pay as required. The Benefits of Filing Your Own Taxes If you are one of the 43% of Americans that are doing your own taxes, you are certainly not alone. Roughly 53 million people prepared and filed their own taxes in 2018. There are many benefits to filing your own taxes, including: Saving money: Hiring a tax professional is expensive, and many people can prepare and file their returns on their own, completely free of charge. Control: Some people like knowing the exact information that is included in their return and being able to control the data, and for some, knowing precisely how the numbers work out, is comforting. Gain helpful information: When you prepare your taxes, you can see what items saved you money this year or which issues you should address so you can save money next year. While filing your own taxes is complicated, it can be beneficial under the right circumstances. There are several programs online that walk you through the process to help ensure you are taking advantage of all of your available deductions and credits. The Drawbacks of Filing Your Own Taxes In addition to the benefits, there are also some disadvantages to filing your own taxes. These include: Time and effort: Preparing and filing your taxes takes time and work You have to sift through financial information and deal with concepts that you may not understand well. The process can be frustrating and take a considerable amount of time. Error risk: If you do not completely understand how your taxes work, you run the risk of making a mistake because of misconceptions. If that happens, it could lead to underpayment and audits down the road. Questions: Even if you use a tax preparation software, you may still have questions that will remain unanswered unless you do significant research or reach out to a tax professional. For some people, the risk of having a substantial error that triggers the IRS’s attention is enough to scare them away from preparing their own taxes. Preparing for Filing Your Taxes When you begin work on your taxes, you should have information gathered throughout the year. Some of the most common items that you will need include: Social Security numbers for you, your spouse, and any dependents Information about wages, such as W2s or 1099s Investment income information Documents that represent any other source of income Information regarding adjustments to income, such as student loan interest paid, IRA contributions, and health savings account contributions, just to name a few Information regarding potential credits, including, for example, child care expenses, education expenses, or retirement savings contributions Data about any tax payments that you may have made throughout the year Keeping good records will help make tax preparation easier at the beginning of the year. [youmaylike] The Basics About What You Can Claim When Filing You must pay income taxes on all your income earned throughout the year. However, that income is reduced by a few things. The further you can reduce your taxable income, the less you tax you will pay. There are three general categories of tax reduction methods: Standard or Itemized Deductions Everyone can claim either the standard or itemized deductions. Standard deductions are a set amount that is based on your filing status. Itemized deductions are based on actual expenses that you incurred throughout the year. You can choose to use the higher deduction. The higher the deduction, the less tax you will have to pay on your income because your income decreases on paper. Itemized deductions include things like medical expenses, state and local tax payments, and home mortgage interest deductions. Itemized deductions will only decrease your income by a certain percentage, or up to a specific point. Adjustments Some adjustments to your income may also be available. These include things like paying student loan interest or alimony. Adjustments are more valuable compared to deductions because they decrease your income dollar for dollar. Credits A credit decreases your taxable income as well. Some credits are refundable while others are not. For example, you get a child tax credit simply for having children that qualify for that credit, but that credit will not be paid out to you if you do not have any tax obligations. On the other hand, the Earned Income Credit, which is available for low-income filers, will be refunded to you even if you do not owe any taxes. There are a wide variety of deductions and credits available. Take a look at the federal forms and related schedules to determine whether you might qualify for any of these. How to File Your Own Taxes If You Live Overseas If you earned income in the United States as a U.S. citizen or resident alien, you likely need to pay taxes on that income. This is true even if you live overseas. You can still choose to e-file or mail your tax return to the IRS once you have it prepared, just as if you physically lived in the United States. In some cases, you will be taxed on the income that you earned throughout the world. However, you may be able to deduct a portion or all of the revenue that was not made in the United States in some circumstances. Filing Online The IRS offers an online filing option that is free for individuals that have an adjusted gross income below a specific threshold. Generally, your income must be below $66,000 to qualify for this service. You can also file online by using a commercial tax preparation software. Examples of this type of software include: H&R Block TurboTax TaxCut TaxSlayer There are many programs available that will file your taxes for you, often for a fee. Knowing how to file your own taxes can be a great way to save money, but it can be tricky as well. If you want to file your taxes yourself, be sure to read the form instructions thoroughly and get familiar with various tax saving opportunities before you begin preparing your return.