Maintaining An Extraordinary Credit Score

Maintaining a good credit score is important when one is trying to secure competitive interest rates on car loans, mortgages, or credit cards. To keep a credit score high, one should follow the few recommendations listed below.

1. Do not close credit cards or revolving accounts. It can be tempting to cancel credit cards or revolving accounts once you pay them off or get that balance close to zero. Closing accounts can actually help lower your score, so it is not recommended. The reason it lowers the score is because it appears that one has less available credit since a canceled credit card is no longer available for use.

2. Obtain a free credit report at least once per year. It is helpful to obtain a copy of your credit report at least six months before applying for any large purchase. This allows ample time to verify all entries on the credit report as well as correct any errors if any exist. Also, check to make sure that your social security and personal information is listed correctly. These are items that are red flags for identity theft, so personal demographic information should be verified immediately to ensure that your identity has not been compromised. Every consumer is eligible for an annual free credit report.

3. Dispute any errors on the credit report. Review the credit report for accuracy. Often one person’s social security number can be transposed and it erroneously appears on another consumer’s credit report. Therefore, check for accounts that do not belong to you as well as accounts that are reporting incorrectly. For example, verify that paid accounts are reflected as such and verify that balances are correctly stated. Each credit bureau offers a dispute process. Typical, one can initiate this process online. The credit bureau will investigate the item in question and get back in touch with the consumer with their findings.

4. Make sure to pay each bill on time. Credit reports show monthly updates. Therefore, it is important that one pays their bills on time each month because any month that is not paid on time will be reflected on the credit bureau report. Obviously, the longer a bill is not paid, the larger impact that a consumer’s score will have. Not surprisingly, bills such as cable and electric are also reflected on ones credit report if they are never paid even though these are not revolving credit accounts.

5. Refrain from carrying high balances on credit cards. It is not good to carry large balances on credit cards. Obviously, if one is having financial struggles and has no other alternative then there is nothing else to do with the balances, but if possible, one should pay down large balances. Maxed out credit cards are simply detrimental to your credit score. As soon as possible, one should focus on lowering the outstanding credit card balances. Consumers will see extreme increases in their credit scores by doing this. One simple strategy of doing this is to pay double the minimum payment each month. Ultimately, the overall balance gets paid a lot faster and less interest is accumulated.

Catharine is a credit specialist at Kanetix, and is in the process of saving for a new home.  Husband Jeff and the three kids can appreciate having a thrifty mom, as Catherine plans regular vacations and created home-made healthy treats.

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What are the Pros and Cons of Peer Lending?

Peer lending, which has been made popular by services such as Prosper does have its benefits as well as its problems. Whichever side of the equation you happen to find yourself on, either as a lender or as a borrower, you need to make sure that you understand the risks of using such a service.

What is Peer Lending?

Let’s start with what peer lending actually is – it’s a way of lending money (or borrowing money) in a non standard way. The idea is that you can choose to lend out money to people who may need it and make more money from your investment than you might make if you were to invest in more traditional options. Similarly, those who need a loan may be able to get cash this way whereas they may not be able to get a loan from a bank or some other traditional venue. In theory then, this concept allows for a win-win situation where everyone gets what they want.

The Downside of Peer Lending

The downside of peer lending is mostly on the side of the person doing the lending, though there is a downside for those who are borrowing money as well. For those doing the lending, the big problem is that there are no guarantees that the money will be paid back. In fact, Prosper at one point actually shut down operations temporarily because they had so many loans going bad – especially after the housing bubble burst and the Great Recession began.

Borrowers Don’t Get Credit Ratings

The bad side for borrowers is mostly that they won’t get a credit rating with the big three credit bureaus because of the fact that peer lending is not really a traditional sort of a loan. This means that those hoping to rebuild their credit will see little benefit from using a service such as Prosper (though they can still get their loans of course).

You Need a Good Story

Another issue for borrowers, again a more minor one than the problem that lenders have, is that they are not guaranteed to get a loan from a peer lending site. Many such sites do have ratings for their prospective borrowers, allowing lenders to choose those whom they feel are most likely to pay loans back or to choose those who are higher risks and who will thus be forced to pay higher interest rates for their loans. However, in addition to the ratings, a second component of many peer lending sites is that the person asking for a loan needs to be able to articulate why they need the loan and needs to have a good “story” to tell. Otherwise, they may not get funding, especially if they’re considered a poor risk.

Best to Diversify

Investors wishing to make money through peer lending sites should consider diversifying in order to minimize their losses. Choose one or two loans which are for amounts that you can afford to lose and where you feel comfortable with the borrower’s story and credit rating. Then, make the loans and wait for them to be paid back before re-investing the money. This way, if the loans do go belly up, you only lost what you could afford to lose and not money that you needed for vital things in life, like retirement saving.

 

George Gallagher is a finance and education blogger who works with students to find private student loans to fit their college needs.

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