The Complete Guide to Taking Advantage of Credit Cards


Credit cards can be your best friend or your worst enemy. In this guide, I’ll show you how to be friends.

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Credit cards can be your best friend or your worst enemy. In this guide, I’ll show you how to be friends.



What You'll Learn:

  • The Benefits and Downfalls of Using Credit Cards
  • How to Make Money When You Spend Money
  • Effective Ways to Actually Raise Your Credit Score
  • How to Get Out of Credit Card Debt if You’re in Too Deep
  • How to Protect Yourself From Identity Theft
  • Answers to Common Credit Questions and Busted Myths


Why You're Broke and How to Fix It
There is a difference between being broke and being poor.

Broke is a temporary states of finances.

Poor is a mindset.

Before you go on, promise me you will never refer to yourself as poor again. Even if you feel like you are.

You may be broke, but you’re not poor.

Here is why you may be broke and how to stop it…

1. You Bought Too Much House

Home Debt

If your house payment is more than 50% of your income, you can’t afford it.

25% of your income or less is where you really want to be with a house payment. Or even better…0%!

How to Fix it:

2. You Bought Too Much Car

Auto Debt

This one blows me away.

Most middle class people are broke because they bought a vehicle they can’t afford.

Figure out how to buy a car you can afford here.

If you have to finance it, you can’t afford it. Most people don’t want to hear that, but it’s true.

Just think about what your retirement would look like if you were able to invest that car payment each month.

New cars and luxury cars are nice, but wait until you can afford them and you don’t have to finance.

How to Fix it:

3. You Spent Money You Didn’t Have

Credit Card Debt

This is the most relevant reason to this guide.

You may be broke because you thought having a credit card meant you didn’t actually have to pay for things.

This is one of the most common reasons to be broke (especially for us Americans).

The good news is this is one of the easiest to fix!

How to Fix it:

  • Find extra work to pay it off quicker
  • Call the company and ask for a settlement
  • Consolidate to a lower interest rate

4. You Decided to Go to School

Student Loan Debt

There is nothing wrong with that. School is expensive.

If you have excessive student loan debt, you really only have one option.

It doesn’t go away.

How to Fix it:

  • Be disciplined and hard-working to pay it off

5. You Had Medical Issues

Medical Debt

Sometimes your finances are out of your control.

Medical debt can eat you alive, but you can do something about it.

There are a few ways to reduce or eliminate medical debt, depending on the situation.

How to Fix it:

  • Call the company/collector and negotiate
  • Ask the collector for a settlement
  • Be disciplined and hard-working to pay it off

Final Words

Ultimately, if you’re broke, it’s because you spend more than you earn.

That comes in the form of financing, credit cards and other creative ways.

People come up with new ways to go broke everyday.

Stop spending more than you earn and you will stop being broke. It may take time, but it will happen.

Once you get out of the rut, stay out!

Remember one last thing…there are other situations that can make you broke that aren’t as common. Some are in your control and some are not, but either way, only you can fix it.

Chapter 1

The Benefits and Downfalls of Credit Cards
Credit cards can be a bit of a slippery slope. Many swear by them, while many others despise them. If you’re in serious credit card debt, stop here and skip to Chapter 4. The truth is if you’re a responsible adult, credit cards can actually be very useful for a few reasons:

  • Credit cards eliminate the need to carry cash
  • Credit cards make your purchases easy to track
  • Credit cards can offer lucrative reward programs (Chapter 2)
  • Credit cards can help you raise your credit score (Chapter 3)

All of those things are possible as long as you insert [the responsible use of] in front of the above sentences. Credit cards can be a great thing, but they can also be your worst enemy. Here are a few of the downfalls…

The Downfalls of Credit Cards

  • Credit cards allow you to spend money you don’t have (Refer back to the Preface)
  • Credit cards come with a high percentage rate for revolving balances
  • Credit cards make spending money easier, which often leads to overspending

You could just as easily insert [the irresponsible use of] in front of those sentences. The bottom line is this: if you use credit cards responsibly, they can make your life better. If you use credit cards irresponsibly, they can make your life hell.

If you’re not sure whether you should be using credit cards or cash, read “Cash or Credit?” below…

Cash or Credit?
Cash or credit? What do you use?

I’m a fan of Dave Ramsey, but I don’t think everyone has to be stuck using only cash.

I’m a fan of credit card rewards, but I don’t think everyone is responsible enough to use them.

So how do you really decide whether to purely use cash or whether to get some credit card rewards?

Here’s how you can decide for yourself…

Cash or Credit: A Quick History Lesson

Credit existed long before credit cards.  It was common for local stores to give you a line of credit, especially if you owned a business, but this was thought of more as a charge account that you would pay off all at once.  It had nothing to do with minimum monthly payments or collecting interest.  It was simply a way for business owners to get what they needed throughout the month and then pay the bill all at once, similar to a tab in a bar.

Later on, select department stores and gas stations came out with their own cards to promote customer loyalty.

In 1950, the Diner’s Club card was created as a means to merge some of these cards into one.  People thought it was a bit much to have 5 or 10 cards in their wallet for different stores, though some people today would laugh at only having 5 or 10.

Today, the total U.S. consumer debt is $2.5 trillion, and people sign up for a bout 6 billion credit cards each year.

Credit started to get out of control and so did individual debt.  Thus, people like Dave Ramsey came about promoting a lifestyle free of credit cards and free of debt.  Of course, since Dave started his anti-credit trend, he has had some backlash.  Others have went the other direction by explaining the benefits of credit cards and why you need them.

As you can see, it’s a common trend for people to go back and forth.  So let’s talk about cash, credit and you.

The Case for Cash

Dave Ramsey has a point.  Most people aren’t responsible enough to use credit cards.  Statistics prove this over and over.

That means the majority of people, especially is the U.S., should cut up their credit cards and switch to cash.

This is why it makes me nervous to see all of the articles that talk about Dave being an idiot and how everyone should have credit cards.  I get the point, credit cards have benefits, but broadly speaking to everyone about how they need credit and credit cards is dangerous business, and it’s not true.  Most people would be better off without them, because most people can’t control them.

Note: You also have to remember that article headlines are written to grab your attention, and when you see headlines like “This is Why Dave Ramsey is Completely Wrong About Everything”, they are really just dramatizing the fact that some people can responsibly use credit cards.  They don’t really believe he’s entirely wrong, but you’re more likely to click that, rather than “Why I Disagree With Dave Ramsey About a Few Things”.

Who should use cash?

  • If you’ve filed for bankruptcy due to credit card debt in the last 10 years
  • If you repeatedly don’t pay off your balance in-full at the end of each month
  • If you have credit card debt that you are working to pay off

If credit cards make you nervous, just use cash.  If you believe that all debt is bad, even for the remainder of the month, just use cash.  There is no one-size-fits-all answer here, just know that it’s not wrong to only use cash and never incur any debt.

The Case for Credit Cards

Credit cards generally provide more fraud protection than debit cards.  Credit cards offer more protection than cash on no-return items and items that may be difficult to return.  Credit cards offer some nice sign-up bonuses.  Finally, credit cards offer some lucrative rewards.  We pay for our vacations and most of our children’s Christmas with credit card rewards.

That being said, credit card companies wouldn’t be earning billions if the majority of people were responsible with them.

So after you’ve completely paid off your credit card debt, and you’re in a place where you can pay them off in-full each month, you should start looking into some of the more rewarding credit cards.

Who should use credit cards?

  • If you’ve never struggled to pay them off in-full each month
  • If you keep track of your spending, and don’t spend more than you have
  • If you don’t have any outstanding credit card debt from previous months

These rules aren’t set in stone.  I’m a great example of someone who has been in credit card debt, learned my lesson and paid off all of my credit card debt.  Once I was completely free of credit card debt, I started using credit cards for the rewards.

Credit cards rewards are great, but they are just that: rewards.  Rewards are meant for people who deserve them.  This is evident when you look at the terms for the rewards, such as completely losing them if you’re late on your payment – that’s a common term for most credit cards.

If you’re responsible in using them, you won’t have to worry about that.  If you are worried about losing them because you make a late payment, there’s a good chance you shouldn’t be using them in the first place.

It all comes down to this: if you can use credit cards responsibly, use them.  If you can’t, use cash.  And be honest.

I cringe when I hear someone say that everyone should use cash or everyone should use credit cards.  That’s simply not true.

Chapter 2

How to Make Money When You Spend Money

Remember when you were able to go months without spending any money at all?

Me neither.

It seems like it was somewhere in my childhood, but…it’s been a while.

We spend money. All the time. That’s life.

Why not make money while we spend? It’s very possible and here are 11 ways to prove it…

Get Smart About Credit Cards

We all know about the credit card rewards out there.

You see the ads in the mail everyday…

“Earn up to 5% cash back on your purchases”

“We offer the highest cash back of any card”

The truth is that nobody offers the highest cash back on everything.

That’s why you need more than one credit card to get as much cash back as possible.

Let me go ahead and preface the rest of this article by saying two things about credit cards:

  1. If you use credit cards, pay them off fully every month
  2. There are other ways to make money when you spend

Now let’s get back on track…

Choosing the Right Card

It’s common for certain cards to offer a higher cash back for certain purchases.

The percentages will be different, depending on the category, such as:

  • Groceries
  • Gas
  • Specific stores
  • Home improvement

Find cards that match your normal purchases.

It’s important that I say “your normal purchases”. Don’t get caught in the trap of buying things you don’t need, or things you wouldn’t normally buy, just to get the cash back. That doesn’t make sense, unless you are a crazy person, but you’re not a crazy person, you are a money-savvy genius…or close to it, at least.
If you have a hard time remembering which card is which, just take a Sharpie and write “Gas” or “Groceries” on the card.

Also, make sure you do your research to find the best cards.

I shop on all the time, so I have an Visa that earns 3% cashback on Amazon purchases. That’s my most used card.

You can simplify the process of finding the right card by using the Wallaby Financial App. It will tell you which card you should use.

If you have multiple rewards programs, you can keep track of them all with

Like I said earlier, there are other ways to make money while spending it. You don’t have to use credit cards. That’s only one way. Let me show you the rest…

Get Paid to Shop

There are a plethora of websites that offer rewards for shopping through them.

Basically you will buy everything you normally buy, but instead of going to the store or the website, you go to one of these sites first. You are then linked to whichever website you want to shop with.

For every dollar you spend, you earn a certain amount of cash back for shopping this way.

Then you can use your credit card to make the purchase and get rewarded twice!

Here are the other 10 ways to earn while you spend:

  1. Swagbucks – Earn money for all kinds of things.
  2. Ebates – My favorite! Earn while you shop.
  3. Fat Wallet – Another great way to earn while you shop.
  4. Memo Link – Earn while you shop here too.
  5. My Points – A fourth way to earn while you shop.
  6. My Deals Club – Great coupons and coupon codes.
  7. Extrabux – Up to 30% cash back through them.
  8. Shop At Home – Cash back for online shopping.
  9. Giving Assistant – Yet another cash back shopping site.
  10. Mr. Rebates – One more cash back website for you.

Maybe you were already taking advantage of these rewards. Maybe not. But hopefully now you will.

There are so many ways to earn while you spend, why not take advantage of them all?

Chapter 3

How to Raise Your Credit Score
A credit score is like your in-laws.

Some are really great. Some are not so great. And some people like to pretend they don’t exist.

Well, they do exist (your credit score that is…and probably your in-laws too) and whether you have a great credit score or a poor one, there is always room for improvement.

You can always do better.

Here are some tips for improving your credit score, no matter how good or bad it is…

Do the Right Thing Today

You may have a past full of missed and late payments, but it’s never too late to start paying on time.

The first step of improving your credit is to make sure it doesn’t get any worse.

This may mean you have to stop using your credit cards. At least for now.

Repair your credit

You went a little crazy there. I think I see your driver’s license in there.

Paying your bills on time is one of the most important parts of your credit, so start doing the right thing today.

Ask For Help

It never hurts to ask for help.

If you are falling behind or if you have had some hard times, let your lenders know. You may be able to get some reductions and forgiveness.

This could save you some points on your credit. No matter how bad it is now. Even if they can’t help, it never hurts to ask.

Self-Repair Your Own Credit

Don’t use a credit repair company. Let me repeat that…

DO NOT use a credit repair company.

They cannot do anything for you that you cannot do for yourself…and for free.

You can make the same phone calls they can. And you can have inaccurate credit information removed just as easily by calling yourself.

Keep Watching

There are great companies, like Credit Karma and Credit Sesame, that can keep you up to date on your credit score. Use them.

The quicker you stop inaccurate information, the easier it can be to have it removed from your record.

It’s also easier to catch identity thieves. Identity theft can really hurt your credit score. You should keep a close watch on your credit score and your credit reports to catch all errors.

Do What You Know

There are some obvious things to do when you’re trying to improve your credit score.

You probably know all or most of these, but I didn’t want to leave them out…

  • Ask creditors to have your credit limit raised
  • Paying off auto loans in 18-24 months is ideal
  • Keep low (or no) balances on your credit cards
  • Keep your debt-to-income ratio as low as possible
Contrary to popular belief, you do not have to keep a revolving balance on your credit cards to boost your credit. Just pay them off, in full, every month. Also, raising your credit limit is only important if you’re carrying a balance from month to month.

Sometimes It Just Takes Time

There is one thing that you don’t have control over…time.

Part of your credit score is determined by the length of your credit history.

You can’t have a really high score if you have only had credit for a year.

You may have to wait to give your accounts time to mature, just make sure you keep your accounts open so that account history can grow.

Your overall time of having credit is important, but it’s also important to show that you have had several accounts opened for an extended period of time. This can be anything from a credit card to a loan.

Just make sure you pay off your credit cards in full and on time.

5 Simple Steps for Spring Cleaning Your Credit
Spring is in the air.

It’s beautiful out, so obviously the first thing you want to do is step outsidethink about your credit!


Maybe not, but it’s a great time to do a quick spring cleaning.

You’re already spring cleaning “everything else”, why not clean up the thing that you buy “everything else” with. I’m joking, of course. I know you don’t buy everything with credit cards.

Or at least, if you do, you pay them off every month…don’t you? Sure you do!

Here are some simple and, most importantly, free steps to cleaning up your credit…

1. Pull Your Free Credit Report (Only One!)

You may already know that the only “federally authorized” source in the United States to provide you with a free credit report is

Most people seem to think that you get one free credit report per year, but you actually get three.

3 free credit reports

What? I get 3 per year? This calls for a thumbs up and a picture of said thumb up.

You can pull one from each of the three nationwide consumer reporting agencies (credit bureaus):

Pull your first report of the year from any of these, but only pull one report. Save the other two reports to check on updates to your credit later in the year. Space each of them out over several months to check for updated accuracy and any new discrepancies.

Once you have your report…

2. Review Your Credit Report

Reviewing your credit report is fairly self-explanatory and easy to do.

You are looking at 3 main areas:

1. Potentially Negative Items

This should be the very first section. These are basically any discrepancies, which are items that have been turned over to a collections agency. They usually stay on your credit for up to 7 years after the initial missed payment.

2. Accounts in Good Standing

This section lists all of the debt reported to the consumer agencies. These accounts should be in good standing, but it’s important to look for inactive accounts and accounts that you don’t recognize. More on this later.

3. Requests for Your Credit History

There will be two sections here.

The first is the inquiries the are shared with others. These are inquiries for things like applying for a new credit card or loan. When you here about credit inquiries affected your credit negatively, that would be this section.

The next section is the inquires that are only shared with you. This is for minor things like a credit monitoring service. These inquiries DO NOT affect your credit.

3. Make Corrections

If you have negative items, look at each one to determine if it is supposed to be there or not.

If it’s inaccurate, simply call the company that reported the charge first. If it can be worked out with them, great! If not, you will need to get in contact with the actual credit reporting agency. Here are the numbers…

  • Transunion: 800-916-8800
  • Experian: 888-397-3742
  • Equifax: 866-640-2273

Even if it’s accurate, you may still be able to have it removed from your credit. It never hurts to call and try.

Look for unused accounts as well. If you have old credit cards that you haven’t used in years, consider closing those accounts or using the cards.

It does help your credit to have a longer history on accounts, but if you already use several cards and you don’t need it, close it. By leaving it open and not monitoring the account, you are risking someone else stealing your information and using the account.

Now that you have made the proper corrections…

4. Get Your Free Credit Score

You have a few options for getting your credit score for free.

Try one of these sites:

They both offer a free credit score and free credit monitoring, but I personally think Credit Sesame is a little better.

I like that they offer free identity theft protection.

Free identity theft protection

Plus, the last time I had a change to my credit, Credit Sesame actually sent me an alert email 3 days earlier than Credit Karma. Three days could mean a lot if there would have actually been some sort of fraud.

More on identity theft in Chapter 5.

5. Stay Organized

You have pulled, reviewed and corrected your credit report…to the best of your ability. All you have to do now is stay organized.

Pull another one of your 3 free credit reports in a few months to see if anything has changed (for better or worse).

Always keep at least one copy of your credit report for reference.

You may also want to make a list with all the phone numbers of the credit cards in your wallet. This way, if your wallet is lost or stolen, you will have a quick list to let the companies know ASAP. Again, more in Chapter 5.
Also, keep an eye on your credit score. Credit Sesame will provide you with a new score once per month (or more in their paid service).

Take Action

That’s it! Get to it.

It shouldn’t take long to go through these steps. Especially since now you can view your credit report and score instantly online.

No more waiting on snail mail.

It really doesn’t take long to do this if you do it every year.

Chapter 4

6 Take-Action Steps to Get Out of Credit Card Debt
Do you know the total credit card debt of the United States population?

793.1 billion dollars.

Now you know. And now you have a sick feeling in your stomach. At least, I do.

Does that mean credit cards are evil? Nope.

It just means people are stupid uneducated.

That’s the problem. Here’s how to fix it…

Step 1: Access the Damage

Access the Damage of Credit Card Debt

Sometimes the first step is the hardest and that can definitely be true with credit card debt.

Face your debt.

Run the numbers and actually figure out how much credit card debt you have.

Go ahead and pull your free credit report at, then head to Credit Sesame for your free score.

Once you know where you stand, it’s time to move on.

Step 2: Control Yourself

If you are in serious credit card debt, you have no self-control with them.

Easy fix. Stop using credit cards.

You don’t have to cut them up, and you don’t need to close all the accounts, but stop using them until you have paid them off and can pay them off, in full, every month.

Quick Tip: Don’t close all the credit card accounts, because your debt to credit ratio will lower and that can negatively affect your credit score.

You can always lock them in a safe or freeze them in a bowl of water. Or just stop using them and put them away like a normal person, whatever works for you. Just kidding! Freezing them is way more fun. Don’t be normal!

Step 3: Organize Yourself

Now that you know how bad it is, it’s time to do something about it.

Create a budget (learn how here), including all of your credit card payments.

Do you have enough income to cover all your expenses? You may not.

Step 4 can help with that…

Step 4: Cut Your Expenses

Cut Your Expenses to Get Out of Debt

Cut. It. Out. (Full House reference, anyone? No?)

What do you need to cut out to eliminate your debt?

You can always cut something. Reevaluate your needs vs. your wants. Especially if one of your main wants is to be debt free.

Step 5: Make Your Choice

Now that you have faced your debt and cut your expenses, you should know whether or not you can fix this yourself or if you need professional help.

If you can do it yourself, do it yourself.

Only get professional help if you don’t see any possible way for you to do it on your own.

If you do need professional help, here is a good resource to find a good debt relief company.

Here is a list of approved non-profit credit counseling agencies.

I think you can do this though, if you think you can too, move on to step 6…

Step 6: Do It Yourself

I knew you could do it.

Paying off debt is easy in practice, but it can be difficult in discipline.

It’s all about discipline.

The most important thing is to not get into any new debt, once you begin paying it all off.

Once you have made that decision, you can call the companies and negotiate to bring the amount of debt down. This is as simple as calling the number on the back of the card, getting to customer service, and asking to speak to a supervisor. Supervisors are able to lower your interest rates more than the customer services reps. They may even be able to lower your balance.

When negotiating, it’s important to have some leverage. Just go find some cards that are offering a 0% balance transfer fee, with a 0% interest rate (usually for a certain length of time) and there’s your leverage. It’s easier to negotiate when you have the option of transferring your balance somewhere else.

The overall goal is to get a lower interest rate.

If you can’t get a 0% interest rate, you may want to transfer your balance. (The Chase Slate card is currently offering a 0% interest rate for 15 months on balance transfers, and no fee to transfer.)

I see no reason not to transfer your balance, if it will save you money overall. The problem is when you are not able to pay off a balance transfer before the interest rate goes up. So, before you transfer a balance, do this:

  1. Figure out the total amount of debt your are transferring
  2. Divide your debt by the number of low/no interest months
  3. Decide if you will be able to pay that much each month

If you are, then it’s worth looking at. If you’re not, you need to figure out if the interest rate will be lower than you’re currently paying or higher. And remember to expect the unexpected. Just because you can make that payment now, doesn’t mean you will be able to make it for a year or longer.

As a side note, I would suggest that you NEVER use a home equity line of credit (HELOC) to pay your debt. That can be an incredibly dangerous plan.

Chapter 5

Identity Theft and How to Stay Safe
Identity theft is a risk that you face on a daily basis provided that you own a credit card and do business online. Every time you purchase an item online, you expose yourself to this menace. Today, identity theft has been identified as one of the fastest growing crimes in the world and the numbers keep on growing almost on a daily basis. We are all experts when it comes to identity theft not by choice but circumstances. Truth is told, with identity theft, the odds are that: you, your friend or your family member has been a victim of the same.

In as much as identity theft has grown to become one of the biggest American concerns, the subject is often at times misunderstood. We are always looking for ways to fix the problem instead of attempting to prevent identity theft. We should always remain vigilant as we attempt to prevent this. Here are a few things you need to know about identity theft otherwise known as credit card fraud.

1. Identity theft is as real as it gets

Many people think that this crime is a joke therefore most likely not going to affect them. In most cases, with identity theft, it is a matter of when and not if. A film dubbed ”Identity Thief”, which features Melissa McCarthy and Jason Bateman, goes to show you just how pervasive this crime has got. Even with that said, there is no need to lose sleep as yet because the issue is containable.

2. Identity theft criminals will always be one step ahead of you

One thing with online fraudsters is that they are tech savvies who are always looking new ways to con people. As you think of a way to prevent one occurrence, they are already designing new ways to scam you. A report released by Avivah Litan of Gartner Group technologies revealed that less than 1 in 700 identity theft crimes lead to arrests meaning that most of the criminals normally get away with the crime. At the end of the day, we end up being left with a society filled with experienced hackers. These threats tend to evolve quickly to such an extent where before the police are able to handle one old technique, the hackers would have already moved to something new.

3. Your credit card number is not needed for the scam to go through

Contrary to what most people think, hackers do not really need your credit card to steal your identity. They are very experienced and crafty at the same time. At times, they only need one piece of information to complete the puzzle. Once they have that piece of information, they can automatically gain access to the rest of the information. Therefore, the best way to protect yourself would be to lock up your important documents in a safe or better yet in a safe place at home.

4. Personal information revealed online is often enough

As mentioned above, identity thieves only need a piece of your information to scam you. Even if they get your non-financial personal information, to them this is more than enough. As innocent as you may be trying to provide your personal facts on social media or any other channels, this might expose you to identity thieves. The best way of protecting yourself would be to never list your full birthdate, home address, telephone number or any other important information on any social media channel or even a job searching site.

5. Wi-Fi Hotspots can be a threat

We all can agree on just how convenient Wi-Fi hotspots can get. However, this convenience possesses a huge security risk as it can expose you to identity thieves. Always make a point of avoiding generic Wi-Fi hotspots names while in public. The biggest threat is that, once you’ve gained access to these hotspots which is often made easy, the hackers can access every bit of information they want from your phone, computer or tablet. Information such as your password, username, credit card numbers and any relevant data may be at risk.

6. Credit cards have stronger fraud protection than debit cards

You need to take note of the fact that credit card protections offered are stronger as compared to debit card protections. Ideally, the law has it that Credit cards have a set restricted amount that one is liable for at $50. On the other hand, depending on when you report a debit card theft, the card holder is liable for $50 up to the full amount.

7. Military members are highly susceptible

The military men and women are trained in such a way that they are conditioned to provide anything that is asked of them. Throughout their service, they are asked to provide personal information which they normally oblige. The most unfortunate thing about this is that they do carry on with this even after leaving the service. This in turn makes them susceptible to data grabbers and identity theft.

8. New account fraud is on the rise

In this form of ID theft, hackers usually breach databases and end up stealing social security numbers or any other financial information. Then they go ahead to open new accounts fraudulently using someone else’s name. This form of ID theft is currently on the rise and is responsible for nearly half of the total dollars lost to ID theft.

9. Identity theft is becoming increasingly hard to detect

The main reason as to why there is a rise in cases of ID theft is that most of these cases are becoming increasingly hard to detect. In the example of new account fraud, it is hard to detect unless you develop a habit of constantly looking at your credit card report or you use a credit monitoring system.

10. Identity theft cases are not easy to erase

As mentioned above, detecting identity theft is not easy. And when it is detected, it can take up to 33 hours or even more to resolve the case. Once that is done, the recovery phase is even longer as one can take up to months or even years before getting back to the financial state they were prior to the theft.

Is Your Credit Card Information Really Safe?
Credit cards are becoming the go to way to pay. With everyone using credit cards, there has been a growing concern for your safety with using them. How do you know when your credit card information is safe and when it’s not? Is it safe to use credit cards online?

Read on to get some answers…

First off, let me clear something up. Using your credit card online can actually be safer than using it at brick and mortar businesses.

Example: one of the common ways people have their credit card information stolen is at restaurants since servers will often take your card out of site to charge it.

So how can you prevent that?

The first thing you should be doing is watching your finances closely. It’s not overkill to check your banking account online everyday. It’s not the end of the world if you miss a day, but the important thing is that you are always watching what goes in and comes out of your bank account.

A Gateway to Identity Theft

Once people have your credit card information, usually they will just spend your money until the card is locked, but it can actually be worse! They can use it as the first step towards stealing your identity, especially if they got more than credit card information in the first place.

If someone has your credit card information, you usually don’t know how they got it, so you don’t know how much more information they have.

Credit Card Safety
Here are 6 tips from TransUnion on how to prevent identity theft:

  1. Only carry essential documents with you.
  2. Keep new checks out of the mail.
  3. Be careful when giving out personal information over the phone.
  4. Stay on top of your credit.
  5. Protect your social security number.
  6. Follow your credit card billing cycles closely.

Using Credit Cards Online

Only use websites that you trust when providing any credit card information. Don’t forget to look for the “https” before the website address in the URL box to know that you are on a secure server.

When you are using online banking or otherwise storing your credit card or banking information online, make sure you use secure passwords. If possible you passwords should contain the following:

  • Uppercase letters
  • Lowercase letters
  • Numbers
  • Special Characters (ex: ! @ # $ ( ) [ ] )

Use different passwords for every website.

If it helps, you can find a method of including part of the website title in every password so that you can remember them. For example, you could always begin the password with the first letter of the website and end it with the 3rd letter of the website. This way your passwords are different, but you have a pattern for remembering them.

If you keep all your passwords together somewhere, it’s best to write them down on paper instead of keeping them on your computer. When creating passwords, remember: the more complex, the better.

Your Wallet Just Got Stolen. What Do You Do?
Imagine getting home on Friday night, after a stressful week. You’ve been looking forward to this moment all day. All you want to do is just throw some sweatpants on and just veg out on the couch. You turn the TV on, grab some drinks from the fridge and get your favorite pair of sweats. You go to take off your pants, you empty your pockets, and you heart sinks….

Your wallet. It’s gone.

If this has ever happened to you, you know the sense of fear that accompanies this horrible event. Your entire life is contained in your wallet. There’s credit cards, debit cards, ID, money, insurance card and membership cards. You now could be the victim of identity theft, with repercussions for years.

Here’s a step-by-step guide of what to do should the worst happen…

Before your wallet is lost or stolen: lighten your wallet’s load and scan/photocopy everything inside.

This one tip alone can save you a ton of stress. If you’re like most people, you only use one debit or credit card most of the time. Too many people carry tons of cards “just in case”. Also, take your social security card out of your wallet, along with any passwords, addresses and so on. All of these are like pure gold to an identity thief.

Take everything that you have in your wallet and scan it into a computer. I mean everything – license, health insurance cards, even gift cards to your favorite restaurant. Update it as needed, and make sure that the document is password protected. This is incredibly important because you’ll know exactly what has gone missing and all the numbers to call.

You’ve just noticed your wallet is gone. Don’t panic and retrace your steps.

One of our readers told us a story about a date night with her husband. She went into their favorite restaurant, purse in tow, and went straight to the bar. After a few drinks, she reached into her purse to pay the tab. She realized her wallet was missing. Did she lose it? Did someone steal it?

If you find yourself in a similar situation, remain calm. Make sure you look in all the places it could be, and be reasonably certain that there’s no chance of it just popping up. If you’ve been to stores or restaurants, give them a call and report that you’ve lost your wallet.

Yours truly (the author) actually lost his wallet in a clothing store one afternoon. I got home, realized it was gone and called the retailer. Thankfully, they had it and I rushed back in to retrieve it.

You can’t find your wallet. You’re sure that it’s gone for good. Here’s what to do:

Step 1: Contact Your Credit/Debit Card Issuers

Some people will tell you to cancel the cards immediately, but this isn’t a good idea, since it could adversely affect your credit score. What you should do is report your card as lost or stolen. Every card issuer has procedures in place that will suspend those numbers to keep your money safe. You’ll call their number and hear something like, “To report a lost or stolen card, press 2.” In fact, here are the numbers of the four major card companies:

  • Discover: 1-800-347-2683
  • American Express: 1-800-528-4800
  • Visa: 1-800-847-2911
  • MasterCard: 1-800-627-8372

Make sure that you get brand new cards, with new account numbers. Ask for the same credit limits and the same (or lower) interest rate, with any cashback/miles/rewards transferred to the new cards. Plus, under the Fair Credit Billing Act, you’ll face no liability for a thief’s shopping spree if you report the card as lost/stolen before the charges occur. If someone charges your account before your alert your card issuer, you’ll be on the hook for up to $50.

If you use any of those cards for automatic payments, inform the appropriate companies immediately. This is very popular with student loan repayments – you just link up your student loan to a debit card and put it on autopilot. But if your card is suspended, the payment will not go through and your debt will remain unpaid. This could affect your credit score.

Remember to act fast. You’ll be glad you did, because victims of debit card fraud only pay up to $50 as long as they report the card lost or stolen within the first two business days of realizing the card’s disappearance. It’s most likely that your bank won’t hold you liable for anything as long as you let them know immediately. If wait longer than two days, your liability limit shoots to $500, and if you wait longer than sixty days, you’ll lose any and all money stolen from your accounts. I don’t know why you’d ever wait sixty days, though….

Here are some bank numbers:

  • Wells Fargo: 1-800-869-3557
  • Citibank: 1-800-950-5114
  • Bank of America: 1-800-432-1000
  • TD Bank: 1-888-751-9000
  • Chase: 1-800-935-9935

Step 2: File a Police Report

If your wallet has been stolen, it’s a good idea to let the police know. It’s also a crucial step towards protecting your identity. Make sure you get a copy of the police report! If the theft results in identity theft, you can file a complaint with the Federal Trade Commission, fill out an identity theft affidavit form and attach the police report. This goes a long way in protecting yourself, as it will become evidence in your favor in the case of fraud or identity theft. What you DON’T want to do is get asked, “Well, why didn’t you report the loss?” Not a good look!

Step 3: Set Up Fraud Alerts

This is an important step, because without it, thieves could still open new lines of credit in your name. You need to set up a fraud alert with one of the three major credit reporting agencies: Experian, Equifax, or Transunion. Once you set up an alert with one, the law requires that agency to report your loss to the others and an alert will be set on all three of your credit reports for free (for an initial 90 days).

A fraud alert lets lenders and creditors know that they must verify a person’s identity before extending any new credit. How do they verify your identity? They’ll usually call you, via the number you put on file with the fraud alert. This makes it impossible for a thief to get more credit and run up huge bills in your good name. Here are the numbers you need:

  • Experian: 1-888-397-3742
  • Equifax: 1-800-525-6285
  • Transunion: 1-800-680-7289

BONUS STEP: Pull your credit report and look for anything fishy. Some identity thieves won’t do anything with your information while it’s “hot”. That’s why you need to make sure to monitor your credit regularly.

Step 4: Go to the DMV to Report Your Stolen License

Everyone keeps their driver’s license in their wallet. It’s also one of the most important tools for an identity thief. Get someone to drive you to the DMV and report your loss. They’ll process an application and reissue you a new license, which will cost a few dollars in fees. The DMV will probably ask you to file a police report as well.

Step 5: If Your Social Security Card is Gone…

If an identity thief gets your social security number, he’s hit the jackpot. You should know your social security number by heart and have NO REASON to carry it with you. However, if you just so happened to have it in there, you need to report it IMMEDIATELY. This is absolutely critical, because you won’t ever get a new number, like with credit cards.

Make sure you call the IRS Identity Protection Unit at 1-800-908-4490. Then, file the loss with the Federal Trade Commission by calling 1-877-ID-THEFT.

Because a thief could easily open accounts in your name with your SSN, I strongly advise you to consider a credit freeze. This makes sure nobody can apply for credit under your name and social security number. These are not free (around $10 or so per credit reporting agency) but it is a vital safeguard.


You’d be amazed at how many people neglect this step. It’s not that hard for someone to rob your house this way. All they have to do is make a copy of the key and jot down the address from your license. Someone could even return your wallet to the police, but he or she would still have your key.

Lost and stolen wallets can cause massive damage to a person’s life if the information falls into the wrong hands. With this information, you’ll be prepared, and you can turn what could be a devastating disaster into a minor headache.

Chapter 6

Common Questions Answered and Myths Busted
Credit is a funny thing. Especially when you start talking to other people.

Some people have all the answers on how to improve your credit, but are they accurate?

Just because something seemed to work for someone else doesn’t mean it will work for you, but there are some standards that you (and anyone else) can meet to ensure your credit score will continue to rise.

Before you get into raising your credit score and cleaning your credit, you’ll want to look at these credit myths.

There’s no reason to waste time on things that won’t help you…

This awesome infographic was created by Credit Sesame, a free service that gives you a monthly credit score, monitors your credit and even gives you identity theft protection…yes, I said for free.

You can check out Credit Sesame here, or go read my review for more about them.

Here’s the graphic…

Most Common Question: Should You Do a Balance Transfer to Lower Your Interest Rates?
I’ve been there. Over $20,000 in consumer debt with interest rates higher than Cheech and Chong combined.

I remember seeing the offers pouring in to lower my interest rates. This one stuck out:

“0% interest rates on balance transfers for up to 15 months!”

It was a Chase Slate card. 15 months was the longest zero interest offer I could find for a balance transfer at the time. I calculated how much we needed to pay each month to pay it off in 15 months. We applied. We were approved.

It worked for us. We went from paying interest rates of 12%, 15% and even 17% to paying no interest whatsoever. But what would have happened if we would have went over the 15 month mark? Around 23% interest would have happened.

We had to ask ourselves if we were certain we could pay off the account in time, no matter how many unexpected costs popped up, but that’s not all we had to ask. Here are four questions to ask if you’re considering a balance transfer. Two to ask the company and two to ask yourself…

1. When Does the Rate Expire?

Obviously first you’ll want to know what the rate is; then you’ll need to know when it expires. You should be able to find 0% (like the Chase Slate card), but once the introductory rate expires, the interest will likely skyrocket, so make sure you’re able to pay it off in time.

All you need to do is divide your total amount of debt by the number of months you have to pay it off before your interest rate goes back up. If it’s doable and possible even with unexpected expenses then you’re in good shape so far. You’ll have to crunch some numbers here, but even if you don’t pay it off during the intro period, you still may save money on interest. That depends on what the interest will jump to. We’ll talk about that next…

2. What Are the Terms?

With many 0% introductory offers for balances transfers, they will do anything they can to get that interest rate back up into the double digits. Typically if you make one late payment, your interest rate will go back to the normal rate and stay there.

You should also consider that if you make new purchases on that card, you’ll probably be paying the regular rate for the new balance. Most 0% intro offers are only for the balance you transfer and not for any new debt. So before you start thinking you can rack up your balance without the interest, read the terms.

3. How Will the Balance Transfer Affect Your Credit Score?

One balance transfer will have little to no effect on your credit score. Ten balance transfers will have a significant effect. If you plan to transfer your balance multiple times, make sure you know the potential impact it can have on your credit.

Credit agencies and credit card companies can tell when you’re just transferring your balance to avoid paying interest. You would think it would make you look smart (and I personally think it is pretty smooth), but they would rather see that amount being paid off rather than sticking around for several years.

4. Are You Responsible Enough to Do It?

This is the ultimate question. If you’re not responsible enough to pay off the card in time after you transfer your balance – don’t do it. But this is difficult, because you have to be honest with yourself. Look at your past and look at who you are now. If you have a history of being undisciplined with paying extra on loans, who’s to say you aren’t going to be undisciplined with this one? If you have any questions about your ability to pay it off in time, you may want to consider creating a plan in your current situation without transferring any balances. You can still negotiate with credit card companies to lower your interest if you decide not to transfer your balance.

Balance transfers can be great if you’re disciplined and responsible enough to take advantage of them, as opposed to being taken advantage of by them. You’re the only one who can make that call, but if you’re dishonest about your ability, you’re only hurting yourself and potentially your family.

What Are the Different Types of Credit Checks?
Runaway debt and credit debt is the new normal. It doesn’t necessarily occur because you spend beyond your means, but can happen as a result of your FICO score dropping whenever you apply for a lease on an apartment, a credit card account, or a car loan. The company that reviews your application will pay a fee to check your credit and these checks are not harmless, but can actually create a dent in your credit score.

Without realizing it, you may end up paying higher interest for everything because of your lower FICO score. This may actually force you to run out of money. At this point, it’s easy to fall into some heavy debt as you scramble for survival.

So, it’s a negative cycle: inquiries on your credit card may lower your FICO scores; these then results in paying more for everything because of higher interest rates. This situation, in turn, may then lead to runaway debt.

In order to arrest this negative spiral, you first have to understand how the credit scoring system works…

Who Checks Your Credit Report?

When a company needs to make a decision on whether or not to allow you to rent an apartment, buy a new home, underwrite insurance in your name, do business with you, or hire you, they pay the three major credit reporting companies: TransUnion, Experian, or Equifax a fee to review your credit history and your personal information. In addition, a company that sends collectors to get money from you is also legally allowed to check your credit report.

Types of Inquiries

There are actually 3 kinds of inquiries: marketing inquiries, soft inquiries, and hard inquiries. Each causes different types of harm to your credit score.

1. Promotional Reviews

These are considered marketing inquiries. Financial institutions, like banks and credit card companies, as well as other businesses may inquire about your credit history to decide whether or not you qualify to receive their marketing or financial services. If they get a favorable report, they will offer you a loan or some other financial service.

These inquiries will not show up on your credit report unless you specifically ask to see them. You will then see marketing inquiries under a section on recent credit inquiries. Those who do soft or hard checks on your credit report will not see these promotional review and these inquiries are not used to figure out your credit score.

2. Account Reviews

These are considered soft inquiries. Home or apartment landlords, potential employers, insurance agencies, and other companies may inquire about your credit history to decide whether or not they should rent you an apartment, hire you, or insure you. If they get a favorable report, you’re considered eligible for whatever it is that they are offering you. Those who do soft checks on your credit report will see the total number of other soft and hard checks made on your account, but not who inquired.

Account reviews are generally used to get a quick overview of your financial situation. However, they may also be used regularly to keep an eye on your credit situation. These soft inquiries do not negatively impact your credit score, but if the aggregate number of hard and soft inquiries is high enough, it indirectly implicates you as a credit risk.

3. Full Report Check

These are considered hard inquiries. Large financial institutions may inquire about your credit history to decide whether or not they should give you a student loan or a home loan. If they get a favorable report, you’re considered eligible for the service they’re offering you.

Hard inquiries harm your credit report. They are used to calculate your score and can drop your credit score. When your points fall, you are considered a financial risk. The lower your points, the more of a financial risk you are considered to be.

What to Do About It

While you can’t stop inquiries on your account, you can reduce the damage they cause to it.

Here are five tips:

  1. Periodically check your credit report to see who has been running inquiries on your account. You can check for errors or inconsistencies once a year free. If you check more often, you will have to pay a fee.
  2. You must correct mistakes when you see an error in your report. You have to call the company directly to ask them to remove the negative item. They will not always do it the first time you ask, so you have to persist.
  3. You have to know how the credit report rules work so that you can notice errors and fix them.
  4. If you don’t have the time or patience to do this for yourself, look for a credit repair agency to do it for you. You can review credit repair agencies on Yelp to help you make an informed decision, but with the tips above to repair your own credit, it’s not that hard.
  5. You have to be proactive in keeping your records accurate. Otherwise, you will be paying too much interest for buying a home or a car, or you may not even be able to get these financed at all. If your score is very low, you may even have difficulty in getting a job or renting an apartment.

Bad Credit Isn’t Always Your Fault

Runaway debt is not always a result of your complete lack of financial responsibility, but can also be a result of the way the credit scoring system is set up. Even a few bad debt reports can spiral out of control as your credit report is inundated with inquiries that gradually lower your score.

Incidentally, if you’re thinking of not marrying someone in debt because they have a poor FICO score, don’t jump to the conclusion that they are spendthrifts and won’t make a good life partner. Their low score may actually be due to their credit report getting dinged too many times with hard inquiries. You now know enough to help them clean up their credit report and raise their score.

What Are the Effects of Minor and Major Derogatory Credit Delinquencies?
In the lending industry, free credit scores and credit scoring systems have become universal. As technology advances and becomes more commercial, such as the public debut of the 1989 FICO credit scoring model, scoring tools have started to overtake traditional underwriting process in the world of lending. Companies like Credit Sesame have been founded to help the public gain a deeper understanding of their financial standings by offering free credit scores, reports, and tracking. While there are definite benefits to this new takeover, there remains to be widespread misunderstanding of what actually affects your credit scores. One of the top suspects: late payments.

Reporting of Late Payments

Lenders have various alternatives for late payments that can be reported to credit bureaus. These options range from a simple 30 day late payment to a harrowing 180 day late payment. However, contrary to constant misreporting on the topic, not all options have a major impact on your overall credit score. In fact, there are just two categories that late payments fall into on your credit report: minor derogatory and major derogatory.

Minor Derogatory: 30-60 Days Late

If your late payment is between 30-60 days late, it is formally considered a minor derogatory credit entry. It is minor as it does not reach or surpass 90 days, which makes it a considerably less problematic historical delinquency. In other words, a minor derogatory late payment is less indicative of elevated risk and will therefore have less of an impact on your credit score. Yet there is one caveat: if a 30-60 day late payment on a credit report proves the borrower is currently past due rather than historically, what would be a minor derogatory late payment is instead considered a major derogatory late payment.

Please note, it is important to know that lenders are not allowed to report you as late until a full 30 days have passed since the original due date. That means that if you do find a 30 day late payment on your credit report you are one full cycle past the due date, not just a couple of days as there is no way of accurately reporting 1-29 days past due. You will still be regarded as ‘current’ on your account even though you are actually past due.

Major Derogatory: 90+ Days Late

major derogatory credit entry includes any account that is 90 days or more past the initial due date. At this stage, if you are more than 90 days late you have crossed over from a minor delinquency to someone that is defaulting on their financial obligations. This is more serious than a minor derogatory credit entry as credit scoring models work to predict the probability of you going severely delinquent – you have proven you are prepared to take your account into default and are therefore more likely to repeat this offense in the future.

Recovering Your Credit Score

It is possible to bring your credit score back up to a good level after minor and/or major derogatory credit entries, but it will take both time and diligent effort. The amount of time you will need depends on 2 things: why your credit score is low to begin with and the number you wish to increase it to. For example, a person who had a previous credit score of 680 will have to wait less time for their scores to rebound as opposed to a person who had a previous score of 800. In general, the amount of time it takes for a credit score to fully recover from minor and major delinquencies ranges from 3-7 years.

How Does Debt Settlement Affect My Credit Score?
Your credit score can tremendously impact your day-to-day life.

For Example, your credit score can affect everything from obtaining a mortgage to getting a new job. This is something that most people know. But what everyone doesn’t know is how exactly your score is calculated.

The reason that this isn’t common knowledge is because the credit bureaus do not tell you exactly how they calculate your score.

Even though we do not know the exact equations used, we do know what factors can have a tremendous impact on your credit score. For example, settling your debt can impact your credit score.

Let’s see exactly how debt settlement affects your credit score…

What is Debt settlement?

In order to determine how debt settlement affects your credit score, we first have to understand what debt settlement is. Generally, debt settlement consists of negotiating with the creditor in an attempt to get the creditor to agree to:

  1. a reduced balance, and/or;
  2. a different repayment terms.

Basically, the goal is to negotiate a reduction of the total amount that the creditor is claiming due and terms of repayment that work for your individual financial situation.

Debt Settlement Credit Score

Creditors understand that it can be very difficult, and costly, to collect on past due debts, so in many cases they are willing to negotiate with you. Once a settlement is reached, and the terms of the settlement have been satisfied, the creditor will, or at least should, report this information to the credit bureaus so they can update your credit report.

Once the terms of the settlement are satisfied, the creditor should also provide you with a settled in full letter. This letter is very important as it acts a proof that the account has been resolved.

Many consumers are unaware that they can attempt to negotiate with creditors when in fact debt settlement can be one of the most useful tools you can use to help get yourself out of debt. However, in order to make an educated decision, it is important to know how debt settlement can affect your credit score…

The Impact of Debt Settlement on Your Credit Score

Your credit score is usually severely impacted when an account goes unpaid. That negative impact will continue until the delinquent account is resolved. If you decide to settle a delinquent account, and are successful doing so, then your credit score will improve.

The reason your score is positively affected is because settling the account removes it from delinquency status demonstrating to the credit bureaus that you have resolved, or in the process of resolving, the debt. However, it is important to note that it will not have as much of a positive impact on your score as if you paid off the account in full.

For Example: Say that you have one delinquent account for $3,000.00. If you settle the account for $1,250.00, then you will be relieved from paying the balance of $1,650.00, and your score will increase. However, if you paid the entire $3,000.00 then your score would increase more than it would if you settle the case for less than the current balance that the creditor is claiming due.

These numbers are just an example and cannot be concretely determined because everyone’s situation is different.

Your situation may yield a higher increase in your score or lower, it differs for everyone. But the general idea remains the same, if you pay off every dime of what you owe then your score will increase more than if you settle the account for less than the full amount of what the creditor is claiming due.

But it is up to each individual to decide what is more important; a minor impact on your credit score, or saving as much money as possible. Often times, many consumers and a large percentage of our clients prefer to save hundreds, potentially thousands, of dollars and that can live with giving up a few points on their credit score that would be added if they paid the account in full.

Stay Current With Your Payments!

Bottom line, it is important to remember that settling any delinquent account will improve your score, but as not much if you paid every dime owed on the account.

The negative impact of your account going into default will be significantly greater than the positive impact of settling an account. Therefore, the best way to keep you credit score high is to make all payments on time and not allow any accounts to default.

But if you have an account that is delinquent, then you must decide what is more important to you, your credit score, or saving money. If saving money is best for your individual situation then you should discuss a potential settlement with your creditor.

Everyone’s situation is different so it is important to weigh the pro and cons of debt settlement and its impact on your credit score before deciding what option is best for you.

How Does Borrowing Money Affect Your Credit Score?
When you apply for a guarantor loan, it isn’t your credit rating that the lender is most interested in: it is that of the person who has agreed to provide the security that the loan will be repaid. That’s because the lender accepts that you may not have a great credit record to start with and so will be basing its decision on the financial history of the guarantor.

The lender will want the guarantor to have a good or possibly excellent track record of managing their finances – always making repayments on time, never going into default, not having county court judgments (CCJs) registered against them and not having taken out too much credit in a short period of time.

Obviously this is the sort of financial track record that you want to develop so that, in time, you’ll be able to make applications for credit without the backing of a guarantor and be confident that you will be accepted. Guarantor loans are a great way of doing this: they allow applicants to use the financial track records of third parties not only to get access to lower interest rates and larger loan amounts, but also to start to rebuild their own credit records by making their loan repayments on time, every time.

How are credit scores worked out?

The three main credit reference agencies – Equifax, Experian and CallCredit – all gather data from credit and financial providers on every borrower and account holder in the country. That primarily consists of information showing outstanding loan and credit card balances, repayments histories and so on.

Other data used to make up a credit score includes whether a person is on the electoral roll, their addresses over the previous 10 years, any defaults or CCJs registered against them and a record of how many applications they have made for credit in the past two years.
From these figures, a credit score – a number between 100 and 1,000 is produced. The higher the number, the lower the risk that lenders will view you as.

How does a guarantor loan application affect this score?

It doesn’t. The lender will only perform a credit check on the guarantor because it wants a reassurance that the loan will continue to be repaid even if you get into financial difficulty. That also means that there won’t be a search recorded against your record when you make an application for a guarantor loan and, as we’ve already seen, credit searches can affect your overall credit score.

How will repaying a guarantor loan affect my credit score?

This is the good news. While your credit record is not assessed when you apply for a guarantor loan and that of the guarantor is, when you start making repayments on time this will be recorded on your credit records at the three main credit reference agencies. This means that so long as you repay your loans on time every time, you can be sure that you will be repairing or building a credit record that will enable you to borrow money on your own in the future.

It’s estimated that loan and other credit repayment history makes up nearly 40% of your credit score – more than any other single factor. Always making your guarantor loan repayments will improve your credit rating relatively quickly (so long as you don’t get into trouble with other credit agreements) and make you more attractive to other lenders.

The higher the loan, the more negative the effect

The size of the loan that you take out will have an effect on your credit score. This means that you will need to bear this in mind if you are applying for a guarantor loan primarily to improve your credit record. Your score will start to improve as you pay the overall balance down and so the bigger the gap between the original amount that you borrowed and the current balance, the better your credit score range will be.

Debt-to-income ratios

While the size of the loan you take out compared with your income is not apparent when you look at your credit record, many lenders now take into account your income when deciding whether you represent a low risk for borrowing. Obviously, this doesn’t apply to a guarantor loan where the initial decision is based on the credit record of the guarantor. But if you have a guarantor loan and apply for other forms of credit without a guarantor, lenders will look at your income. All of your loans and credit cards are compared with your income on this ratio and the higher the ratio is, then the more likely that this will lower your overall credit score.

Repaying too quickly

This may sound perverse but some lenders will avoid borrowers who regularly pay off their balances early. This is because every lender is offering credit to make a profit through interest charges. If you take out a guarantor loan or, indeed, any other type of loan, and then repay the capital sum and any outstanding interest early, the lender itself may not make as much money on the deal as it originally anticipated. Other lenders will see from your credit record that you have paid the loan back early and this may affect your ability to get credit from them. If you have credit cards that you repay in full every month, make use of every 0% introductory balance transfer offer you can find or simply don’t use them “enough”, you may find that you are more likely to be rejected when applying for other forms of credit.

I just want to say thank you! I appreciate you reading my guide.

I put a lot of work into this, and I truly hope it benefits you.

If you have any questions about anything, please reach out to me.

All feedback is welcome…

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