Good Ideas, Bad For Credit: How Your Responsible Choices Can End Up Hurting Your Credit Score

I’ve had some trouble with credit in the past, but I’m trying to turn over a new leaf. I think I’m doing everything right, but my credit score still isn’t rising! What gives? 

Credit scores can affect you more than you know. Employers look at credit scores. Landlords look at credit scores. Bill providers look at credit scores, and they might decide to charge you if yours gets too low. With all this pressure, you’ve no doubt started working on some good habits for improving your credit score. You pay your bills on time, are sure to not max out your credit line and work hard not to default on a loan. You might be surprised to find out that some actions you take to improve your credit score are actually hurting it. 

If your credit score isn’t where you want it to be, it might be due to one of these habits. Read on for four good ideas that might actually be hurting your credit score:

1.) Debt settlement

Settling your old debt can seem like an easy way to get out of a sticky situation. You make an agreement with a third party, pay a part of your debt and the owner writes off the rest of it.

However, unless it’s at least 90 days since the debt was due, it’s always better for your credit score to pay the debt back in full yourself. Settling a debt for less than you owe can take your credit score down as much as a hundred points. This happens because the debtor only took your settlement on the assumption they’d never see the full amount you owed. Future lenders worry that they’ll end up in the same situation, and that makes them hesitant to lend.

2.) Turning down credit

It might seem like a good idea to reject a higher credit limit. If your credit card offers to boost your limit, that might seem to indicate you have more money to spend. If you’ve struggled with responsible credit management in the past, you might want to turn it down in an effort to keep your spending in check. Keeping your credit limit low can give you a budget and a sense of security regarding when you’ll stop yourself from spending.

However, a higher credit limit does come with benefits. To be exact, it can boost your score quite a lot through a something called a credit utilization ratio. That’s the ratio of your credit card balance to your credit card limit. The less you spend relative to what your limit is, the higher your score in terms of this one factor. That means, if you have a higher credit limit, you’ll be using less of it, and therefore increasing your score.

3.) Avoiding credit cards

With all this rigmarole and paperwork, many people might think it’s easier to just not have a credit card at all. While it might make your life simpler at first, it can complicate your relationship with credit in the future. You might not need credit for day-to-day things like buying groceries or gas, but you will need it for a home loan, auto loans and to prove to potential landlords and employers that you can be trusted. So long as you’re paying everything on time and not carrying a high balance, a credit card is much more beneficial in the long run.

4.) Closing paid accounts

Paying off a credit card can be a big struggle. Once it’s over, your instinct might lead you to throw it away, burn it or otherwise have it completely out of your life once and for all. Credit reporting agencies say something different, though. Since 15% of your credit score is the length of your credit history, you want to keep your cards for as long as possible.

Additionally, your credit utilization score is worth 30% of your total score. Closing a credit card account also kills available credit, which lowers that balance-to-limit ratio. You can destroy the card itself and delete its record from online shopping sites to be certain you’ll never accidentally use it, but don’t cancel it. Even after all that, you should keep the account open (provided there’s no annual fee attached to it), just to keep your score up.

Credit scores have never been easy. There’s an endless number of twists, turns and troubles to keep in mind. It may seem like there’s no one on your side in this struggle. Yes, you have to be in charge and be responsible enough to pay everything on time. Destinations Credit Union can help. Call, click, or stop by today to get help with budgeting, credit management or debt consolidation.

You don’t have to go it alone.

Your Turn: Any tips or tricks you use for managing debt and/or improving your credit score? What has seemed to work or not worked?

How To Get By In An Emergency: Personal Loan Or Credit Card?

Unexpected expenses, by nature, can come out of nowhere. Your check engine light comes on, and your car demands you put another thousand dollars into keeping it on the road. That cough that just won’t go away turns out to be more serious than you thought. Your air conditioner gives up during the longest heatwave you can remember. No matter what causes these personal catastrophes, they all have one thing in common: They’re expensive. 

The best financial advice suggests a rainy day fund for situations like these. However, for many people, that’s just not practical. Just getting to the end of the month can sometimes feel like an emergency. An emergency fund is one of those things it’d be nice to have, but there’s just no room for it after the bills have been paid.

If you feel the pressure of not knowing where your emergency spending could come from, you’re not alone. A Federal Reserve survey found that 47% of Americans would not be able to come up with $400 in an emergency. The way they’d cope with that emergency? They’d borrow.
As a credit union member, you have options when it comes to borrowing. Two of the most popular choices for emergency funding are a personal loanand a credit card.
There are pros and cons to both, so let’s take a look at a few.
1.) Limits
Credit cards are generally designed to cover day-to-day purchases. They have credit limits in the thousands, which is enough to handle most small appliance purchases and some car troubles. Most of the value of credit cards is in the convenience, though. Because it’s a credit line you have to use as needed, there’s no need to apply for a new loan each time you incur an expense.
However, many people may not have a high enough credit limit to cover a major medical expense, a significant home repair, or a big appliance. This is where many choose to utilize a personal loan.
Your personal loan approval amount depends on several factors, such as your income, credit score, and other assets. For borrowers who have a good credit history and a strong ability to repay, these loans could be $10,000 or more. That’s enough to cover most serious expenses that come up out of nowhere.
2.) Repayment options
Credit card repayment is typically handled on a monthly basis. You’ll have a minimum payment, which, if you’ve got a high balance, might take a long while to pay off. There’s no fixed term to repayment; so if you continue to charge while making only minimum payments due, paying off your loan can take forever.
A personal loan, on the other hand, will include a fixed monthly payment that will let you repay the loan in a set amount of time. You’ll sign paperwork at the beginning of the term, which spells out exactly when you’ll be done repaying the loan. The loan is amortized, or set up so you’re making equal payments to cover both interest and principal over the life of the loan. There’s no penalty for early repayment, either. So, if you find yourself ahead of schedule, you can pay off the balance and save some money!
3.) Usability
Credit cards only work at a merchant terminal. While they’re accepted in many places, they are not universal. If you’re trying to pay family or friends, a credit card may not be the easiest way to get it done.
A personal loan is deposited directly to your draft account. Although you’ll usually be sending it directly to the entity where the money is owed, the money is yours. You can withdraw it as cash, write checks, or use auto draft features.
If you’re trying to work out a reduced price for a major expense, many businesses are willing to offer a cash discount. Businesses pay for processing credit card fees, which can be quite a bit of money, so a cash payment can work to the advantage of everyone. If you’re working with a hospital on a medical expense or a dental office, they may be willing to negotiate a lower fee in return for cash payment as well.
4.) Interest rates
Credit card interest rates can be high. Exactly how high depends upon your credit score and the kind of card you have, but 15% is the global average. Some credit cards may offer introductory rates that are considerably lower, but at the end of that introductory period the whole balance is converted to the higher interest rate – meaning you’ll also be charged more interest on what has not been paid off.
Some credit cards also have fluctuating interest rates that can go up or down based on the prime interest rate (Destinations Credit Union’s MasterCard has a fixed rate that does not fluctuate). Credit card companies are allowed to change your interest rate if your credit score changes dramatically. Fluctuations in your interest rate can make it difficult to plan for your financial future.
A personal loan has a fixed interest rate at the time you get the loan. Provided you don’t miss a payment, your interest rate will never increase. You can make a budget for the future that involves paying a fixed amount over roughly a 5-year period.
Interest rates on personal loans also tend to be much lower than on credit cards. For people with average credit, interest rates can be as much as 5% lower than those on credit cards. For people with better credit and higher incomes, that interest rate is even lower.
As a member of Destinations Credit Union, you have access to the competitive rates for personal loans and loans in general. If you’re between a rock and a hard place, Destinations Credit Union can help you out. Call, click or stop by today!
Your turn: What’s your emergency financial plan? Where would you go if you needed $400 for an unexpected expense? If you’ve been through a financial emergency like that, any advice for those who might be in a similar situation?

ATM Fraud On The Rise: Staying Safe While Getting Cash

Scammers seem like they’re in every part of the economy. If you make a purchase online, scammers are trying to get your credit or debit card number. If you check your email, scammers are trying to get you to download spyware. You might think you’re safe conducting all your business in cash, but scammers are waiting in one location you can’t get around: the ATM.
ATM fraud has long been a concern, but new advances in technology means consumers need to be more aware. Reports of ATM fraud saw a 5-fold increase between 2015 and 2016. In addition, industry experts report that nearly $2 billion is lost each year due to ATM skimming.
Through a variety of tactics, scammers are increasingly going after ATM-using consumers. Their targets are usually PINs, card numbers and account details. Watch out if you see any of the following at your ATM.
1.) ATMs in weird locations
The convenience of cash comes in handy in many situations. If you’re out at a bar, being able to pay for a round in cash is quick and easy. At a restaurant, leaving a tip in cash can make a server’s night much easier. Exchanging money between friends is a pain with credit or debit cards, but a breeze with cash. It can be tempting to use whatever ATM is handy when the need arises.
That temptation comes with some risks, though. ATMs in financial institutions are regularly monitored and maintained, not to mention covered by security cameras. A cash machine in a dimly lit corner of a bar, on the other hand, may not get that same kind of attention. Most of these machines are privately owned and the operators assume very little liability for their safety.
Whenever possible, use ATMs in secure locations, like financial institutions. They’re safer, better maintained and more reliable. If you must, choose ATMs in highly visible and public areas to minimize your chances of encountering a tampered machine. Only use machines inside private businesses as a last resort.
2.) Recent work
Two very common modifications are used in many ATM scam efforts. The first is a duplicate keypad on top of the existing one. This keypad relays PIN information to a third party, enabling fraud at a later time. The second is a phony card reader. This reader processes your card information, then sends it somewhere other than the machine you’re using. These scams have become both more common and harder to detect as 3D printing technology has improved and become more accessible. Molded plastic devices that fit like the original parts can be manufactured and purchased over the internet for a few hundred dollars.
There are a few telltale signs that you can use to tell the difference. First, keypads tend to wear over time. If a very old machine has bright, shiny keys, that’s a sign that something’s been modified. The same is true of card readers. Over time, from handling and use, card readers will develop scuffs and scratches. New-looking card readers should also be a red flag. Second, even the best molded plastic device will fit imperfectly. Scammers have to install devices in a hurry to avoid detection, so they may resort to quick fixes like electrical tape or plastic glue. Both of these will leave small signs of modification.
It’s better to be safe than sorry. If you have any suspicion that an ATM has been modified, don’t use it and report your suspicion to the machine owner if possible. Exposing yourself to fraud is a lot worse than the inconvenience of finding another machine.
3.) Nearby strangers
Rather than use a lot of high-tech machinery, some scammers rely on their own senses to rip you off. Getting in line behind you, the scammer will attempt to watch you enter your PIN. If successful, either the scammer or an accomplice will mark you for pickpocketing and then use your ATM card to clean out your account.
Even more insidious, some scammers use a distraction accomplice. Such a person might drop a bag right behind you just after you enter your PIN. They might also engage you in conversation, either offering help or asking for it. While you’re distracted, the scammer grabs your card and replaces it with a phony, or just takes the cash you’ve withdrawn and runs.
To protect yourself from these scammers, always cover your hand when entering your PIN. Get as close as possible to the machine to obstruct potential viewing of your transaction. Keep an eye out for anyone sitting by the machine on a laptop or tablet, as they may be monitoring a camera that’s designed to capture your PIN.
Most importantly, stay focused at the ATM. Ignore anyone who approaches you until you’ve finished your transaction and make sure you keep possession of all your belongings. They may think you’re rude, but that’s better than being robbed.
If you think you’ve been the victim of ATM fraud, it’s important you report it immediately. If you report the scam within two days, your liability is capped at $50. Waiting to report the scam could mean you’re responsible for all the bills the criminal racks up, so keep a close eye on your account and report any suspicious activity immediately.
YOUR TURN: How do you keep yourself safe at the ATM? What tips would you share about protecting your card and information?