credit simplified

chapter 1: How to Use a Credit Card for Building Good Credit

The difference between good debt and bad debt is an important consideration when you're building good credit.

Having a credit card makes a positive impact on your credit as long as you make wise choices in the way you use that card.

Follow these strategies to use credit cards to build good credit:

1. Limit your cards. Too many credit cards will reflect poorly, rather than positively, on your credit reports. Open up only a couple of credit card accounts: a Visa or MasterCard account and a gas card or a card from a store you purchase from often will usually work nicely. Use these few cards regularly and then pay off what you charge quickly.

2. Use credit limits wisely. Just as you can call and request a higher credit limit, you can also call and ask for a lower limit or that they not raise your limit automatically. This will prevent you from letting your spending get out of control. Setting your limit to between $500 and $1000 usually works well.

⦁ If unnecessary spending doesn't tempt you, then it's even better to let them raise your credit limits as long as you don't use the extra credit. Using only 25% of your allowable credit makes the most positive impact on your credit score. However, if the limits help you keep your debt under control, then go with the lower limits.

3. Pay balances off completely. Whatever balance you accrue during the month, pay it off by the due date on your credit card. The best way to show the credit bureaus that you're serious about using credit properly is to pay your balances in full each month.

⦁ Most credit cards have a very small minimum monthly payment. The reason is because they can rack up serious interest charges on your card if you're only paying $15 on a $500+ credit card bill. Avoid paying the minimum balance at all costs.

⦁ Pay on time. Be very aware of the due dates for your credit card payments. By making your payment later than the due date, you could end up paying fees or a higher interest rate, losing credit availability, or having a negative mark put on your credit score. If you want to use credit to build credit, ensure you use it as carefully as possible.

4. Avoid the free offers. Sometimes credit card applications come with free offers like t-shirts, pizza and other gifts. Signing up isn't going to hurt you, right? Canceling the cards right after you receive them to take advantage of the free benefits can actually hurt you.

⦁ A cancelled credit card shows up on your credit report. Credit inquiries, approvals, and cancellations show up on all three credit reports, impacting your credit score. Avoid applying for anything that you don't plan on following through with.

Keep these things in mind when you apply for or use a credit card. If you don't think you can use a credit card wisely, then it's better for your credit if you don't apply for one.

It's all too easy to let credit card spending get out of control, so make good choices with your credit. Use your cards to build good credit and the time will come when you'll surely be glad you did.

chapter 2: a step-by-step guide to repairing your credit

1. Taking Charge Of Your Credit Score

Good credit is critical. Unfortunately, it’s pretty easy to hurt your credit score. Something as simple as being late on a loan payment can do serious damage to your score.

The good news is that you can repair your credit and raise your credit score. And you don’t need to hire a company to fix your credit. You can do it on your own.

It’s important to remember that repairing your credit score is a process that takes time. Don’t get discouraged if things don’t turn around right away. Keep at it because in the end, it will be worth it.

Understanding Your Credit Score

There are a number of specific things that affect your overall credit score. If you don’t pay attention to all of them, you can unknowingly hurt your score. Your credit score will range between 300 to 850 and represents how likely you are to pay back money you have borrowed.

There are five factors that determine your score. In order of importance, they are:

Payment history. Paying bills on time is really important for your overall credit score.

Credit usage. Credit usage is how much of your available credit you’ve used. A low credit utilization rate is better for your credit score.

Credit mix. Typically, it’s better to have experience with different types of credit than with just a single category.

Age of accounts. Generally speaking, the longer you’ve had credit, the higher your score.

Credit applications. When someone examines your credit record to determine whether to give you credit, it’s called a “hard inquiry”, and too many hard inquiries can lower your score.

It’s also important that you understand the different types of consumer credit available to you. There are four types of credit:

Revolving credit (credit cards)

Charge cards

Service credit (utilities, cell phone bill)

Installment credit (loans)

Step #1: Examine Your Credit Report

Your credit report contains everything that affects your credit score, including all the things pulling your score down. The first step in repairing your credit is to know exactly what’s on your credit report. You can get a free yearly copy of your credit report from AnnualCreditReport.com.

In the United States, there are three different credit bureaus: Equifax, Experian, and TransUnion. The credit report from AnnualCreditReport.com will contain your credit score at each of the credit bureaus.

Once you’ve obtained your credit report, you need to read it closely. On the report, you should see:

Personal information

Credit information

Public record data

Hard credit inquiries

As you read your report, look for the following information: (You’re going to approach each of the above situations differently, so you may want to use different colored highlighters or pens to flag each type of scenario.)

Errors

Past due accounts

Current credit accounts

Reading your credit report for the first time can be overwhelming. If you’re feeling like this, remember that you’re only going to be taking one step at a time. For now, just focus on highlighting all the important information.

Step #2: Dispute Errors

If you think that any information on the credit report is incorrect or incomplete, you have the right to dispute it. Credit disputes can be made online, by phone, or through the mail. You should receive instructions about how to file a dispute when you order your credit report.

Errors on your credit report happen for four different reasons:

Creditor mistake

Collection agency error

Stolen identity

Existing account compromised

If you believe your identity was stolen, it’s critical that you take immediate action. The longer you wait, the more fraudulent activity can take place on your account. The same goes for a compromised account. You should contact the appropriate parties as soon as possible.

If there are errors on your report (not fraud), there are a number of ways you can dispute them. Filing online is the quickest and easiest way to do it. The problem, however, is that you don’t have any evidence or a paper trail regarding your dispute. This is also the case when you file by phone.

Filing by mail has a few distinct advantages:

You can include concrete proof.

You have a paper record.

Sending a dispute letter via certified mail ties your claim to a specific date.

When filing your credit dispute, include the following:

A copy of your report (highlight the disputed item)

Proof that supports your claim

A concrete, explicit request that the erroneous information be either corrected or removed

After your dispute, one of two things will happen:

Successful dispute. All information and parties will be updated appropriately.

Unsuccessful dispute. No change will occur to your credit score.

If your dispute is unsuccessful, you do have one further option: file a complaint with the Consumer Financial Protection Bureau (CFPB). After you file your complaint, the CFPB will work with the credit bureaus to attempt to resolve your complaint.

Step #3: Address Accounts That Are Past Due

The biggest factor in your credit score is your payment history, making up 35%. So, after taking care of any errors on your credit report, you’ll want to start working on past due accounts.

When one of your accounts is more than 180 days past due, it’s considered a charge-off. Charge-offs are really bad for your credit score and you want to do whatever you can to keep them from going on your credit report. The good news is that your creditor may be willing to negotiate with you.

Once your charged off account is fully paid, your credit report will show a $0 balance for that account. However, it will still show up on your credit report for seven years.

In addition to past due and charged off balances, you must handle accounts that have been sent to collections. Like with charge-offs, your credit report will reflect these balances for seven years.

Step #4: Bring Down High Balances

After your payment history, your credit utilization is the second highest factor in your overall credit score (about 30% of the total). Credit utilization is the percentage of available credit you’ve used.

This means that if you have really high balances, your credit score will be brought down. Ideally, your credit utilization should be below 10%, but if you can get it below 30%, that’s a good starting place.

Your loan balances also affect your credit score. The higher your balance, compared to the original, the more it hurts your score.

Which is more important, credit card balances or past due accounts? Because your payment history is a bigger factor in your credit score, you should focus first on getting your accounts current.

Step #5: Build New Credit

You also want to add positive credit data to your credit report. If you consistently do things like make on-time payments, your credit score will go up. So, how do you get new credit? One simple way is to get a new credit card, make purchases, and then make payments on time.

You can apply for a credit card from one of the major companies. When you search for a card, look closely at:

Recommended credit score

Annual fee

Annual Percentage Rate (APR)

If you don’t get approved by a major credit card company, you have a few other options.

You can apply for a “secured” credit card.

You also might consider getting a retail credit card, such as a Walmart or Amazon card (or another store you prefer).

Other Tips For Building Solid Credit

In addition to getting a new credit card and using it to build up your credit, there are a number of other specific tactics you can use to improve your overall credit score.

Team up with someone who has good credit and a good payment history. Get added as an authorized user on one of their credit cards.

Keep older credit cards, even if you don’t use them much anymore. Having an older card on your credit report extends the total age of your credit.

Enroll in the Experian Boost program. Cell phone and utility payments can be added to your credit score.

Get a secured loan. You deposit a set amount into a bank account and then can borrow against the deposited amount.

Look into non-profit lending organizations. Mission Asset Fund makes small loans available to certain individuals which can be used to improve credit scores.

Healthy Financial Behaviors

If you don’t have healthy financial behaviors, you’ll end up sabotaging your efforts to repair your credit. Here’s what you need to keep in mind.

Debt-To-Income Ratio. Your debt-to-income (DTI) ratio is your total monthly debt divided by your gross monthly income. The lower your DTI ratio, the better. For example, if you’re applying for a mortgage, you usually need a DTI ratio of less than 43% (most lenders really want to see below 36%).

Budgeting. A budget helps you effectively manage your finances. If you don’t have a budget, you may not have enough income to cover monthly credit payments.

Comparison Shopping. Different lenders offer different interest rates and fees. Compare different lenders against each other and go with the one that offers you the best deal.

Fraud Protection. It’s absolutely essential that you work hard to protect yourself against fraud. Keep a close watch on your credit statements for anything that looks suspicious. If you see anything, immediately contact the credit card issuer.

chapter 3: creating small financial goals

Creating SMART Financial Goals

SMART goals help you design goals that meet your individual circumstances so you can achieve them and live the life you desire. Whether you’re making spending, savings, income, or investment goals, creating SMART goals helps ensure your success!

SMART = Specific, Measurable, Attainable, Realistic, Timely

Example of how a SMART financial goal can work for you:

Create a SMART Goal: I will save $1,000 in the next 50 weeks so I can pay for my next vacation in cash.

Make a SMART plan: I will save $20 each week for the next 50 weeks by taking my lunch instead of buying fast food.

Follow your plan: Put that $20 away each week and pay for your vacation in cash!

Set yourself up for a secure financial future with SMART goals!

chapter 4: 4 weeks to freedom

4 Weeks to Freedom: The Road to Financial Independence

Financial independence is highly desirable. Yet, for some reason, it seems to elude many of us. You've likely tried your hand at many different approaches, yet none have been able to give you the anticipated results.

The good news is that financial independence can be achieved. By making certain adjustments to your life, you'll find yourself starting to build financial independence. So put aside your plan to work harder or put in longer hours and read on to find the answers you’ve been searching for.

Following these steps will lead you to financial independence:

Eliminate the word “credit” from your vocabulary. Having a good credit score can open up opportunities for you. But living in the credit culture also puts you in a stressful situation.

If you’re seeking financial independence, start by doing away with credit.

You probably have a few credit cards in your wallet. Get rid of them! If that makes you nervous, only keep one for emergencies. Just ensure the credit limit is somewhat in line with the amount of cash you’ve saved.

If you're unable to purchase something with cash, it probably means you can't afford it. Live within your means.

Avoid borrowing for frivolous expenditures. Those are usually the hardest loans to repay.

Treat needs and wants differently. Take a look at your life. How many of the things you have or do can be considered necessities? If you're honest with yourself, you'll realize you're piling on unnecessary expenses focusing on your wants rather than your needs.

Making a list of the things you require for survival is a necessary step for financial independence.

Everything that didn’t make the list can easily be eliminated from your expenses each month. Why put that amount of burden on yourself? It's time to give your finances a break.

The things you do to maintain a calm existence can be added to your list of necessities. For example, your yoga class may be necessary because of the physical and emotional benefits. But you can reduce the monthly expense by purchasing a yoga DVD and working out at home.

Tap into your skill set. Are you working in a field that you love and that maximizes your skills? If you think about it, you'll realize that you're most productive when you’re doing something you like or are good at.

Think about your current job. Is it bringing out the best in you? Or, can you earn more and increase your productivity in another field?

Perhaps you can pursue a transfer to another department at your current place of employment. Or maybe you want to move on to something completely different.

Save money at all costs. Even if it's a dollar at a time, put aside money for your savings account each month. Learning to save helps you develop an understanding of its importance.

One way to save is to request a salary deduction each month. That amount can go to an investment account, which limits your access.

Many companies have 401(K) or 403(B) accounts that can get you started with a savings plan. Look into what’s available at your place of employment.

After reading this, you'll likely realize it's much easier than you think to make some simple financial adjustments. Give yourself four weeks of this routine and then assess how it’s going. You'll feel encouraged by the positive results!

chapter 5: 7 Important Financial Actions for Widows and Widowers

The loss of a spouse is challenging emotionally and financially. Death is an uncomfortable subject and few of us have prepared sufficiently to deal with the aftermath. However, if you find yourself in this situation, there are steps you can take to minimize the negative financial aspects.

When a spouse passes away, women are often in a more challenging situation than men are. On the average, women earn less, save less, and start investing much later in life.

Consider these steps after the loss of a spouse:

Acquire multiple copies of the death certificate. You’ll find that you can’t have too many copies. It’s necessary to send a copy to the Social Security Administration, credit card companies, insurance companies, and many other financial institutions. The death certificate is necessary to verify your spouse’s death.

A death certificate is also necessary to change or remove names from accounts. This can also include changing beneficiaries.

Fifteen copies should be sufficient.

Contact the necessary professionals first. Ideally, you’ll speak with a tax accountant and an estate-planning attorney before taking any significant action. These experts are knowledgeable on the financial ramifications of your situation. Before receiving an insurance payout or taking any other major financial step, speak with an expert.

Avoid taking the advice of well-meaning friends and family. Unless you know someone that works in an applicable field, their advice isn’t likely to be your best course of action.

Update your will. It’s likely that your spouse was the primary beneficiary of your will. Updating your will is necessary for other reasons. In most states, your will becomes invalid when your spouse dies. This means the state will determine how your assets are distributed until a new will is created.

Contact the social security administration. You are probably eligible for a death benefit and a survivor’s benefit. This can be a huge help with funeral expenses.

Ensure that you’re paying your bills on time. It’s common during times of grief and stress to ignore day-to-day activities. Remember to take care of yourself and pay your bills on time. The additional stress of late fees and phone calls from creditors is the last thing you want or need.

Collect all insurance policies and contact the companies. This includes life insurance, automobile insurance, any insurance provided by your spouse’s employer, mortgage insurance, and any other insurance.

In some cases, you’ll receive a benefit. In others, you may receive a refund when you cancel a policy that has become unnecessary. There are instances where you may keep a policy, but wish to change the beneficiaries.

Contact the Department of Veteran’s Affairs if your spouse was in the military. There are funds available for funeral expenses. It’s also possible to receive monthly payments if your spouse was receiving disability benefits.

These are just a few of the necessary steps to secure your finances if your spouse passes away. It’s very important to work with the appropriate financial experts.

Most importantly, speak with your spouse before this circumstance occurs. Discuss how these financial issues will be handled and get your papers in order. Take the initiative to get organized beforehand.

i hope this book helped you guys out.