In this post, we'll take a look at how Experian Credit Boost can help build your credit by adding a positive payment history for things like rent, utilities, and subscription streaming services.
The credit system can feel pretty frustrating sometimes-- a person can make regular, on-time payments for a big stack of bills and not receive any recognition for their responsible behavior. Services like Experian Boost can offer a leg up to people with thin credit profiles but years of making bill payments under their belt.
Let's take a look at exactly how this service works and whether it's right for you.
Experian Boost is an optional tool you can use to raise your FICO score instantly.
The way this program works is that it allows you to add your positive payment history for things that don't typically show up on your credit report, including rent, utilities, and even subscription streaming services.
Experian Boost is free to use and easy to opt out of if you change your mind. At the same time, you'll have to share your banking and account information with Experian in order to benefit from the service. Before you sign up, it's a good idea to think about whether this is something you feel comfortable with.
According to Experian, the average person that uses Experian Boost will raise their FICO 8 credit score by 13 points.
This credit-building tool can be useful for people who are looking to add a few more points to their credit score and potentially bump them into the next credit bracket.
In addition to helping you increase your credit score instantaneously, Experian Boost offers a number of other free features.
Here are some of the other things you can benefit from when you sign up for this program:
In order to use Experian Boost and gain the benefits of a credit score increase, you have to allow the program to scan your bank account transactions.
By looking at your bank account, Experian Boost will identify rental, cell phone, utility, and streaming payments. They will then include this information in your Experian credit report.
If you're worried that a few missed payments in the past make it so you're not a good candidate for Experian Boost, it's worth noting that they only count positive payment history. This means that missed or late payments for rent, utilities, cell phone service, or streaming services won't hurt your credit score.
The same is not true when it comes to the typical information that shows up on your credit report. If you miss a credit card payment by thirty days or more, for example, a negative mark will show up on your credit report. This will, in most cases, reduce your credit score.
By linking your utility, telecom, and bank accounts to the credit report generated based on your credit history by Experian, you can potentially raise your credit score.
In short, this is letting you get credit for your positive, on-time payments for things like rent, cell service, and utilities. You do have to have at least one active credit account in order to use the service, so it's, unfortunately, not useful to people who are trying to build a credit profile from scratch.
Only certain payments are eligible for Experian Boost, which include:
Your new credit score will be generated instantly once you sign up and link your bills. While it's possible you won't see a change in your credit score after going through this exercise, Experian says that your credit score won't go down when you utilize the service.
Will taking the time to sign up for Experian Boost and link your accounts will result in a higher credit score? The answer is: it depends.
The first important point to make is that using Experian Boost only updates your Experian credit report with your positive payments. This means that if a lender looks at a credit score generated from TransUnion or Equifax, Experian Boost won't be much help.
That being said, Experian says that the most common versions of both the FICO score and VantageScore can be benefited by the service.
Experian Boost is typically most useful for people that don't have a very robust credit history-- i.e., people with a thin credit profile or less than five accounts on their credit report.
The second point is that whether Experian Boost increases your score is going to depend on your particular circumstances.
On the other hand, people who have thin credit profiles might notice a bigger boost when using this program. As a final point, it's important to note that not all payments are eligible for Experian Boost.
The good news about Experian Boost is that, if it does have a positive impact on your score, it will happen in just a few minutes. The sign-up process is relatively simple, and your FICO score will generate quickly after you connect your accounts to your credit file.
To sign up for Experian Boost, you'll start by going to their sign-up page to create a free Experian account.
From there, you'll follow these steps:
That's it! If you want to take any of your accounts off at a later date, you'll want to sign into your account and navigate to the field titled "Connected Accounts." You can then click "disconnect" for the account you no longer want to show up on your Experian credit file.
Whenever you're signing up for a new service and entering personal information, it's important to understand the pros and cons.
Let's look at some of the things you'll want to know about Experian Boost before you start linking your accounts.
If a lender is using TransUnion or Equifax to generate your credit scores, you're not going to gain any benefit from Experian Boost. For people who are looking to use the service to boost their score before applying for a mortgage or a new credit card, it's important to understand that Experian Boost might not help depending on the credit report a creditor or lender is using.
When you sign up for Experian Boost, you have to link your bank account. This is how they are able to verify that you have made payments on time and add them as tradelines to your credit file.
However, it isn't Experian itself thumbing through your bank statements. They use an intermediary company called Finicity to accomplish this aspect of the process. Before you sign up, it's a good idea to think about whether you feel comfortable letting another company go through your bank account and have access to so much personal information.
If you have excellent credit and a robust credit history, Experian Boost probably isn't worth your time or energy. Even if it does increase your score, five points probably won't offer much in the way of benefits to people with a score of 760 or higher.
Another important thing to consider is that Experian Boost only works with newer versions of the FICO score. Considering that mortgage lenders still generally use older FICO score models, this can mean that it's not worth the effort if your primary purpose is increasing your score before buying a house.
Finally, you'll lose any benefits you gain if you end up opting out of the program. Any extra points you enjoyed will disappear if you aren't actively enrolled.
If you like the idea of Experian Boost but it doesn't quite help you achieve your goals, there are some other options out there. Primarily, you can sign up for another third-party service that helps you boost your score, or you can work to build credit the old-fashioned way.
There are a number of other third-party services on the market that offer similar perks as Experian Boost.
Here are some others you can look into:
Building credit is something anyone can do, but it often takes a bit of time and persistence.
There are a number of things you can do to help increase your scores over time. Here are some crucial steps you can take if you're interested in raising your credit score but don't want to use one of these credit score-boosting services:
Searching for more answers about using Experian Boost? Let's take a look at some of the most frequently asked questions about this credit-building tool.
Experian states that they use bank-level SSL security encryption so that your data is secure and safe. Of course, you are always taking some level of risk when you enter personal and financial information online.
Here are a few tips to ensure you aren't doing more harm than good when using a service like Experian Boost:
If you hand your landlord an envelope of cash on the first of every month, you're not going to be able to benefit from your on-time rent payments through Experian Boost. The same is true if you use a mobile payment transfer app (think Zelle, PayPal, or Venmo), a personal check, or a money order.
In order to have an Experian Boost and benefit from this service, you need to meet the minimum FICO requirements. These are:
If you meet these requirements, then you can use Experian Boost to get your FICO Score.
UltraFICO is another popular service for boosting consumer credit scores, particularly for those who have thin credit files.
This can be useful for people who don't have a FICO score at all or who have a low FICO score. Like Experian Boost, this process works by having you share banking data from your checking, savings, and money market accounts.
By scanning your bank accounts, a number of pieces of information will be collected in order to potentially boost your score, including:
UltraFICO doesn't actually add this information to your credit report. What it does instead is contribute to the calculation of your FICO scores. Since Experian Boost and UltraFICO work in different ways, you can actually use both to help give lenders more information about your creditworthiness.
According to Experian, most people who use their Boost service increase their credit scores instantly.
The people who will benefit the most are those who either:
Only the newer credit scoring models are impacted by the additional information contributed to your report by Experian Boost. This means that the following scoring models can be improved using this service:
If you're looking to add a few points to credit scores generated from your Experian credit report, Experian Boost can be a very useful tool. By letting you add positive payment histories for things like rent, utilities, and streaming services, you might be able to snag a few more points and even get bumped up into the next credit bracket.
At the same time, Experian Boost might not be the right choice for everyone. Those who have robust, long credit histories might not see much benefit from adding their on-time payments using this service. Furthermore, some consumers might not love the idea that they have to give access to their bank accounts to an intermediary service in order to participate.
Whether or not Experian Boost is the right choice for you, taking the time to determine the best way to achieve and maintain a healthy credit score is well worth the effort. Your credit score can have a very real impact on your life, affecting your ability to take out credit lines, buy a house, rent an apartment, and much more.
Are you interested in learning more about how you can improve your credit? Are you searching for more resources to help you become more financially literate? Make sure you check out our Credit Building Tips blog for more useful articles and guides!
If you need fast access to cash, you might have found a number of online loan and line of credit providers that say you can have money deposited to your account the same day you're approved. One such company is CreditFresh, which advertises that they offer "a flexible way to borrow." So, is Credit Fresh legit, or is it a scam?
The answer to this question depends on what you mean by "scam."
While it might be useful in a bind when you have no other options, there are generally better, less expensive ways to borrow money. In this article, we'll take a look at everything you need to know about CreditFresh and borrowing money with less-than-ideal credit.
CreditFresh is a company that provides lines of credit through its partnership with a number of financial institutions.
They work with a number of different Bank Lending Partners, including:
When you submit a request for credit using CreditFresh, the line of credit could originate from one of the above-listed banks or another one of their partners.
CreditFresh offers lines of credit to consumers with low credit scores that need to get their hands on some cash fast. While this might seem like a lifesaver if you're in a bind, it's important to understand the costs of borrowing money in this way.
CreditFresh markets the line of credit they offer as straightforward and transparent. It's important to understand the potential costs of borrowing money in this way versus other options.
Any time you're borrowing money, there are a lot of important questions to ask. One key question is: what's the true cost?
In the fine print on CreditFresh's own website, they go so far as to state that borrowing from them is an incredibly costly way to gain access to some cash:
"A Line of Credit through CreditFresh is an expensive form of credit and should not be used as a long-term financial solution."
Though it's difficult to find information on CreditFresh's site about their interest rates, other sources state that the APR for a line of credit starts at 65%.
For the purposes of comparison, the average credit card interest rate as of September 2023 is 24.45%, which is historically quite high, according to Lending Tree.
Already, this should send up some red flags. 65% is an incredibly high interest rate, and that's just where rates start. According to one source, the interest rates are typically under 200% for a line of credit from CreditFresh, which is a recipe for spending an outrageous amount of money during the repayment of the loan.
Is CreditFresh just a scam? Or is it a legitimate company?
CreditFresh is, in fact, a legitimate company that offers lines of credit to consumers through its partnership with various financial institutions.
Don't stop reading just yet, though. Just because CreditFresh isn't a complete scam doesn't mean taking out a line of credit from them is a good idea.
By targeting consumers with low credit scores who need access to cash fast, CreditFresh is taking on a lot of risk. The way that they justify this amount of risk is by charging incredibly high-interest rates for these credit lines.
A little later in the article, we'll talk about the pros and cons of taking out this type of line of credit as well as some alternative options on the table.
First, we'll take a closer look at a recent class action lawsuit that was proposed against CreditFresh regarding concerns surrounding a data breach that occurred in the spring of 2022. Even if the company is technically "legit," the type of activity outlined in the complaint might leave you to think twice about taking out a line of credit from this company.
Another important piece of information you'll want to consider when you're thinking about working with CreditFresh is that a class action lawsuit was proposed against them not long ago due to a data breach.
The proposed class action lawsuit claims that the company didn't protect the personal information of consumers adequately from access by unauthorized parties. The defendant in the proposed suit is Propel Holdings, Inc., which uses the CreditFresh name to offer lines of credit through First Electronic Bank, CBW Bank, and other partners.
The data breach is said to have occurred in February or March 2022. Allegedly, the following information was exposed to both customers and prospective customers:
The lawsuit claims that CreditFresh could have taken reasonable steps to prevent the breach. Consumers who had their information exposed now "face years of constant surveillance of their financial and personal records, monitoring, and loss of rights," according to the complaint.
If you need quick access to cash, it's easy to start making compromises. You might tell yourself that borrowing money at an exorbitant interest rate isn't a big deal because you'll pay it back quickly, or maybe you don't even think about the interest rate because you're in such a desperate financial situation.
The truth is, though, it's ultimately best to steer clear of this type of borrowing option. There are other more affordable alternatives that could help you get the money you need now without threatening your future financial stability. This is true even if you have bad credit-- you just might need to shop around or get creative.
There are lots of online loan providers these days, some of whom will consider borrowers with poor credit scores. You might be able to increase the likelihood that you'll be approved by offering additional information, such as any outstanding debts you have and your employment status.
Another way to gain access to money with a bad credit score is to consider adding a co-applicant who has a stronger credit history.
A secured loan is a way to borrow money for a lower interest rate by putting up an asset as collateral. These types of loans often have less strict credit requirements, but you run the risk of losing the asset if you miss too many payments.
A vehicle can often be used as collateral through online lenders. However, if you apply for a secured loan through a credit union or bank, the collateral usually needs to be an investment or savings account.
Though it can be frustrating and embarrassing to ask your loved ones for a loan, it's possible that this will ultimately be the more financially wise choice if your only other option is a high APR line of credit.
It's important to understand how money can quickly complicate relationships with people, no matter how close you are. For this reason, it's important to hammer out the details of the loan on paper in the form of a contract. Make sure you record how much money you're borrowing, any terms of repayment, and the process through which you'll pay them back.
Lots of credit unions will offer personal loans in small amounts. These loans typically start around $500. When you're working with a local credit union, there's often more leeway in terms of qualification than when you're trying to get a loan from a large, national financial institution.
For example, they might take other information into consideration beyond your credit score, such as your history with the credit union as a member. Personal loan rates are also capped at 18% under federal credit union cap rates.
Are you trying to get access to a line of credit quickly because your bills are getting to be too much to handle? It's possible that setting up payment plans instead of borrowing money could offer the relief you need.
A number of utility companies and creditors will give you the option to fill out hardship forms in order to request an extension. At the end of the day, these entities just want to collect the money they're owed, and they are often more willing to work with you than you might initially expect.
Another option is applying for a loan with a nonprofit lender. There are some organizations, such as the Capital Good Fund, that accept borrowers who have no credit history or thin credit profiles. This particular nonprofit offers emergency loans up to $1,500 and doesn't have a minimum credit score requirement.
The rates for this type of loan can be much more favorable than with for-profit lenders like CreditFresh. For example, the Capital Good Fund offers rates between 5% and 16%.
Payday alternative loans are small loans that some federal credit unions offer. With longer repayment periods and much more reasonable rates than typical payday loans, this type of loan is much less likely to trap you in a cycle of debt.
The National Credit Union Administration created this type of loan program back in 2010. You don't necessarily have to have good credit in order to get a payday alternative loan-- the more important factors include your ability to repay the loan and your income.
If you just need a little extra money to cover your costs until your next paycheck, another option is a cash advance app.
There are a number of popular apps of this type, including:
These apps can be really useful when you're in a pinch, but the truth is they are also a very expensive way to borrow money. Though the associated fees-- whether fast-funding fees or subscription fees-- are very high when weighed against the amount of money you can receive in this manner.
For this reason, cash advance apps are best used in true emergency situations.
At the end of the day, it costs money to borrow money. If you keep finding yourself in a situation where you don't have enough cash to pay for the things you need, you might consider figuring out a way to earn some extra income.
There are lots of ways you can get your hands on cash quickly if you're willing to be a little creative. You probably have some stuff you don't use anymore that could be sold on Craigslist, Facebook Marketplace, or eBay, or maybe you could start a side gig as a rideshare driver. Whether you start hanging signs in your neighborhood offering lawn mowing services or pick up some extra cash babysitting for the neighbor, you don't have to be limited to the income you earn from your day job.
Before I sign off, let's take a look at some commonly asked questions about CreditFresh and other ways to borrow money fast when you don't have great credit.
CreditFresh has been a company since 2019 and provides lines of credit to consumers in roughly half of the states in the U.S. This is a company that specializes in providing fast funding to people with low credit scores. While this might seem like a great deal when you're in a bind, the business model ultimately relies on charging extremely high interest rates in order to justify the risk of lending to consumers who aren't considered particularly creditworthy.
If you apply for a line of credit through CreditFresh and you're approved, your credit limit will range somewhere between $500 and $5000.
There are a number of different factors that are considered to determine your credit limit. You can potentially become eligible for increased credit limits or reduced billing cycle charges based on your payment history.
One of the main selling points of a line of credit through CreditFresh is how quickly the funds can become available to you.
You will typically receive the funds the same day if you are approved and request a draw before 3:30 pm Eastern time during the business week.
If you're approved and request a draw at another time, the funds will show up the next business day.
It's important to remember that your own bank and bank's policies can impact when funds are made available to you.
CreditFresh markets itself as a company that provides clear and transparent disclosures about the cost of borrowing. At the same time, they don't make it clear what interest rates they charge-- other sources state that the APR starts at 65% (which is incredibly high.)
If you have an outstanding principal balance with CreditFresh, you'll have to pay both the billing cycle charges and a mandatory principal contribution as a part of your minimum payment.
When you take out an installment loan or another type of personal loan, you receive a lump sum of money. You then begin repaying the loan over a period of time with additional interest and, potentially, fees. These payments are made in a scheduled manner, typically monthly.
Taking out a line of credit, on the other hand, offers you a credit limit which you can borrow against. This is a revolving line of credit rather than a lump sum loan, meaning that borrowers can draw on their credit line, repay what they owe, and continue to redraw, assuming they have credit available.
There are a few requirements you'll have to meet in order to request a line of credit through CreditFresh.
In order to apply, you must:
As you can see, the bar is pretty low in terms of being able to request a line of credit. There is no minimum credit score disclosed by CreditFresh, but given the nature of the financial product, it is clear they are marketing to people with poor credit scores.
No, you can get a CreditFresh line of credit if you live in certain U.S. states.
When you have a CreditFresh line of credit, your account status will be reported to TransUnion. TransUnion is one of the three major credit reporting bureaus in the United States. The information that is reported by CreditFresh to TransUnion can be incorporated into your credit score calculation and impact your credit score.
While CreditFresh is a legitimate company, that doesn't necessarily mean opening a line of credit with them is going to be the best financial decision. Offering lines of credit to people with bad credit and charging exorbitant interest in order to deal with the risk, borrowing money from a company like this is quite expensive compared to other potential options on the table.
While there are a few things you can do to quickly boost your credit score, the truth is that it can take a while to improve an imperfect credit file. If you think you might need to take out a loan or get a new credit card down the road, it's a good idea to start thinking about cleaning up your credit report sooner rather than later.
Paying off your credit card can feel like a big weight off your shoulders. How long does it take for your payment to reflect in your available balance, though? Will you be able to use your credit card the same day you make a payment?
The answer is it depends.
If your credit card and your bank account are from the same financial institution, it's possible that your available credit will be updated instantaneously. When money has to be transferred between banks, though, the process typically takes a few business days.
If you've used almost all of your credit limit and you just made a payment toward your card, you might be wondering how quickly you'll be able to use your card for a transaction.
The answer to this question is going to depend on a number of different factors.
The first thing you'll want to know about is the Truth in Lending Act and how it dictates the way that card payments work. According to this Act, credit card issuers have to send you your statement at least 21 days before your payment due date. Furthermore, they must set a cutoff time when they need to receive your payment-- 5 p.m. or later. It's worth noting that if you plan on paying your credit card bill in person at a branch of the financial institution and that branch closes earlier than the cutoff time, the payment will only be considered on time if you pay before the branch closes.
If you paid your bill in a timely manner, you should probably see that your payment is credited on the same business day. If you didn't make the payment before the stated cutoff time, it will likely appear the next business day. At the same time, the fact that the payment is credited doesn't necessarily mean that your balance will be updated. Usually, the payment needs to be processed before it is reflected in your balance.
When you go to make your credit card payment, it's easy to think that the funds should show up immediately once you click "pay."
Sometimes, though, your available credit limit won't change right away. On top of that, it might not show that the funds have been debited from your checking account immediately.
The fact that there's a time delay during the card payment process can be pretty stressful and frustrating. For example, you might be worried that your payment hasn't gone through and that you'll be subject to late fees. Beyond that, you might be waiting to free up some available credit so you can use your card for a purchase.
The truth is, that your credit card payment will likely process practically instantaneously if the bank account and credit card account are through the same bank. However, if you're paying between institutions, there's going to be a bit of lag between the two.
When you're dealing with two different institutions, you can typically expect the transaction to be completed up to three business days after you've made an online payment. If you sent your payment through the mail, it will probably take longer than that.
How many days it will take for your available credit to be updated after payment depends on a number of factors. In most cases, though, you can expect that the credit will be available in one to three business days.
The answer is: that it depends.
If you have maxed out your credit card and are making a payment on the due date, you might have to wait a few days before you have more available credit.
However, if you still have available credit before you make your payment, there is no issue at all with using your card. The transactions you make will end up as a part of the next billing cycle, not as a part of the billing cycle you're currently paying a bill for.
In order for your credit card payment to be considered on time, it simply needs to be submitted by the due date. This means that it doesn't have to be fully processed by the due date-- you simply have to send the payment through.
Once your card issuer acknowledges that you've made the payment, your payment will be credited. Your payment should typically be credited the same business day if you make your payment by a certain time on a business day-- often 5 p.m.
For payments made after this cutoff time or on a non-business day will usually be credited the next business day.
For your credit card payment to fully process, it might take up to three days. However, your payment typically only needs to be submitted by the due date in order to be on time.
What exactly is the difference between a payment being credited and processed?
When you pay off your credit card, it's natural to expect that you should be able to start using it again right away. It can be disconcerting to say the least, to see that there isn't any credit available after you've initiated a large payment.
There are a number of different reasons this could occur. If you have only recently made the payment, the most likely reason is that the payment hasn't finished processing. It may take a few business days for your available credit to reflect the payment that you made.
It's also possible that the credit card issuer has put a hold on your account, which can happen for a number of different reasons. For example, a company might put a hold on the account if:
Delays in available credit can also occur if:
If it seems like there is no good reason for your available credit to still be zero after making a payment, contact your card issuer and ask for an explanation. They will likely be able to get you more information about why this is happening or let you know what steps to take if it does appear to be a mistake of some sort.
It's totally reasonable to want your payment to post quickly. On the one hand, you might want to make sure that there is enough money in your bank account to cover the cost and are therefore interested in the payment occurring sooner rather than later. On the other hand, you might be hoping to free up some available credit so you can continue to use your card.
However, there are a few things you can do to try and make the process go as fast as possible.
Before I sign off, let's take a look at some of the most common questions I receive about making credit card payments.
The best time to pay your credit card bill depends on your circumstances, your financial situation, and your goals.
For instance, if you don't usually use more than 30% of your credit limit and you always pay off the balance in full every month, the timing isn't particularly important so long as you make your payment by the due date.
One of the reasons why it can be beneficial to pay early is that credit card issuers will report to credit bureaus on different dates-- typically around the time of your statement closing date. If you want to make sure your credit score is as healthy as possible, paying before the reporting date can help ensure your credit utilization ratio is on the lower end.
Your credit utilization ratio is one of the main factors in your credit score. The lower your credit utilization, the better. This is a metric that compares the amount of credit available to you to the balance you are currently carrying.
If you want to avoid paying any interest on your credit account, you'll want to pay your bill in full every month on or before the due date.
It's worth noting that you lose your grace period on new purchases if you are carrying a balance from month to month. This is true even for small balances. What this means is that all of your transactions will start accruing interest immediately until the full balance has been paid off.
It's no secret that it's important to pay your credit card bill on time. However, some people say that it's worth going the extra mile and making your payment early. Is this really worth it, and, if so, what are the benefits?
There are a few reasons you might make your credit card payment early.
Whether it's better to pay your bill early or on the due date really has to do with your own financial situation and goals. The most important thing is to make sure the bill is paid by the due date. Otherwise, it can seriously damage your credit score while also leaving you paying a late fee and interest.
Whenever possible, it's a good idea to pay off your credit card balance in full.
When you have a credit card balance carried over from month to month, it can:
Of course, it isn't always possible to pay off your credit card in full every month. In general, though, it's best to put as much money towards it as you can every month. Any amount you can put toward the bill will help to reduce how much-compounded interest you are saddled with.
When you have a large amount of credit card debt you're trying to get a handle on, it's a good idea to trim your discretionary spending and create a strict budget. This will help you find extra money to put towards your bill every month, allowing you to get out of debt faster and reduce the total cost of borrowing.
It's worth noting that there are other ways to borrow money that can be much less expensive than credit cards, such as a personal loan.
If you've been dealing with credit card debt and you've finally paid it off, you might be wondering whether you should just take a pair of scissors to that small plastic rectangle. The truth is, it's generally a good idea to keep your cards open after you've paid your debt unless they have a large annual fee. The reason for this is that closing your account could mean that your credit score goes down, as it can raise your credit utilization ratio.
Ultimately, one of the best things you can do once you've paid off your credit card debt is to start using the money you've been putting toward your card bill and building an emergency fund. According to a study from the Federal Reserve, 40% of Americans would struggle to find the money to pay for a $400 emergency expense. That's a pretty scary place to be, and building an emergency fund can help ensure you don't get caught in a financial pickle.
It's generally recommended that your emergency fund consists of at least three to six months of living expenses. Anything is better than nothing, though, and you might find it's a good goal to save $500 for an emergency fund to begin with.
Whether or not you can use your credit card on the same day you make a payment is going to depend. If you have plenty of available credit before you make your payment, using it on the same day won't be a problem at all so long as you don't try to spend more than what is available to you.
On the other hand, if your card is maxed out and you just made a payment, you might not be able to use it the same day. How quickly credit is made available to you depends on your bank and your credit card issuer. If your credit card and bank account are from the same financial institution, the payment might be processed instantaneously, and the credit will be made available right away.
Are you working to build a greater understanding of credit and credit cards to ensure you have as many financial opportunities as possible down the road? If so, you're in the right place!
Make sure you check out the rest of our Credit Building Tips blog for more resources, guides, and articles to help you improve your credit.
When a portion of your wages is being directly taken out of your paycheck to repay a debt, it's known as wage garnishment. Considering that this process can take a seriously negative toll on your finances, you probably have a lot of unanswered questions. One of the most common things people ask me about wage garnishment is "How long can a creditor garnish my wages?"
While statutes of limitations found under state law often limit how much time a creditor has to take legal action against you for an unpaid debt, these don't apply to how long wage garnishment can continue for.
At the same time, there are some options on the table if wage garnishment is causing you serious financial hardship. Your choices will depend on the type of debt and a number of other factors.
Yes, a creditor can garnish your wages in some instances. For some types of debts, including child support and alimony, unpaid income taxes, and federal student loan debts, a court order is not necessary for money to start being taken from your paycheck.
For most other types of debt, though, the creditor will need to:
There are a number of different types of debts that could result in wage garnishment through a court order.
Some examples of debts that creditors can pursue in this way include:
In order to begin garnishing wages, creditors typically have to sue you and receive a money judgment and court order in their favor. Creditors won't be able to immediately garnish your wages for most types of debt, such as medical bills and credit card bills.
That being said, some creditors don't have to go to court before they start taking money from your paycheck. There are special rules for three types of debt because they are viewed as important enough to ensure the debt can be collected.
These types of debt are:
There is automatically a wage withholding order included in child support orders. Your wages can, therefore, be garnished when you're ordered to pay child support without the court needing to take any additional action. If you fail to pay either child support or alimony obligations, a wage garnishment order against you can also be obtained.
It's worth noting that the wage garnishment limits for alimony and child support are significantly higher than for things like credit card debt or unpaid bills. The limits for wage garnishment for child support under federal law are:
If you've fallen behind on your payments by twelve weeks or more, the cap on your garnishment can be increased by another five percent.
The federal government can also start garnishing your wages without needing to get a court order if you owe back taxes. Your deduction amounts and the number of dependents you have will impact the percentage of your income the IRS can garnish.
In addition to the federal government having this right, state and local governments can also collect unpaid taxes through wage garnishment. State law will dictate how much they can garnish from your paycheck.
Known as an "administrative garnishment," money can be taken directly from your paycheck if you fall behind on your federal student loan payments. The limit on this type of garnishment is 15% of whichever of the following is the lesser amount:
There are a number of circumstances that will lead to the end of wage garnishment. If one of the following occurs, payments for your debt will no longer be taken directly out of your paycheck:
There are federal limits on how much money can be taken from your disposable income when your wages are being garnished.
A certain percentage of your disposable income can be garnished by creditors in some circumstances. Disposable income refers to any money that you have left over after necessary deductions like Social Security and taxes.
The limits for wage garnishment are based on the type of debt. It's worth noting that some states utilize the federal guidelines, while others impose their own. For this reason, it's a good idea to look at what the guidelines are in your state if you're interested in learning how much of your wages can be garnished.
Here are the federal limits on the percentage of disposable income that can be garnished by a creditor:
If you have an unpaid debt that is several years old, you might be wondering if the creditor can still try to get a wage garnishment order against you. Though debts typically only disappear until they're paid and generally don't expire, many states do have statutes of limitations on how long a creditor has to sue you in order to try and collect the debt.
Some debts don't have a statute of limitations, however, including federal student loans.
Federal law dictates that, for ordinary garnishments, a certain portion of your earnings are exempt from wage garnishment. The amount of your income that is exempt is whichever is greater of the two following options:
These rules apply to consumer debts and other ordinary garnishments but don't apply to taxes, familial support, or bankruptcy.
While there are some states that follow the guidelines outlined by the federal government, others have set larger limits to the amount of a person's income that can be garnished through this process. Some states have even prohibited consumer debt wage garnishment. In the following states, your wages can't be garnished for consumer debts:
If a creditor receives a court judgment against you that orders your wages to be garnished, they can continue to do so until the debt has been repaid.
Wage garnishment typically continues until a debt has been fully paid off. This means that it will not automatically stop after a certain number of years.
When you fail to make payments on a student loan that has been funded by the U.S. Department of Education, you might receive a document known as a notice of wage garnishment. You have thirty days to challenge the garnishment or arrange for a repayment plan. If you don't do this, the garnishment will go into effect and will not end until the debt has been paid off.
Yes, wage garnishment can continue for seven years, ten years, or longer. How long you continue to have wages garnished from your paychecks depends on how long it takes for you to pay off the debt in full.
There are a number of things you can do to try and end wage garnishment when you aren't able to settle or pay the debt. We will take a look at your options in the next section.
There are several options on the table if you are motivated to stop a creditor from garnishing your wages under federal law as well as under each state's law.
You might be able to protect some of your wages under your state's laws in certain circumstances. To do this, you'll need to file a claim of exemption with the court in your state. This is a process that entails asking for the creditor's garnishment to completely or partially stop.
Most types of wage garnishments will be immediately stopped when you file for bankruptcy. The reason for this is that there is an "automatic stay order" that will go into place at the time that you file. However, depending on the outcome of the case, this might only be temporary.
Depending on whether you file for Chapter 7 or Chapter 13 bankruptcy, the way the debt will be dealt with varies.
Of course, filing for bankruptcy isn't a decision you want to take lightly. It's also important to understand that several types of debts can't be discharged through bankruptcy. Here are some of the ways that bankruptcy can negatively impact your finances and your life:
Creditors don't need to get a judgment against you before they start taking money directly from your paycheck for certain types of debt, including unpaid taxes and student loan debt. You typically cannot discharge this type of debt through bankruptcy.
If you want to stop the garnishment of your wages for tax debt, there is a process you can go through to negotiate your unpaid tax bill with the IRS.
For student loan wage garnishments, you can request a hearing to challenge the garnishment. There are a number of reasons you might choose to request a hearing, including:
If you are able to pay off the debt in part or in full, that might be the best option for stopping wage garnishment. There are two primary ways you can do this:
Creditors are motivated to recoup the money they are owed, and often would rather receive less money now in a lump sum than the full amount in smaller payments over time.
What this means is that you could be in a good position to settle the debt. You might find that the creditor will be willing to accept a smaller amount of money than the full balance of your debt if you are able to pay it now.
If you are able to come up with the money to pay off the settled amount, you will no longer have to deal with your wages being garnished. Of course, make sure that you receive the deal in writing from the creditor before making the payment.
If you don't stop the debt in some other way or settle the debt, the creditor will likely continue to take money directly from your paycheck. Every time they garnish your wages, the total balance that you owe will be reduced.
That being said, it's important to note that you'll likely also have to pay interest for many types of debt. Depending on your state's laws, the amount of money you owe in interest could vary from 2% to 18% in addition to the principal you owe.
If there is a significant interest rate attached to your debt, this can make it take a lot longer to pay off in full.
Before I sign off, let's take a look at some common questions I receive about wage garnishment.
If you are feeling overwhelmed by the fact that your wages are being garnished, it can be useful to know whether or not you're finding yourself in a unique situation. The truth is, there are more people out there getting their wages garnished than you might initially think.
According to the ADP Research Institute, 7% of employees in their study (which looked at 12 million individuals) had their wages garnished in 2016. This percentage increased to 10.2% for employees between the ages of 35 and 44.
The most common types of debt that individuals are dealing with when they have their wages garnished are:
It's worth noting that there are actually two different types of garnishments to be aware of:
Wage garnishment is when your employer is legally required by a creditor to give them part of your earnings in order to repay what you owe.
Nonwage garnishments, on the other hand, occur when a credit gains access to your bank account. These are also known as bank levies.
As a part of the wage garnishment process, you do have some rights. In most states in the U.S., however, the responsibility to be aware of these rights and exercise them falls on you.
Here are some things you'll want to be aware of if your wages are being garnished or you believe you are in danger of having your wages garnished:
When your wages are being garnished for an unpaid debt, this process will typically continue until the debt has been fully repaid. Though it is difficult to stop wage garnishment once the creditor receives a court order, it isn't impossible. There is often a fairly short window for challenging wage garnishment, so it's important to act quickly once you have received notice.
You also might be able to file an exemption claim depending on the type of debt and the state you're in. It's possible that you'll have to respond to an exemption challenge from your creditor or go to court to present your case.
It is typically best to find an experienced attorney or other expert legal guidance when trying to stop wage garnishment. The truth is, there's a lot of variation between states when it comes to wage garnishment regulations, and they're often quite complicated.
Wage garnishment can have a significant impact on your current and future finances. Not only are you dealing with a reduction of income that can make it even harder to make ends meet, but it can also have a negative effect on your credit scores. Though your wage garnishment won't necessarily show up on your credit report, the series of missed payments that led to the garnishment will.
Are you interested in cleaning up your credit report and setting yourself up for a better financial future? Are you searching for resources to help you on your journey to improve your credit? If so, make sure you check out the rest of our Credit Building Tips blog!
Your credit score doesn't just have an impact on your ability to get a new credit card or take out a loan. It can also make it harder to find an apartment. In this article, we'll tackle the topic of renting with bad credit but high income.
Having bad credit can make your apartment search more difficult, but you'll find it's easier to score the perfect place if your income is high and you have money saved in the bank.
If you're stressed about finding an apartment with imperfect credit, don't worry. Through some combination of the following strategies, you should be able to sign a new lease in no time.
It's common for potential landlords to take a look at your credit before signing a lease. If you have a high income and are capable of making rent payments but your credit has seen better days, this can be a pretty frustrating reality.
The reason that landlords will commonly check the credit of applicants is that they want to know how likely it is that renters will pay their rent on time, every time.
Your credit history can, therefore, make a big difference in whether or not you score the apartment of your dreams. It's a good idea to check your own credit so you can get a sense of what potential landlords will see when you apply.
They will typically also scrutinize your:
There are a number of different ways that landlords will check your credit, and some will also run a background check. This means that they will probably also be searching for any criminal history or history of evictions.
If your credit is bad but you bring in a healthy salary every month, you have some options. There are a number of strategies you can use to score the apartment of your dreams even when you don't have a pristine credit history.
Thinking about buying instead of renting? Check out our posts about the credit score you need to buy a mobile home, how your credit score impacts the size of your home loan, and whether it's bad to get a new credit card before buying a house.
Perhaps one of the easiest things you can do to rent an apartment with bad credit, regardless of your income, is to look for rentals that don't require a credit check.
How easy it is to find a landlord who won't want to run a credit and background check is going to depend on your location. In some areas where most properties are owned by bigger landlords, for example, you might struggle to find any owners who won't want to look at your credit. In places where there isn't as big of a rental market and smaller landlords, though, you might have better luck.
In general, if you want to avoid a credit check during your apartment hunt, you should look for the following:
Typically, the following types of landlords or properties will require a credit check:
Another thing you can do to find an apartment when your credit is poor is to work with a real estate agent. They'll know the ins and outs of your local market and likely have a good sense of which properties won't require a credit check.
In some markets, it's very common to work with a real estate agent to find a rental.
This typically comes at a cost-- you usually have to pay a finders fee once you sign a lease. This is commonly a percentage of the rent you'll pay for a year. Depending on the rental rate, this can be a substantial amount of money, so you'll want to make sure you understand the fees before signing on with a real estate agent.
When you have a low credit score, it is an indication that you have not practiced responsible borrowing habits. This can be a red flag to landlords who simply want to rent to people who will pay on time and not cause any trouble.
If you have a high income, though, you might be able to show this to a prospective landlord in a way that will help alleviate their doubts about your trustworthiness as a renter.
You might also show them that you have access to a large credit line to help give them a little more peace of mind.
If you have a substantial amount of money saved up, it can be useful to prove this to potential landlords in addition to your high income.
In the best-case scenario, you'll be able to show that your savings account has enough money to cover move-in costs plus three months of rent.
Sometimes, people have bad credit because they have been truly irresponsible as borrowers. In other cases, though, there is a totally understandable reason for a lower-than-ideal score.
If you want to rent an apartment that requires a credit check, it's a good idea to be upfront and honest with the landlord. Having bad credit doesn't mean you're a bad person or a bad tenant, and landlords know this. If you can explain what happened that led to your credit hiccup, they might be willing to work with you.
Depending on the rental market you're in, it might be appropriate to send a letter of explanation along with your application, or it might be better to talk to the landlord in person.
You can also take the time to show your potential landlord that you are actively working to improve your credit. If you send a letter of explanation, you can discuss the concrete steps you're taking and prove that your credit score is already on the rise.
Perhaps one of the most effective strategies you can use to rent an apartment when you have a high income but bad credit is to offer to pay more than just the standard first month, last month, and security deposit.
One of the reasons landlords are skeptical of renting to people with bad credit is they're worried the tenants will miss rent payments. When this happens, landlords are still on the hook for mortgage and operating costs, which puts them in a financial bind. Beyond that, tenants who continuously miss rent payments might end up causing a legal nightmare if the landlord has to pursue an eviction.
If you offer to pay more up front, such as three months' rent on top of the standard first month/last month/security deposit, it will show the landlord that you are financially capable of paying the rent. It also lets them know that you're serious about renting the place and motivated to prove yourself as a good renter.
Beyond that, paying more upfront gives the landlord a bit more protection. They expect to generate a certain amount of income through rent, and knowing that you're paid through the first several months can make them more confident in your ability to pay on time.
Another option on the table is to find a co-signer. Also sometimes called a guarantor, a co-signer is a person that is agreeing to foot the bill if you don't pay your rent on time.
Since this is a pretty big commitment on the part of the co-signer, this role is typically played by a parent or close family member. In order for a co-signer to be useful, they will need to have good credit and, ideally, very good credit. Additionally, they will need to hand over proof of income as a part of the application process.
Landlords will often want to see that co-signers have an income that is at least 80 times the monthly rent.
Before you start looking for a co-signer, it's important to consider the potentially negative implications of this type of partnership. Mixing family and money can be a tricky business, and if you fail to pay your rent and your co-signer is forced to take responsibility for it, there's a good chance it will cause tension and strife. You never want to take on a co-signer for something you can't reasonably afford, so this is something you'll want to consider seriously before going this route.
Finally, another step you can take to score an apartment with bad credit but a high income is to consider renting with a co-tenant. Of course, it's essential that this co-tenant has good credit; otherwise, it won't help you prove your case as a responsible renter.
Not everyone is thrilled by the idea of living with a roommate, but this can be a good option if none of the others are working for you. You can save money by splitting your housing costs with another person while you work to build your credit. With attention and dedication, you'll eventually be able to rent a place of your own.
Credit scores and credit reports can feel pretty abstract a lot of the time, but the truth is that they can have a huge impact on the quality of your life. If you want to rent an apartment, for example, having bad credit can make the search much more difficult and limit your options.
That being said, having bad credit with a high income does give you some advantages compared to having bad credit with a low (or no) income. With some money coming in every month and money in the bank, you'll likely find there are some landlords out there who are willing to work with you.
If you're thinking about renting an apartment soon, but you're worried about your bad credit, it's a good idea to start working to build your credit now. For more resources about how to improve your credit and open up more financial opportunities for yourself in the future, make sure you check out our Credit Building Tips blog.
If your credit card account is paid off in full and you initiate a refund, how does it work? What happens if you get a refund on a credit card with a 0 balance?
Credit card refunds don't work in the same way as cash or debit card refunds because it's actually the card issuer that paid the merchant or vendor, not you. This means that you won't receive the refund in cash, but instead as a credit to your account.
Let's take a closer look at what you need to know about credit card refunds and what to expect when you have a negative balance on your account.
If you buy something using a credit card and then later return it, you won't be able to get your money back in cash. What will happen instead is that you'll receive a credit on your account. The credit that you'll receive will be equal to the amount of the original purchase.
Typically, the refund process will start once the merchant has agreed to accept your return and issue you a refund. However, if the person you bought the item or service from refuses to give you a refund or is unable to, it's possible you can utilize your return protection.
In order to determine whether or not your circumstance qualifies for return protection, you'll want to contact your credit card issuer. They will be able to help you understand the protection policy associated with your card.
Understanding how credit card refunds work requires that you first understand the steps involved in processing a transaction.
When you buy something using your credit card, you aren't actually the one that is paying the merchant. Instead, the credit card company is.
Once the purchase has been made, you'll see your available balance go down on your credit card account. When you make payments to pay down your credit card balance, you're paying the credit card company back for the money they lent you for purchases.
Also involved in the process are credit card networks. These are companies that act as a mediator between merchants and credit card issuers in order to process payments. Before you can receive a refund for your purchase, the merchant has to send the refund to the credit card company.
It is for this reason that you can't use another payment method to receive a refund for a credit card purchase (i.e., receiving the refund in cash or putting it on another card). Similarly, this is why it can often take a number of days to receive a credit card refund.
It will typically take several days in order to see the credit appear on your account after a refund. This is because the return has to go through a specific process via the credit card networks.
There are three key methods that will determine precisely when you can expect your refund to show up, which are:
For example, you might find that you receive credit for your refund more quickly if you are returning the item in person. In general, though, it will take between five and fourteen business days to see the credit show up on your account.
If you want to have access to the refund money as quickly as possible and you expect to make another purchase from the same merchant, one alternative is to ask for store credit. However, it's important to understand you will still owe the credit card issuer the money you have used for the original transaction.
Let's say you made a purchase on your credit card, and you have since paid down the account balance to $0. If you then go to return that item, what will happen to the balance on your account?
Usually, this will result in having a negative balance on your account. Basically, the credit card issuer will owe you money rather than the other way around. The next time you make a purchase, this negative balance will be used first.
For example, let's say you have a $0 balance, and you return an item with an original purchase price of $50. Once the refund is credited to your account, you will have a balance of negative fifty dollars.
If you were then to purchase something else for $50 using that same card, your balance would return to $0, and you wouldn't owe the credit card issuer any money. If you were to purchase something else for $100 using the same card, your balance would be $50 after applying the negative balance.
While this usually isn't a problem so long as you regularly use this particular credit card, you might be wondering what you can do to have access to your funds if you don't plan on using the card anytime soon. For a particularly large negative balance or a card you rarely use, you can ask the issuer to send you a check in the amount of the negative balance.
The word 'negative' in the term 'negative credit card balance' makes it sound like it's a bad thing. In actuality, having a negative credit card balance means that you owe less than nothing to the credit card company-- they actually owe you money.
This can occur for a few different reasons, the most common of which are:
There's nothing wrong with having a negative balance on your card. The next time you use your card, this credit will go toward the purchase price before you owe the credit card company any more money.
However, you can request a deposit if you don't want the credit sitting in your account unused. Usually, a credit card issuer will be willing to send you the money through direct deposit to your bank account, a check, or a money order.
Before I sign off, let's take a look at some of the most commonly asked questions about credit card refunds.
Some credit card issuers offer credit card return protection. This is a perk that allows cardholders to make a return even when the merchant won't allow it. Even if the retailer does allow returns, having a card with return protection can extend the period of time you are eligible to return an item.
This is, unfortunately, a perk that is less and less common. Many issuers have recently been phasing out this type of benefit. For that reason, you don't want to assume that your card has return protection and instead should look closely at the details of your card agreement and benefits.
Money can be returned to a cardholder through both refunds and chargebacks. However, these two processes occur for different reasons and aren't exactly the same in their process.
If you want to return something and receive credit on your account, you will have to go through the merchant. There are typically parameters you have to follow in order to return an item for a full refund, and these are set by the merchant themselves.
If you want to get a credit card chargeback, you will go through your credit card issuer. To do so, you'll have to dispute the particular transaction with your credit card company. They will then initiate a chargeback with the bank of the merchant, and the merchant will have to prove that they provided the described product or service to you. If this evidence can't be provided, you will usually be granted the chargeback and see the disputed amount show up as a credit on your account.
When you initiate a chargeback, you are disputing a purchase that has already been charged to your credit card account. Rather than being paid directly from the vendor or the merchant, a chargeback is processed by your bank or credit card issuer.
There are a number of different reasons you can choose to use the chargeback process. These include:
Going through the chargeback process can actually be pretty time-consuming. The merchant can end up owing the credit card company if the dispute is ruled in the cardholders favor. For this reason, many merchants prefer to simply have generous return policies rather than facing the chargeback process while also potentially alienating a customer.
Being refunded after you return an item or are displeased with a service is a fairly straightforward process. For most people, receiving a credit on their credit card balance is just as good a method of receiving their refund as any other.
That being said, there are a few disadvantages to be aware of when initiating a refund for a purchase made with a credit card.
Do you use your credit card rather than other payment methods in order to benefit from the points or perks you earn? If so, you'll want to know that you'll likely lose the points that were earned on the particular purchase if you initiate a return.
As the cardholder, you'll be expected to return any reward points that are associated with the money used for the purchase. This doesn't just have to do with cash back or travel miles, either-- it also applies to sign-up bonuses and other spending-based incentives.
For example, let's say that you have to spend $2000 in the first four months of opening your account in order to receive a promotional sign-on bonus. If you make a $500 purchase toward the end of this period so that you qualify for the bonus, you'll want to understand that you'll lose the bonus if you were to return the same $500 purchase.
If you are returning a foreign purchase, it's worth understanding that you'll probably get stuck with any foreign transaction fee. The reason for this is that it costs your credit card issuer money when you make an international purchase.
Credit card companies need to process international purchases through currency market purchases. In order to allow you to buy the item or service originally, they took on additional costs.
The specific terms, however, will ultimately vary depending on your credit card issuer and the card itself. It never hurts to ask, at the end of the day, as it's possible your issuer will be willing to send you a refund for foreign transaction fees via statement credit. You will generally have an easier time of this if currency values haven't fluctuated significantly since the time of purchase and if you swiftly made the return after purchase.
When you purchase a product or service that you want to return, the first step is to contact the company that sold it to you. Ask them if they will reverse the charge. Depending on the circumstance, they might ask that you return the product to them.
If the merchant's response isn't satisfying to you, it's possible you will be able to dispute the charge. To dispute a charge, you'll want to contact the credit card company associated with the account you used to make the purchase.
This process is known as a chargeback. Card issuers will sometimes offer protections if you received a defective item or if you otherwise didn't receive the goods or services you purchased.
It's also possible that you may be granted the right not to pay the remaining balance on a purchase if you only paid part of a bill for a product or service that you purchased with the card. In order to be considered for this type of chargeback, you will typically need to meet the following criteria:
Another important question to answer is whether credit card refunds count as a payment. After all, if you have a minimum payment of $50 and you received a statement credit for $50 due to a refund, you're probably wondering whether you're still on the hook for your minimum payment this month.
Usually, getting a refund to your credit card counts as an account credit doesn't count toward your minimum payment. Though it would be nice if it was viewed as a payment by the issuer, this is not the case.
This means that you'll still be responsible for making your minimum monthly payment even if you receive a refund equal to or larger than that amount. Otherwise, you could get hit with a late payment fee and even a mark on your credit report if you don't quickly remedy the issue.
When you receive a credit card refund, it will usually help to reduce your total outstanding balance. This means that a refund is generally a positive thing for your credit score. There are a number of factors that impact your credit score, but one of the most significant factors is "amounts owed." When either your FICO score or VantageScore is calculated, 30% of your score results from this category.
For example, let's say that you have a credit limit of $2,000 and the balance on your card is $600. This would mean you have a credit utilization ratio of 30%, which is just about as high as experts suggest you let your credit utilization get.
What happens, though, if you make a return and receive a $200 refund? This would mean that your balance goes down to $400, reducing your credit utilization to 20%. When it comes to credit utilization, lower is always better, and keeping your balances low in relation to your credit limit is a great way to maintain a healthy credit score.
If you initiate a return for a purchase you made with a credit card, the merchant will first have to agree to send a refund. Since it was actually the credit card company that paid the merchant on your behalf, the money will be sent to your credit card issuer, not directly to you. This means that you will end up with a credit on your account.
If you have already paid off your account balance in full, this will result in a negative balance. The next time you go to make a purchase, this credit will be used first before you start racking up a positive balance.
For some refunds, the dollar amount might be large enough that it isn't ideal for it to be sitting as a credit in your account. In these cases, you might be able to ask the credit card company to send you a check in the amount of the refund.
Similarly, if you don't plan to use that credit card in the near future, the issuer might be willing to send you the funds in cash. If they go unused for a certain amount of time, it's possible they will send you the check unsolicited.
Are you on a mission to improve your credit and increase the financial opportunities available to you? If so, make sure you check out our Credit Building Tips blog for more resources, guides, and helpful tips.
Credit card application questions will ask you a series of questions when you apply online. What if you accidentally put the wrong income on your credit card application? Are there any potential repercussions?
The truth is that credit card companies do not typically verify the income of every applicant. This would simply be too costly and time-consuming, given how many applications they receive on a daily basis.
For this reason, it's a good idea to provide accurate information on your application. If you accidentally entered the wrong income, the safest bet is to change your income using your online account or call your card issuer to explain what occurred.
Lying about your income when applying for a credit card is considered fraud-- specifically known as loan application fraud. This is a crime that can come with some pretty substantial penalties, including fines and even time in jail.
You are signing a legal document when you apply for a credit card. For this reason, it's important to make sure you are reporting your income accurately.
Even though this sounds pretty scary, the truth is that it's pretty unlikely to be convicted for loan application fraud for misreporting your income on a credit card application. This is particularly the case if you only made a small error when it comes to reporting your income.
At the same time, people will occasionally be prosecuted for loan application fraud. For example, a particularly egregious case involved a Minnesota man who committed loan application fraud to the tune of nearly half a million dollars, immediately filing for bankruptcy right after he collected his last payment. For his crimes, he was ordered to pay more than $700,000 in restitution and spend 57 months in federal prison.
Major credit card issuers are likely receiving tens if not hundreds of thousands of applications on a daily basis. Despite their sizeable workforce, this makes it impractical to analyze each application closely.
Typically, it isn't worth expending the required resources for a credit card company to verify your income. Financial institutions will, however, ask for proof of income when the stakes are much higher, such as taking out a mortgage or another large loan.
Not quite sure what counts as income when applying for a credit card? Check out our guide to properly reporting income on credit card applications.
In some cases, credit card companies might ask you to submit pay stubs or bank statements in order to verify your income. However, they aren't going to be able to look at your bank account information without you giving them permission. How much money is in your bank account also won't appear on your credit report.
What credit card issuers will be able to see when they do a hard pull of your credit is your credit history. This will help them understand how risky you are as a borrower, which basically means how likely you are to pay back debt on time.
You can get free copies of your credit reports from AnnualCreditReport.com. By checking your credit reports, you can see what potential creditors will be able to see when they do a hard inquiry into your credit.
Even though credit card companies won't have easy access to your income or how much money you have in your bank accounts, you still don't want to overstate your income on your application. Issuers can sometimes ask applicants for proof of income randomly, and you could end up having your application rejected if your reported income doesn't match the proof you provide.
You will also draw more attention to yourself if you start falling behind on your payments. Financial institutions might investigate why you are being offered a credit limit you don't seem to be able to keep up with. For instance, American Express is known for watching out for red flags that can lead to an audit and a locked account. When this happens, borrowers won't be able to use their credit anymore until income verification or other data is provided.
Applying for a credit card these days is a very simple process. They'll typically ask you for personal and financial information, including your:
As you might imagine, having a higher income can help improve your chances of being approved. Beyond that, this can also lead you to receive a higher credit limit.
At the same time, it's really best to avoid overstating your income on a credit card application. Though there might not be any repercussions, particularly if you practice responsible repayment habits, the potential consequences are severe enough that it really isn't worth the risk.
What you should do if you accidentally put the wrong income on your credit card application is going to depend on a number of factors.
There also might be the ability to change your income through your online account. If you are worried about having improperly listed your income on your application and you were approved for the card, consider changing your income using the online interface.
If you lie on a credit card application, it is possible you could face some very unappealing consequences. Both the intent of the misinformation and the severity can impact how you are affected.
One thing that might happen if you lie about your income, even if accidentally, is that your credit card application could be denied. While credit card companies don't always verify income, it's possible that they could catch you in the act after some red flags are raised.
It is considered fraudulent to lie on a credit card application. For this reason, if fraud is suspected, your application will likely be rejected immediately.
If you were approved for a new credit card despite the fact that you misstated your income on the application, it doesn't necessarily mean you're in the clear.
If a credit card issuer becomes aware of a discrepancy between your reported income and your actual income, they could close your account. This is particularly true if it becomes clear that your income was intentionally misrepresented.
Telling the credit card company that you make more money than you actually do can mean you have access to a higher credit limit. While this might seem like a good thing-- after all, you can borrow more money, and it can help your credit utilization ratio-- there are some risks involved.
When you enter your income on a credit card application, the issuer will use this information (among other pieces of information) to calculate how much money they can extend to you.
If you are using more credit than you are able to actually pay back, this can have a negative impact on your credit score and leave you with spiraling debt. Some people are able to resist the urge to spend more than they can afford, but others are easily tempted to max out cards regardless of their ability to repay what they owe.
It is possible that there could be legal repercussions that result from providing false information. This is particularly the case if it appears you did so intentionally. While accidentally entering slightly incorrect income information might never come back to bite you, intentionally misrepresenting your financial circumstances could leave you facing legal action.
Before I sign off, let's take a closer look at some of the most common questions I'm asked about reporting income on credit card applications.
If you find yourself in a situation where you have to declare bankruptcy, there are a number of types of debt that can be wiped from your record. If you file for Chapter 7 bankruptcy, the following debts can typically be discharged:
However, your ability to use bankruptcy as a tool to escape credit card debt is going to be compromised if you misrepresent your income on a credit card application. If the financial institution believes that you lied on your application, they can ask that the debt you owe isn't discharged. By misstating your income, it can be argued that you never actually planned to repay the debt and instead had schemed to use the bankruptcy process to intentionally borrow money and have the debt discharged.
If you tell the credit card companies your income is higher than it actually is, whether intentionally or not, it can mean you are extended more credit than you can reasonably repay.
There are a number of potential risks of taking on more credit than you can handle. These include:
What else can happen if your credit limit is higher than you can afford? Here are some other things to watch out for.
Income is only one of the factors a credit card company will use to determine whether your application will be accepted and, if so, what your credit limit will be.
To calculate your credit limit, the information they'll use includes:
Beyond the particulars of your circumstances, other factors can influence the credit limit you are offered. For example, the state of the economy can have an impact on the underwriting standards of a credit card company. If the larger economy is in a bad spot, for example, you might not receive as high a credit limit as you would if the economy is robust.
If you're tempted to lie on your application because you have low or no income, you might be interested to learn about the best options for low-income individuals.
Here are some things you can look for when shopping around for a credit card for low-income earners:
If you want to apply for a credit card but aren't employed, you'll want to consider whether you have any income you can report on your application.
Here are some things you could include, if applicable:
If you simply don't have a consistent source of income that will help you qualify for a credit card, here are some options:
If you have only made a small error when it comes to your income on a credit card application, the chance that anything bad will end up happening is pretty small. At the same time, credit card applications are considered legal documents, and lying on these documents is considered fraud.
A large discrepancy between your stated income and your actual income could end up causing you trouble, on the other hand. The credit card company could ask you to verify your income and could deny your application or close your account if they find that you misrepresented how much money you make. Furthermore, credit card issuers could also use this as a reason to ask that your credit card debt not be discharged in the event that you file for bankruptcy.
In general, it's best just to be honest when you're applying for a credit card. If you made an honest mistake when filling out your income and your application was accepted, you can change your income in your online account. Depending on the difference between your stated and actual income, it's possible this could cause a change in your credit limit.
Are you on a mission to improve your financial literacy? If you're working to build credit, incorporate good personal finance habits into your life, and generally work towards your financial goals, make sure you check out the rest of our Credit Building Tips blog.
When you realize that someone has been using your card without your permission, it's natural to want to track down the criminal and see that they face consequences for their actions. How often do credit card frauds get caught, though? Is there a good chance that the thief who stole your information will be brought in by law enforcement?
The answer is fairly complex, as there are a number of factors that can influence whether credit card thieves are ever caught. These include how sophisticated the criminals are, the type of fraud that was committed, and more.
Let's take a closer look at what you need to know about credit card fraud and how this type of crime is investigated.
When an unauthorized individual gains access to your credit card information and makes purchases with that information, they are committing credit card fraud.
There are a number of different ways that fraudsters can get a hold of your personal financial info, including:
Whether someone physically has your credit card or has virtually accessed your credit card information, being a victim of credit card fraud can mean you incur unauthorized charges and damage your credit score.
In our increasingly digital world, there are a number of different ways that criminals can gain access to your credit card information. By learning about the different ways that your credit card can be used by crooks, you can help protect yourself from credit card fraud.
A fraudster doesn't need to have your actual credit card in hand in order to do damage. When an individual or entity uses your card information without actually having access to your card, it's known as card-not-present fraud.
This type of fraud can be carried out through the mail, over the phone, or online. In 2022, more than $5 billion in losses occurred in the U.S. due to card-not-present fraud alone.
Another method used to gain access to your credit card information is card skimming. Criminals will place devices on unattended card readers, such as gas pumps, ATMs, or point-of-sale terminals. These devices, known as "skimmers," steal the information on a credit card and give thieves what they need to create fraudulent copies of your card.
It is estimated that more than $1 billion every year is lost due to credit card skimming.
Skimmers are designed to be difficult to spot, so you'll want to take extra precautions when you are using an unattended payment terminal or card reader.
Here are some of the ways you can identify card skimmers before you put your card in the slot:
When someone commits fraud or other crimes using your personal information, it's known as identity theft. There were almost 1.4 reports of identity theft in the U.S. in 2021, according to the Federal Trade Commission.
Have you been the victim of identity theft? Check out my guide to repairing your credit after identity theft and fraud.
Phishing occurs when someone steals your personal information, such as account numbers or passwords, by tricking you into thinking they are contacting you from a reputable organization. This can occur through email or other messages.
Once they gain access to your private info, they might gain access to your accounts themselves or sell your account information to other criminals.
Even though there are a number of ways a fraudster can gain access to your credit card account without ever physically possessing your card, you also need to be concerned about your credit card being stolen or lost.
If your credit card is missing or you think it might have been stolen, you'll want to call the card issuer right away. The quicker you act, the less likely someone else will have the opportunity to use your card to make unauthorized purchases.
Are you trying to boost your financial literacy when it comes to being a responsible cardholder? Check out my articles about whether opening a new card increases your credit score, guaranteed approval credit cards, and getting a credit card before buying a house.
Another type of credit card fraud is known as an account takeover attack. This is when a criminal gains access to your online accounts with the intent to generate fraudulent transactions or otherwise seek to profit.
Criminals who are involved in account takeover fraud will often purchase private information on the dark web. This information can come from a number of different places, but a prime source is data breaches. In 2020 alone, more than 300 million individuals were impacted by publicly reported data breaches.
Fraudsters will also sometimes use malware, phishing, or other methods in order to get a hold of your info. Once they have one set of usernames and passwords, they might try to log in to other accounts using the same information.
Account takeovers don't put your credit card accounts at risk. Here are just a few of the things that criminals can do with access to different types of accounts you may have:
In order to minimize the damage that criminals can do with your credit card information, early detection is essential. If you aren't diligently checking your accounts and credit report, it's possible for fraud to go undetected for a long period of time.
Once you let your credit card issuer know that there have been unauthorized transactions made using your account, they will typically close the card and issue you a new one. At the same time, they will begin a fraud investigation.
There are a number of things that this type of investigation can consist of, including:
Are you wondering whether a small unauthorized transaction will actually be pursued by the cops? Take a look at my guide to whether credit card theft under $500 is investigated by law inforcement.
If you've been the victim of credit card fraud, it's natural to wonder what the chances are that the criminal wreaking havoc on your finances will be caught.
Unfortunately, the truth is that credit card fraudsters are not often caught. According to some estimates, law enforcement agencies only solve less than 1% of all credit card fraud cases.
Though this is fairly disturbing information, the truth is how likely it is for a fraudster to get caught will depend on the type of fraud that was committed. For example, if someone physically stole your card and you believe you know who is responsible, the chances of the thief being caught are much greater than if an unknown actor accessed your information virtually.
Similarly, if a criminal uses a stolen credit card in a brick-and-mortar store, a clerk might notice something suspicious and call the cops. At the end of the day, though, if you don't know the person who committed the crime, you may not ever find out who they are, and they may never face legal repercussions.
There are a number of different factors that influence whether or not a fraudster is caught for their criminal activity, including:
The truth is that criminals stealing credit cards and other personal information can be quite sophisticated. Through the use of advanced technology and anonymous services, it can be very difficult to pinpoint exactly who is committing the crime.
Another reason that credit card thieves aren't often caught is that consumers don't always bother to file a police report. Instead, they contact their credit card issuer or financial institution. Even though an investigation will be launched by the issuer, if the transaction amount isn't high enough they might not file a police report. These types of financial institutions typically have insurance that helps them to cover the loss.
Finally, even if you do report the case to law enforcement, they might not have any success catching the criminal. Smaller fraud cases might sit on the sidelines due to higher-priority cases and limited resources. If there aren't any strong leads in a case, the truth is that police might not dig very deep to try and find the thief.
Credit card companies will investigate fraud when you report that there has been suspicious activity or unauthorized transactions on your account. In some cases, the issuers will alert you when activity occurs on the account that seems unusual.
The credit card company will typically look at the following when trying to determine whether or not fraud took place:
Credit card issuers might decide to contact law enforcement if they find there is a fraudulent charge or several fraudulent transactions. However, this is more likely if the loss resulting from the fraud that was committed was substantial. If they believe the fraud to be a part of a larger pattern, such as a part of a national fraud ring, they will be more likely to report it to the Federal Bureau of Investigation.
There is no simple answer to this question. The unfortunate reality is that many credit card thieves are never caught. However, in a situation where you believe you know who is responsible or there is a trail of evidence leading to the criminal, your chances are much greater that they will face the consequences of their actions.
Are you wondering what types of consequences a credit card fraudster will face if they are caught? Check out our post about whether credit card fraud is a felony and what the punishment is for the crime.
Credit card fraud is one of the most common types of fraud in the United States. According to the Federal Trade Commission, there were almost 390,000 credit card fraud reports in the year 2021.
If you believe you've been the victim of credit card fraud, you can follow this link to report it to the Federal Trade Commission.
A forecast released by the Nilson Report in the winter of 2022 found that card fraud will likely lead to more than $165 billion dollars in losses over the next decade. In 2022 alone, more than $5 billion was lost to just one type of credit card fraud-- card-not-present fraud.
Behind fraud involving government documents or benefits, credit card fraud was the second most common kind of identity theft in 2021 in the U.S.
Reports of credit card fraud and debit card fraud have been on the rise for years. It's estimated that global fraud losses that are related to either debit or credit cards will reach a whopping $47.22 billion by the year 2031.
When you look at the numbers on credit card fraud in the U.S., it's easy to start feeling pretty nervous about your physical card or your card information being used by bad actors.
Luckily, there are a number of things you can do to protect yourself from credit card fraud. Here are some of the steps you can take to keep yourself safe from financial harm due to credit card fraud and identity theft:
Going the extra mile when it comes to protecting yourself from credit card fraud could mean you avoid dealing with the headaches of being an identity theft victim. Here are a few more things you can do to keep yourself safe from credit card fraud:
If someone used your card information fraudulently, it can be pretty disturbing to realize that these criminals aren't often caught. However, the likelihood that the thief will actually be tracked down by law enforcement goes up quite a bit if you know who they are or if they left a trail of evidence during their crimes.
When it comes to credit card fraud, the good news is that you can seriously limit the damage it causes you by monitoring your credit reports and accounts regularly. Beyond that, by taking steps to protect your credit card information, there are a number of things you can do to prevent credit card fraud from ever occurring.
Finally, even if you do end up becoming a fraud victim despite your efforts, early detection, and swift action can ensure you aren't the one footing the bill for unauthorized transactions made by criminals.
Are you on a journey to build credit and clean up your credit report? Make sure you check out our Credit Building Tips blog for more guides, articles, and resources to help you along the way.
When you want to take out a loan or get a new credit card, lenders will look at your credit history to determine your creditworthiness. If you have a thin or non-existent credit history, you might be wondering how you can build a credit history faster than usual.
The best way to think of your credit history is as a record of all of your credit activity. This includes how many credit accounts you have, whether you have a history of on-time payments, and how much debt you have. Additionally, one of the factors that influences your credit score is the age of your credit accounts.
When neither of these is an option, and you have a thin credit profile, you might consider applying for a secured card, a credit builder loan, or a store credit card. In this article, we'll look at what you need to know about building your credit history to help you achieve your financial goals.
Your credit history is the record of how you have managed your finances and debt over time. Essentially, this is an account of how able you have been to repay the debts you have. This shows up on your credit report, which recounts the number and types of credit accounts you have held.
The following information is recorded in your credit report about your credit accounts:
All consumers can access their own credit history through their credit reports. Typically, you can receive a free credit report from all three of the credit reporting agencies through AnnualCreditReport.com once a year. However, due to the economic uncertainty that resulted from the pandemic, consumers can access free credit reports weekly through December 2023.
Your credit history is important because potential creditors will use this information to determine whether they are willing to extend credit to you. This includes creditors such as credit card issuers and mortgage lenders.
Beyond that, the information in your credit history is also used to determine your credit scores. Here are some of the situations where your credit history might come into play:
If you have a good credit history, it means that you have demonstrated that you routinely pay your bills on time and are not saddled with large amounts of debt. To potential creditors, a good credit history means that you are a lower-risk borrower.
Having a good credit history means you have a history of making on-time payments and maintaining low debt balances.
This means that it's easy to be approved when you apply for loans. On top of that, it means you'll be offered lower interest rates for the loans and credit you're approved for.
On the other hand, having a bad credit history means that you are carrying a lot of outstanding debt and don't regularly pay your bills on time.
Having a bad credit history means having a history of missed or late payments, carrying large balances, or struggling with significant financial events like bankruptcies, collections, or liens.
There are a number of different factors that can contribute to a bad credit history. These include:
When you have a bad credit history, it can make it hard to be approved for credit cards or take out loans. Beyond that, the loans and cards you are offered will typically mean dealing with high-interest rates. If your credit history doesn't show you have been a responsible borrower, it can also mean that you have to pay security deposits for things like car rentals, apartments, and cell phones. To make matters even worse, you'll also find your car insurance premiums are higher than if you have a good credit history.
Even if you have been exceptionally financially responsible for your entire life, having a short or nonexistent credit history can make it very difficult to qualify for loans or lines of credit.
This is because your credit history is an important part of how lenders can trust that you are a responsible borrower. When your credit history is brief or doesn't exist at all, lenders don't have as much information as they typically want to make a decision about loaning you money.
The length of time that the accounts on your credit reports have been open is one of the factors that impact your credit scores. You can check the length of your credit history by taking a look at your credit report.
The length of your credit history is worth about 20% of your VantageScore credit score and 15% of your FICO Score credit score.
There are three primary factors that go into calculating the length of credit history category within your FICO credit score:
The older your credit history is, the better when it comes to your credit score.
When lenders are reviewing loan applications, they'll take a close look at your credit history. The longer your credit history is, the lower risk you appear as a borrower, so long as that history displays on-time payments and responsible credit usage.
Beyond using your credit history to determine whether or not to approve your application, lenders use your credit history for two purposes:
As mentioned above, your credit history can also be used by employers, insurance companies, landlords, and utility companies to make a more informed decision about you.
According to a study from FICO, one of the major credit scoring model companies, people who have exceptional credit scores (think 800 or higher) have an average credit age of a little over ten and a half years.
That being said, you don't need to have had credit accounts open for more than a decade to have good credit. You can receive a FICO credit score once you have at least one credit account on your credit report for roughly six months. During this period, the payment history needs to have been updated at least once to be eligible for a FICO score.
For a VantageScore credit score, your account might only need to be on your credit report for a month or two in order to qualify.
It's worth noting, though, that other information can have a bigger impact on your credit score than simply having a thin credit file or a young credit report. For this reason, the biggest priority should be avoiding missed or late payments and keeping a low balance on your cards in relation to your credit limit.
Most people simply exert some patience when it comes to building credit history. As they continue to make payments on time and keep their accounts in good standing, the average age of their credit will typically start increasing over time.
However, if you're motivated to build a credit history faster than is typical, there are a few things you can do. These include:
Let's take a closer look at why each of these steps can help you build credit history faster than usual.
In a recent post, I discussed at length how you can build credit by becoming an authorized user on someone else's account. If you have a thin or non-existent credit history, this can really give you a leg up when it comes to the length of credit history used to calculate your credit score.
There are a few things to keep in mind before you run out looking for someone to add you as an authorized user, though.
First of all, you want to make sure that the credit card issuer actually reports authorized users to the credit bureaus and not just the primary account holder. If they don't also report authorized users, being added to their account won't do your credit report any good.
Secondly, you'll want to be very certain that the rest of the account's credit history is positive before you're added as an authorized user. In particular, you should verify that the payment history and credit utilization on the account are positive before becoming an authorized user.
Another tactic you can use to increase the length of your credit history faster than usual is to add alternative data to your credit report.
Your credit report often won't display things like mobile phone bills, rent payments, or utility bills. If you haven't had a credit card or taken out any loans, this can mean that you have little to no credit history even though you've been responsibly paying bills for years.
In order to potentially add years to your credit history, you might consider using a third-party service that will add eligible accounts to one or more of your credit reports if you are adding eligible accounts. That has been open for several years. This can give you a real leg up when it comes to increasing the length of your credit history.
If you want to add your rent to your credit report, here are some of the paid third-party services you can use:
All of the above services can be initiated by renters.
There are additional services that can be used if property managers or landlords are willing to opt in. In some cases, renters might actually be enrolled automatically when they rent a new place. If you're currently moving, you can ask your new landlord whether or not they use any of the following services, many of which are typically free for renters:
Utility providers usually aren't required to report payment histories to the three primary credit bureaus in most states. This means that you will usually only see a utility account on your credit report if the account is delinquent.
There are a number of reasons that utility companies are disincentivized from reporting to the credit bureaus, with the two primary reasons being:
If you want your history of on-time utility payments to contribute to your credit history, there are a few services you can use:
Closing a credit card can end up damaging your credit for two primary reasons:
At the same time, it's important not to blindly follow the commonly spouted advice that you shouldn't ever close your credit accounts.
There are several very good reasons why you might want to close an account that might outweigh the negatives, including:
All that being said if the only reason you're considering closing an account is that you don't particularly need it, stop and think about whether or not you should keep it open for the sake of your credit history.
On top of being wary of closing old accounts, you also want to be thoughtful before opening a new account. The reason for this is that it can reduce the average age of your credit.
Of course, credit age is only one of many factors that impact your credit score. If you are primarily concerned with increasing your credit, it's possible that opening a new account will ultimately help more than it hurts by increasing your total credit limit and reducing your credit utilization ratio. It's worth noting, though, that the hard pull the creditor will run when approving you for a new card can temporarily reduce your credit score.
Starting from scratch with credit can feel pretty frustrating. On the one hand, you need credit accounts in order to build credit. On the other, lenders and creditors likely won't extend credit to you or offer you loans when you don't have a credit history.
Luckily, there are a number of things you can do to break free from this conundrum. Here are some options:
If you're just opening your first credit card account right now, it can be frustrating to realize just how long it takes to build good credit history. However, there are a few things you can do to increase the age of your credit accounts on your credit reports. The two primary things you can do are:
If neither of these are options and you have yet to establish any credit, here are some things you can do to start building credit in addition to becoming an authorized user or adding rent and utilities to your report:
Are you working to boost your financial literacy and ensure your credit allows you as many opportunities as possible down the road? Make sure you check out our Credit Building Tips blog for more useful resources.
Working to increase your credit score is a worthwhile endeavor-- it makes it easier and cheaper to borrow money, helps you achieve low insurance rates, and can even impact your ability to rent an apartment or get a job. In this article, we'll look at whether American Express helps build your credit score any more than other credit card issuers.
American Express is unique in that it is the only major issuer that still offers financial products that are similar to charge cards. Charge cards aren't identical to credit cards and, therefore, can impact your credit scores in a different way.
Let's dive in and take a look at what you need to know about building your credit score using American Express charges or credit cards.
American Express is a credit card company that issues both traditional credit cards as well as charge cards to consumers. If you are considering applying for an Amex card, it's worth understanding that these two financial products are not identical.
Traditional charge cards have no preset spending limit and require that you pay off the balance in full every month. This is opposed to traditional credit cards, which have a credit limit and allow you to carry a balance from month to month at the cost of being charged interest.
American Express is the only major card issuer that still offers charge cards to consumers.
That being said, the concept has evolved over time in order to allow some customers to "Pay Over Time" for eligible purchases.
Some of the charge cards offered by Amex include:
There are also a few retailers that offer charge cards, most of which are chain gasoline companies. With these cards, you can only make purchases within the brand. Though they are similar to charge cards in some ways, many will allow consumers to carry a balance on the card. There are also some charge card options for small businesses, including the Capital One Spark Cash Plus.
You can build credit using both credit cards and charge cards. However, their different structures mean they don't impact your credit in the same way.
A credit card issuer, including American Express, will check your credit when you apply for either a charge card or a credit card. They won't just do a soft pull of your credit-- they will run a hard inquiry.
Unlike soft inquiries, hard inquiries will be viewable by those who pull your credit report for up to two years. Though this can have a slight negative impact on your credit score, the effect is usually minor and diminishes over time.
One major factor that impacts your credit score is your credit utilization ratio. This is a metric that compares how much available credit you have to how much credit you are using at a given time.
When you use a credit card, your credit utilization rate will be determined by comparing the statement balance of your account at the time of reporting to your preset credit limit. The lower your credit utilization rate is, the better, as it shows lenders and creditors that you are a responsible borrower.
Since charge cards don't have a credit limit in the same way credit cards do, it makes it very difficult to determine a credit utilization ratio. The two major credit scoring models, VantageScore and FICO, don't incorporate charge card accounts when they are calculating your credit utilization. Some older scoring models, however, will still account for charge cards when running this calculation.
You can work to build a strong credit profile by making on-time payments for both credit cards and charge cards.
With credit cards, you only have to make the minimum monthly payment in order to have your payments reflected positively on your credit report. Of course, if you only pay the minimum monthly payment, you will incur interest charges unless you are still in the promotional introductory period for a 0% APR card.
With traditional charge cards, however, you are required to pay the balance in full every month. That being said, some Amex charge cards will allow you to pay overtime for eligible products, making them more like a hybrid between a charge card and a credit card.
If you fail to make a payment by more than 30 days, it will show up as a late payment mark on your credit report. This can remain on your credit file for seven years. Payment history is a significant part of your credit score, which is why it is important to make payments on time every month.
American Express issues plenty of traditional credit card options, but they are unique in being the only major issuer that still offers charge cards to consumers.
These cards also tend to come with a bunch of perks, potentially including things like:
If you're considering one of the American Express financial tools that have features similar to charge cards, it's worth understanding how they can impact your credit.
Oftentimes, you'll hear the words "credit card" and "charge card" used interchangeably. The truth is, though, there are some distinct differences between the two that are worth understanding.
When you're making a purchase, charge cards and credit cards work exactly the same way. Merchants won't need a special card reader to process your payment when you use a charge card, nor will you struggle to use your charge card online.
There are two significant differences between charge cards and credit cards that are important to understand:
If you don't pay off the full balance of your charge card every month, it can have a number of potential consequences, including:
Charge cards will usually have a substantial annual fee. The reason for this is that the issuer doesn't make any money off the interest because cardholders are expected to pay the balance in full each month.
There are a number of different factors that charge cards can impact that influence your credit scores.
However, they won't be factored into your credit utilization rate by FICO or VantageScore because they don't have a preset spending limit.
What this means is that charge cards do not have as significant an impact on your credit score as credit cards do.
This can be either a good thing or a bad thing, depending on what your needs are. Spending a big chunk of money using a charge card won't likely have as much of a negative impact on your credit scores as if you spent the same money on a credit card. On the other hand, you won't benefit from spending little on a charge card because it's not factored into your credit utilization.
Charge cards will usually have a lesser impact on your credit score than credit cards. This is because your credit utilization ratio is a major factor that influences your credit score. Without a preset spending limit, charge cards don't count toward this metric.
You can use both credit cards and charge cards to build credit. If you maintain low balances, though, a credit card will have a greater positive impact on your credit score than a charge card.
That being said, your payment history is the most important factor when it comes to your credit scores. Just because charge cards have a lesser effect than credit cards, it doesn't mean they have no effect at all. Making charge card payments on time will help your credit score, just like it will positively impact your score to make credit card payments on time.
Both credit cards and charge cards can help you increase your credit score if you use them responsibly. American Express is one of the major card issuers in the U.S., and using one of their cards can certainly help you build credit if you make payments on time and maintain a low balance.
That being said, you shouldn't expect to build credit with an American Express credit card any faster than with a card from another issuer. Credit cards, in general, are a very useful tool for building credit.
The reason that credit cards can help you build credit is that they will typically report the activity on your account to the three major credit bureaus.
These national credit bureaus-- Equifax, Experian, and TransUnion-- use the information that credit card companies report to create your credit reports. Your credit reports are the resources that are used to calculate your credit scores.
Opening a credit card or becoming an authorized user are both ways you can start building credit with a credit card. If you have a thin credit profile and don't have the option to become an authorized user, there are a few options to help you start building credit with a card:
How you use your credit card will be an essential factor in how it impacts your credit. The most important things when it comes to responsible credit card usage are:
Your payment history is the most important factor when it comes to calculating your credit scores. Every month, you will want to make sure you make at least your minimum payment on time.
If you don't pay your credit card bill on time, you will most likely be charged a late fee. If your card has a promotional interest rate or an introductory rate, you'll probably lose this privilege when you miss a payment date. If you miss the payment by 30 days or more, you'll start racking up negative marks on your credit profile that damage your credit scores.
It can be hard to remember to pay credit card bills on time, and even one slip-up can be costly for your credit and for your wallet. For this reason, the best thing to do is to set up autopay on your account so that the minimum monthly payment is at least always covered. Of course, you'll need to make sure there are sufficient funds in your linked account to ensure the payment goes through.
Though making the minimum monthly payment is essential, it's ultimately best to pay as much of your balance as you can every month. Otherwise, interest charges will start stacking up, and you'll struggle to keep your utilization rate low.
As mentioned earlier, your credit utilization is the balance on your credit card relative to the credit limit on the card. This is another significant factor used to calculate your credit scores.
When it comes to your credit utilization ratio, experts suggest you keep it under 30%. However, lower is always better when it comes to credit utilization. For the best possible credit scores, try to keep it under 10%.
You want to keep your credit utilization ratio as low as possible for the sake of your credit score. Maintaining a low balance is how you can achieve this. Of course, how low you need to keep your balance has to do with what your credit limit is. Using $500 of credit for a card with a $ 1,000 credit limit is a very different story than using the same amount of credit on a card with a $10,000 credit limit, for example.
If you want to keep your reported balance low for your credit score, you'll want to make your credit card payments before your statement period ends. Usually, it's advised that you pay the balance 21 to 25 days before the due date on the account.
American Express credit cards and charge cards can both help you build credit if you use them responsibly. However, charge cards tend to have a lesser impact on your credit scores because the major credit scoring models don't incorporate charge cards into your credit utilization ratio. This can be either a good or bad thing depending on how you plan to use your charge card.
If you are interested in building credit, the bottom line is that responsible credit usage is more important than which particular credit card issuer you receive a card from. An American Express credit card will be just as useful as another credit card with identical terms, assuming you make your payments on time and keep your balance low.
Understanding the world of credit can feel pretty overwhelming at first, but increasing your financial literacy is a task that is well worth the effort. By learning how you can build credit and increase your score, you can open up new and beneficial financial opportunities for yourself down the road.
Are you searching for more resources to help you as you work to increase your credit? Make sure you check out our Credit Building Tips blog.