Author: Philip Tirone

How Will Collections Affect A Credit Report?

Posted on February 13, 2021 by - Uncategorized

This is a justified concern because creditors are unlikely to grant a loan if there’s a history of slow or no payments. A collection account is not as severe as a foreclosure or a bankruptcy, but your credit score will suffer.

The best way to handle delinquent debt is to pay it, right? Wrong!

How Bad Does a Collection Hurt Your Credit?

Paying a delinquent bill could be a double whammy on your credit report. Why? Making a payment on a bill in collection may cause your credit score to suffer again because bills turned over for collection hurt your credit score the most for two years. After that, the decrease in your credit score is not as great.

If you make a payment after two years, you renew the seven-year period in which an item stays on your credit report and your score will be damaged again.
So what do you do about those pesky collections on your credit report? Paying your bills is your responsibility, even if it causes your credit score to suffer.

However, you can and should negotiate with the creditor or collection agencies to minimize the damage.

Negotiate with creditors or collection agencies to pay less than the full amount of what you owe. This will not remove the collections from your credit report, but it will help your pocketbook!

How to Deal with a Collection on Your Credit Report

The best solution is to negotiate for a smaller payment and a letter of deletion.

FYI:  A letter of deletion is not a letter of payment. A letter of deletion is what a creditor or collection agency sends to the credit bureaus. It allows the bureaus to remove collections from your credit report. This is obviously the best-case scenario. Your credit score will surge if you can get a letter of deletion that wipes the collection from your credit report!

Qualifying for a letter of deletion is not easy. If the collection item was sent in error to the credit bureaus, it’s much easier to receive a letter of deletion.

The Fair Debt Collection Practices Act limits the ways creditors and collection agencies can contact you. If you believe they have violated the Act, you might be able to get a letter of deletion, so long as you promise to pay the collections on your credit report.

The most common violation of the FDCPA occurs when a collector fails to advise debtors about their right to dispute part or all of the debt within 30 days of first contacting the debtor.

Click here if you would like an introduction to a FDCPA attorney who can help you.

How Will Collections Affect A Credit Report?

How bad does a collection hurt your credit? Here are three things to know …

  1. A collection can lower your score by 80–110 points if you started in the 700s, or 40–50 points if your score was already low. The impact is strongest in the first two years.
  2. Scoring models treat collections differently. Older FICO versions (used in most mortgages) still penalize both paid and unpaid collections. Newer models like FICO 9/10 and VantageScore 3.0/4.0 ignore paid collections and weigh medical debt less.
  3. The best outcome is deletion. Paying a collection doesn’t always raise your score, but it stops calls and lawsuits. If you can negotiate a pay-for-delete, the account can be erased from your report completely, giving you the fastest recovery.

A collection is one of the most damaging marks that can appear on your credit report. How bad does a collection hurt your credit? It depends on your starting score and which scoring model a lender uses.

I’ve spent more than two decades teaching people how credit scoring really works through my free credit education course, 7 Steps to a 720 Credit Score, and I’ve reviewed thousands of credit reports. In every case, one thing is clear: No matter where you start, a collection signals that you’ve fallen behind on payments, and lenders now see you as higher risk.

A collection account isn’t as severe as a foreclosure or a bankruptcy, but it will hurt your score, sometimes by more than 100 points. Understanding the impact is the first step toward limiting the damage and rebuilding stronger.

How Bad Does a Collection Hurt Your Credit?

The damage depends on where your score was before the collection. If your score was in the 700s and you otherwise have a strong history, a collection can drop your score by 80 to 110 points because it signals a sharp financial setback. If your score was poor prior to the collection, the drop might be closer to 50 points or less, since your score already reflects negative patterns.

Remember: Payment history makes up 35% of your FICO score. A collection shows that you let a debt go unpaid for months until it was charged off. That makes lenders nervous, which is why a collection is one of the most damaging things to have on your credit report.

How Can I Rebuild My Credit Score Fast?

How bad does a collection hurt your credit score? It can be a fast drop, but rebuilding your score can happen in just 12 to 24 months!

That said, not all scoring models treat collections the same way. Older FICO versions (still common in mortgage lending) count every collection as negative, regardless of the balance or type of debt. FICO 9, FICO 10, and VantageScore 4.0 are more forgiving. They ignore paid collections altogether and give less weight to medical debt. 

Unfortunately, you can’t always tell upfront which scoring model is being used because lenders don’t have to disclose what version of FICO or Vantage Score they are using. What you can do, though, is make an educated guess based on the type of loan. 

Here’s how different models treat collections:

Scoring Model Who Uses It Most Unpaid Collection Paid Collection Medical Debt
FICO 2, 4, 5 Mortgage lenders (FHA, VA, Conventional) Hurts score Still hurts Counts fully
FICO 8 Many auto lenders, some credit card issuers Hurts score Still hurts Counts fully
FICO 9 / 10 Some banks, auto lenders, newer credit cards Hurts score Ignored Weighed less
VantageScore 3.0 Free credit score apps, some lenders Hurts score Ignored Weighed less
VantageScore 4.0 Some personal loan lenders, banks adopting newer models Hurts score Ignored Under $500 not reported

Why Paying a Collection Can Sometimes Hurt Your Credit

To understand why paying a collection can sometimes hurt your score, it’s important to understand that credit scoring models pay more attention to newer information than older information. This makes sense: Your current behavior is a better reflection of your future behavior since your current financial situation is more important in how you will manage future debt.  

If you have an unpaid collection that has been idling in the background for a few years, paying it might bring the account into the foreground. In older scoring models, the account won’t reflect good standing, so it could look like you have a current account in collection. Yikes. 

The debt isn’t re-aged in terms of how long it stays on your report (collections still fall off after seven years from the date of first delinquency), but the scoring system may treat the update as recent activity and weigh it more heavily in the short term.

Still, paying is often the smarter move because:

  1. It stops collection calls and the risk of lawsuits.
  2. It shows future lenders you’ve taken responsibility.
  3. In newer models, the benefit is immediate.

That said, be smart about how to deal with a collection on your credit report …

How to Deal with a Collection on Your Credit Report

The best outcome is a pay-for-delete agreement. This means the collector agrees to remove the account from your credit report once you pay. Not every agency will agree, but if they do, you get the best possible result: the debt is gone and the mark disappears.

How can you get a pay-for-delete agreement? We suggest saying something like this …

If you can’t get a letter of deletion, here are other strategies to consider:

  • Negotiate a lower settlement. This won’t erase the mark, but it may save you money.
  • Dispute errors. If a collection was reported by mistake, you have the right to challenge it with the credit bureaus.
  • Check medical debt rules. As of 2023, medical debts under $500 no longer appear on credit reports.
  • And be sure to join our free credit-education course, 7 Steps to a 720 Credit Score, where you will learn how to naturally improve your credit score in 12 to 24 months.

Have other questions about how to handle collection accounts? Check out these Frequently Asked Questions …

Frequently Asked Questions

  1. How many points does a collection drop your credit score?
  2. Does paying a collection help your credit score?
  3. Do all collections hurt your credit the same way?
  4. Why does a small collection hurt as much as a big one?
  5. How long does a collection stay on your credit report?
  6. Can you get a mortgage if you have collections on your credit report?
  7. Can paying or settling a collection restart the clock?
  8. Can I get approved for a loan or credit card if I have a collection on my report?
  9. What happens if I ignore a collection?
  10. What’s the difference between disputing a collection and negotiating a pay-for-delete?
  11. Can collections be removed without paying?
  12. How do I dispute a collection?
  13. Should I dispute a collection account that is valid?

FAQ: How many points does a collection drop your credit score?

The exact point drop varies, but Experian has reported declines of up to 110 points for a single collection. The hit is usually sharpest for people with excellent credit because they have more to lose.

Here’s a rough idea of how much a collection might hurt your credit score:

Starting Score Typical Drop from 1 Collection
750+ (Excellent) 80 to 110 points
680–749 (Good) 60 to 90 points
580–679 (Fair) 40 to 70 points
Below 580 (Poor) 20 to 40 points

Compare that to a late payment. A 30-day late payment might cause a 20 to 60 point drop, while a 90-day late payment can cause 70–100 points. A collection carries the same weight as a 90- to 120-day late payment, sometimes worse, because it signals the account was never brought current.

The good news is that while the initial drop is steep, many people see their scores begin recovering within 6 to 12 months once they start adding new, positive credit behavior.

Key takeaway: A collection can drop your credit score anywhere from 20 to 110 points, depending on where you started, but the damage isn’t permanent. Many people see their scores begin to rebound within a year once they start rebuilding the right way. To adopt the patterns of behavior that will help you rebuild your credit score, enroll in our course, 7 Steps to a 720 Credit Score, a free credit education course that shows you exactly how to add positive credit behavior, fix reporting errors, and climb back to the 700s faster.

Return to FAQs

FAQ: Does Paying a Collection Help Your Credit Score?

It depends on the scoring model: Newer versions ignore paid collection accounts, while older versions still count any collection account (paid or not) as negative. 

  • FICO 9, FICO 10, and VantageScore 3.0 and 4.0: Paid collections are ignored completely. Once updated to “paid,” the collection no longer hurts your score.
  • Older FICO versions (including those used for most mortgages): Paid collections still count against you. To the algorithm, the fact that the debt reached collections in the first place is what signals risk, not whether you later paid it off. So, paying them won’t boost your score, and in some cases, updating the status may cause a short-term dip. (Keep reading to learn why this happens.)

That means someone preparing for a mortgage may not see a score increase after paying a collection, but someone applying for an auto loan or personal loan might.

Scoring Models Compared

Scoring Model Unpaid Collection Paid Collection Medical Debt Who Uses It Most
FICO 2, 4, 5 Hurts score Still hurts Counts fully Mortgage lenders
FICO 8 Hurts score Still hurts Counts fully Many auto lenders, credit cards
FICO 9 / 10 Hurts score Ignored completely Weighed less Some banks, auto, personal loans
VantageScore 3.0 Hurts score Ignored completely Weighed less Free apps, some lenders
VantageScore 4.0 Hurts score Ignored completely Under $500 not reported Some banks, personal loans

The key takeaway here is this: If you’re applying for a mortgage, assume your paid collection still counts. For most other types of loans, newer models are more forgiving. One way or another, join our free credit-education program, 7 Steps to a 720 Credit Score, where you will learn how to naturally improve your credit score in 12 to 24 months. 

Return to FAQs

FAQ: Do all collections hurt your credit the same way?

No, not all collections hurt your credit score equally. The type of debt makes a difference. Medical collections are treated more leniently, with unpaid balances under $500 excluded entirely as of 2023. Credit card and loan collections remain highly damaging and are reported in full. And unfortunately, utility and smaller bills can hurt just as much as larger debts because credit models focus on the presence of a collection rather than the amount.

Here’s a quick comparison:

Type of Collection Older Models (FICO 8) Newer Models (FICO 9 / Vantage 4.0)
Medical debt (paid) Still reported Removed
Medical debt (under $500) Still reported Not reported
Credit card debt Reported, counts fully Still counts fully
Installment loans Reported, counts fully Still counts fully
Utility bills Reported, counts fully Still counts fully

Key takeaway: While all collections are harmful, medical debt is the one area where recent reforms have given consumers some relief.

Return to FAQs

FAQ: Why does a small collection hurt as much as a big one?

Credit scoring models measure the likelihood of a person being delinquent in the next 24 months, not the balance size. In that way, a $50 parking ticket in collections can hurt your credit score as much as a $5,000 credit card bill in collections. 

To the models, both accounts mean the same thing: you defaulted. Even if you’re paying your other bills on time, one collection signals a higher risk of future default. That’s why even small bills, such as a forgotten utility payment or a gym membership, can do outsized damage.

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FAQ: How long does a collection stay on your credit report?

Collections stay on your credit report for seven years from the date of the original delinquency. This is the date you first missed a payment and never brought the account current. Paying the collection does not restart the clock, but in some states, making a payment can restart the statute of limitations for legal action.

The good news is that lenders and credit scores care more about recent behavior. Even if a collection is still visible, its effect fades the older it gets, especially if you’re paying on time and keeping balances low on new accounts.

Here’s what you should know …

Years Since Collection Impact on Credit Score What to Expect
Year 1–2 Biggest impact Scores can drop sharply (up to 110 points). Lenders see the collection as fresh evidence of risk.
Year 3–5 Moderate impact Damage lessens as long as you build positive history with on-time payments and low balances.
Year 6–7 Minimal impact Older collections carry little weight in scoring models. Account drops off entirely after seven years.

If you are serious about rebuilding your credit score, be sure to enroll in our free credit-education program, 7 Steps to a 720 Credit Score, to learn how to offset the impact of collections.

Return to FAQs

FAQ: Can you get a mortgage if you have collections on your credit report?

Yes, you can get a mortgage if you have collections on your credit report, but it may limit your options. Different loan programs treat collections differently:

Loan Type Treatment of Collections
FHA Collections over $2,000 require review; may need to be paid or explained
VA May require explanation or repayment plan
Conventional (Fannie/Freddie) Collections allowed, but factored into risk
USDA May require resolution before approval

In practice, underwriters often prefer collections to be paid, even if the scoring model ignores them. That’s because unpaid debts raise questions about financial responsibility.

If you’re preparing to buy a home, it’s worth paying or settling collections before applying, especially recent ones. It won’t always raise your score directly, but it makes you more mortgage-ready.

Return to FAQs

FAQ: Can paying or settling a collection restart the clock?

Yes, paying or settling a collection can restart the clock, but it’s important to understand which “clock” we’re talking about. There are two timelines at play:

  1. The credit reporting clock: Per the Fair Credit Reporting Act, collections stay on your credit report for 7 years from the date of first delinquency (the date you first missed a payment and never brought the account current). Paying, settling, or even making partial payments does not restart this seven-year reporting period. This rule comes from the Fair Credit Reporting Act (FCRA).That said, when you pay a collection, the account updates with a new status date. In older scoring models (like FICO 8 and the versions used in most mortgage lending), this “fresh activity” can cause the collection to be weighed more heavily in the short term, even though the seven-year clock itself does not change.
  2. Then there is the statute-of-limitations clock: This is the period of time a creditor or collector can sue you to collect the debt. It varies by state, often three to six years, but sometimes longer. Making a payment, even a small one, can restart this clock. That means a debt that was about to expire could suddenly become legally collectible again.

Key takeaway: Paying a collection won’t restart how long it stays on your credit report, but it can restart the legal window for a lawsuit. Before paying or settling, know your state’s statute of limitations and consider negotiating a pay-for-delete to get the best outcome. And if you are serious about rebuilding your credit score, be sure to enroll in 7 Steps to a 720 Credit Score, a free credit-education course. 

Return to FAQs

FAQ: Can I get approved for a loan or credit card if I have a collection on my report?

Yes, but your options will be limited. Lenders look at both your credit score and the details of your report.

  • Credit cards: You may still qualify, but likely for subprime or secured cards with higher interest rates and fees. See our list of credit cards that are currently approving people with fair to poor credit. 
  • Auto loans: Many auto lenders use FICO 8, which counts both paid and unpaid collections. You might get approved, but with higher rates.
  • Mortgages: This is where collections hurt the most. FHA, VA, and USDA may require repayment plans for larger collections. Conventional loans will count collections in your risk profile. Some lenders will flat-out deny until collections are resolved.
  • Personal loans: Approval varies widely. Fintech lenders and credit unions may approve if you’ve paid collections or show strong recent history.

Key takeaway: A collection doesn’t mean automatic denial, but it can limit your choices and cost you more in interest. Rebuild your credit score using the strategies taught in 7 Steps to a 720 Credit Score to qualify for better rates faster.

Return to FAQs

FAQ: What happens if I ignore a collection?

Ignoring a collection doesn’t make it vanish, but the outcome depends on the type of debt, the size of the balance, and the collector.

Here’s the reality:

  • Credit damage: The collection will stay on your credit report for up to seven years from the date of first delinquency, whether you pay it or not. The biggest score drop happens in the first two years, and after that the impact lessens over time.
  • Medical collections: As of 2023, medical debts under $500 don’t appear on credit reports at all. Larger medical debts may still show up, but they’re less likely to lead to lawsuits than credit cards or personal loans.
  • Collection calls: You’ll still get phone calls and letters, though you have rights under the Fair Debt Collection Practices Act that limit how far collectors can go.
  • Lawsuits: For smaller debts, lawsuits are less common because the cost of suing is higher than what they might recover. For larger balances, collectors may sue, and if they win, they can garnish wages or freeze accounts depending on state law.
  • Interest and fees: In some cases, balances can grow, but not always. Some debts are capped once they’re sold.

Key takeaway: If you truly can’t pay, ignoring a collection may feel like your only option, but it won’t make the debt disappear. The collection will age and eventually fall off your report, but you may deal with years of lower credit scores and potential harassment.

For people who have multiple collections or can’t keep up with bills, bankruptcy can be a smarter path. Bankruptcy stops lawsuits and wage garnishments, wipes out most unsecured debts, and allows you to rebuild your credit in 12 to 24 months instead of waiting seven years. If you are curious about bankruptcy, schedule a free consultation with our debt professionals to have your questions answered.

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FAQ: What’s the difference between disputing a collection and negotiating a pay-for-delete?

The difference is that disputing challenges the accuracy of a collection, while pay-for-delete is a negotiation to remove a valid debt after payment.

  • Disputing means you’re telling the credit bureaus that the account is inaccurate, incomplete, or not yours. If the collector can’t prove it’s valid, the bureaus must remove it. Disputes are strongest in cases of reporting errors, outdated information, or identity theft. (If you need help disputing an error caused by identity theft or bankruptcy, be sure to enroll in 7 Steps to a 720 Credit Score for a free review of your credit report and legal support related to errors.)
  • Pay-for-delete (also called a letter of deletion) is when you negotiate directly with the collection agency. In exchange for payment (sometimes the full balance, sometimes less), they agree to request removal of the account from all three credit bureaus. It works even if the debt is valid, but not every agency will accept it. When it works, you will likely see your credit score improve quickly.
Strategy When to Use Cost Success Depends On Result
Dispute If the collection is wrong or not yours Free Collector failing to verify Deletion if successful
Pay-for-delete If the collection is valid but you want it removed Payment (often less than full) Collector agreeing in writing Deletion if honored

Key takeaway: Disputing a collection is your right under the Fair Credit Reporting Act. Pay-for-delete is a negotiation tactic. Both can remove a collection, but disputes only work for errors, while pay-for-delete can sometimes remove valid debts.

Return to FAQs

FAQ: Can collections be removed without paying?

Yes, but only if the collection is inaccurate, incomplete, or can’t be verified. Under the Fair Credit Reporting Act (FCRA), you have the right to an accurate report. If a collector can’t prove you owe the debt, the bureaus must remove it.

An error might be removed if: 

  • The debt isn’t yours (identity theft or clerical error).
  • The amount reported is wrong.
  • The collector can’t produce documentation proving the debt is valid.
  • The debt is older than seven years and should have already fallen off.

If you need help disputing an error caused by identity theft or bankruptcy, be sure to enroll in 7 Steps to a 720 Credit Score for a free review of your credit report and legal support related to errors.

Return to FAQs

FAQ: How do I dispute a collection?

To dispute a collection, submit a formal challenge to the credit bureaus (Experian, Equifax, and TransUnion) stating that the account is inaccurate, incomplete, or not yours. Under the Fair Credit Reporting Act (FCRA), the bureaus must investigate within 30 days and remove the account if it cannot be verified.

Here’s how to do it step by step:

  1. Go to AnnualCreditReport.com, the government-approved site for receiving free copies of your credit report from all three bureaus. Pull your Experian, Equifax, and TransUnion credit reports.
  2. Look for any account that you don’t recognize, debts already paid, duplicates, or anything reporting incorrectly.
  3. Collect documents like payment records, correspondence with the creditor, or identity theft reports.
  4. Submit a dispute. You can do this online through each bureau’s website, by mail, or by phone. Send the disputes via certified mail, or file them online. 
  1. The bureau will contact the collector to verify the debt. If the collector doesn’t respond or can’t prove it’s valid, the account must be deleted.
  2. You’ll receive an update. If the collection is removed, your score may rise quickly. If it remains, and you believe it’s still inaccurate, you can escalate by filing a complaint with the Consumer Financial Protection Bureau (CFPB) or consider legal help.
  3. You can also consider enrolling for free in 7 Steps to a 720 Credit Score. If you’ve been through bankruptcy or are a victim of identity theft, you will receive a free review of your credit report and legal support to help with disputes.

Key takeaway: To dispute a collection, pull your credit reports from AnnualCreditReport.com, identify errors, gather supporting documents, and file disputes with Experian, Equifax, and TransUnion online or by certified mail. The bureaus must investigate within 30 days and remove the account if it cannot be verified.

Return to FAQs

FAQ: Should I dispute a collection account that is valid?

No. If the collection is valid, disputing it usually won’t work, and it could even backfire. The Fair Credit Reporting Act (FCRA) gives you the right to dispute items that are inaccurate, incomplete, or that can’t be verified. But if the debt is yours and it’s being reported correctly, the credit bureaus will almost always verify it and leave it on your report.

And here’s the kicker: Filing too many disputes, especially on valid accounts, can make the bureaus flag your file as “frivolous.” That makes it harder to get real errors corrected in the future.

If the collection is valid, your best options are:

  • Negotiate a settlement (possibly for less than the full balance).
  • Ask for a pay-for-delete agreement, where the collector removes the account from your report once you pay.
  • Enroll in 7 Steps to a 720 Credit Score, where you will learn how to authentically build new-and-improved credit around your past negative credit items. 
  • Consider bankruptcy if you have multiple collections and unmanageable debt. Bankruptcy wipes out most unsecured debt and can set you up to rebuild your credit faster than years of struggling with collections.

Key takeaway: Disputes are a powerful tool for fixing mistakes, not erasing accurate negative items. If the collection is valid, focus on resolving it strategically instead of disputing it.

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12 Rewarding Alternatives to Retail Therapy

Posted on February 12, 2021 by - Personal Finance

There’s nothing quite like the rush of getting something new, especially if it’s something you’ve wanted for a while. In today’s economy, many people are suffering and dealing with financial issues that they’ve never had to face before. In an effort to lift up their spirits, retail therapy has become the new chocolate. It’s almost as if as a nation we’ve begun to think if we don’t spend it while we have it, we might never get the chance again.
The upside of this is that there is a solution, and it doesn’t always mean cutting out shopping. If you’re in the process of building your credit or paying off debtors, you still need to feel like you’re able to “buy” things without putting a damper or another black mark on your finances. That means paying a little more attention to how and why you buy and trying different ways to get that “new” feeling without having to make a purchase.
To help get you started, we’ve compiled a list of ten alternatives to retail therapy. Our goal is to provide you with alternatives that not only feel good, but are also light on your wallet.
Breaking The Habit by Staying Home
What has made us into a commerce society? Often, one turns to shopping just because it’s something to do, and for others it’s become a habit – simply a part of their lifestyle. To help break the habit, consider these alternatives:
Night Out at Home
Instead of going out to dinner or out to enjoy the nightlife, consider staying in with friends instead. A party or get-together is significantly cheaper and more rewarding experience than going out. Have everyone bring something to contribute and enjoy your time together.
Movie Night
With Netflix and Redbox, home entertainment has never been cheaper. Get together once a week to watch a TV series on Netflix or make it a movie night with $1 movie rentals from Redbox.
Game Night
Whether your cup of tea is board games or video games, getting together for a little friendly competition is always an inexpensive night out. This works great in a group or for couples as a date night. You can make it a weekly night out by switching up genres or games each time you get together, and by having a different person or couple host each week.
Host a Make Your Own (Something) Night
Instead of taking expensive cooking or hobby classes, considering taking a stab at learning something new with a group of friends. Break down the cost of all the materials needed and split the expense between everyone attending. Have someone designated as the “guide” for the night and have fun trying something new in a comfortable environment.
Going Out On A Budget
When it comes to going out, expenses can add up quickly. Avoid overpriced escapes with these economic alternatives.
Going Natural
Nature is a beautiful and free commodity that we can always take advantage of. Go for a hike, go on a photography walk or just enjoy the sunset. Picnics in the park, frisbee golf and bird watching are also excellent examples of using Mother Earth’s resources to create fulfilling experiences. If you’re feeling up to a longer excursion, consider camping as a great alternative
to a hotel getaway.
Get Physical
Many forms of exercise are inexpensive and entertaining ways to spend time. Get in shape and have fun doing it with activities like enjoying a bike ride, roller blading by the beach or lake, scenic walks or playing sports with friends.
Local Events
Many cities have free local events that offer a nice entertainment alternative. It’s a good way to support your local community and have a great time meeting people in your area or just getting out to enjoy something new.
Community-Based Stores
With the economy on a downward trend and the increased competition of discount stores, local retail stores have had to turn to new methods to attract customers. One trend is hosting in-store events. Local wine or gourmet shops hold free (or nominally priced) wine or food tasting events. Bookstores have readings and author meetups. Game stores hold game nights and tournaments. Home improvement and craft/hobby stores hold free (or nominally priced) lessons. Call around or visit your local stores’ websites to find out what events might be occurring.
Purchasing Power
When there’s no way around it and you absolutely need to go shopping, consider these tips to avoiding overspending.
Trade In for Something New
Many stores that sell used products will buy your used items for store credit or sometimes even cash. Clean up some extra space in your place and trade up for something new by going through your older items. Books, music and games are all excellent trade-in items. You can also use services such as eBay to do this as well, only using the money you make from selling items to purchase newer ones.
Buy Used
Save the environment and your pocketbook at the same time by buying used. The items may not have that fresh new feel, but they are definitely a lot cheaper, and most used stores and thrift stores have fairly good standards in what they accept. This is an excellent option for clothing, books, children’s toys and furniture, exercise equipment and home decor.
Set A Budget & Stick To It
The biggest problem with shopping is the tendency to overspend. If you only bring the exact amount of cash you desire to spend with you, all temptation to pick up that extra item at the check stand is removed.
Use the Barter System
Sometimes, focusing on how to get money to get what you want is the wrong way to go about things. If you open yourself up to new possibilities, there could be quite a few alternative ways to get what you really want. In many cases, you might be able to swap services with someone to get what it is you need. Maybe you need your lawn mowed weekly. Perhaps that person needs a service you can offer in exchange. Never be afraid to think outside the box or to just ask someone for another solution. They are probably in the same situation as you and would welcome an alternative to getting what they want as well.
Remember, that the focus isn’t always on finding the cheapest or most inexpensive way of doing something. It’s about finding the richest experience for yourself at a smart expense. Think about your own lifestyle and what makes you happiest. Now, search for creative ways to keep those experiences while paying less to have them.

Build Credit: Debunking the No Credit Equals Good Credit Myth

Posted on February 11, 2021 by - CREDIT SCORING

Credit is a tricky subject. Everyone thinks they know the right thing to do, and everyone seems to be an expert. The fact is, there are a lot of myths and untruths about the way your credit score is compiled. The biggest and first mistake most people fall for is believing that no or little credit equates to good credit. This couldn’t be further from the truth.
Imagine someone you didn’t know came up to you and asked if they could borrow money from you. They promised they’d pay it back to you in a week. How would you know they were responsible or even ethical enough to return your investment? Now, let’s say a trusted friend you’ve known for years came up to you and asked you for the same favor. Your response would more than likely be quite different than the one you had towards the unknown person.
When you have little or no credit, credit bureaus view you as the stranger asking for money. They have very little information on whether you are a good investment and whether they are likely to see a return. You have to become like the trusted friend and create credit history to have a valued and trusting relationship.
This doesn’t mean go out and apply for multiple credit cards and start taking out loans. While you need to show credit history, you also don’t need to go into debt. To create a good credit score, you need at least three credit cards with balances below 30% of your credit limit and an installment loan.
Now, you may be thinking that credit isn’t really a big of deal and you don’t want to have credit cards and loans because they are a hassle. This way of thinking can hurt you financially more than you know. Your credit score is used to determine a number of things including, believe it or not, your automobile insurance and even your job worthiness.
When it comes to purchasing a house, your interest rate is determined by your credit score. This means you could be paying thousands more for your home because of bad credit decisions. Think about this:
On a $300,000, 30-year fixed rate mortgage, a person with poor credit (below 620) would pay $589 more a month than a borrower with a 720 credit score. That’s $589 a month! Imagine what you could do with an extra $7,068 a year. You could buy a new car, save for your child’s college tuition or with wise investments, double, triple, or even quadruple the money!
The bottom line is, your credit score can either help or hurt you financially. Learning the ins and outs of how to maintain a high credit score will give you a great return on your investment of time and research. It may even help you live the life you dream without overextending yourself.

Here’s a Quick Way to Save $2500 a Year on Groceries

Posted on February 10, 2021 by - Personal Finance

groceriesOne of the biggest monthly expenses for most families is the cost of food. Other than your house payment or car payment, groceries are the biggest drain on your wallet. The average family spends more than $6,000 a year on food. Fortunately, it is not that difficult to shave hundreds of dollars off of your monthly food expenses by following some of these great tips.
1. Switch to store brands
One of the biggest ways to save money on food is by simply switching to store brands instead of the commercial name brands. As most of these store brands are 30% cheaper than the average commercial brand, this can lead to a saving of up to $1,500 per year. You will also be surprised to know that in a taste-off study by Yahoo Shopping, the store brands were found to be comparable in terms of taste, quality and nutrition.
2. Plan your grocery spending
Another way to save money on groceries is by implementing a little planning. On average, families today throw out about 15% of the food they buy at the grocery store because it went un-used. When you consider that the average annual grocery bill as detailed above, that is an extraordinary $900 a year on wasted food. With a little planning, however, we can cut down this waste dramatically. Plan your meals for the week and only purchase what you need for those meals. Take a look in your refrigerator and think of great uses for the ingredients you already have. There was a reason you purchased that food in the first place, why let it go to waste? Also, stop making daily trips to the grocery store. Most Americans don’t think about what they want to eat that day until they start to get hungry. Then they jump in the car and drive to the grocery store to pick up what they are in the mood for, sometimes forgetting that they have certain things in the fridge or freezer already. A little planning can therefore save a lot of money.
3. Stop Paying For Convenience
There is a lot of truth in the saying that we pay for convenience. For example, you can get a head of romaine lettuce for about half the cost of the pre-packaged, pre-washed chopped lettuce bags that you find in every grocery store. This is a huge waste of money for the sake of a little convenience, especially when you think that most people use the entire bag in one meal instead of just cutting up what they need.
Another huge cause of over-spending due to convenience is eating out. It is so much easier to go to Subway for lunch instead of making your own sandwich and bringing it with you. Bringing your own lunch can actually save you over $2,000 per year. That is the equivalent of a $1 per hour pay rise!
4. Save Gas
With the average price of gas climbing to over $3 per gallon in the U.S., the family car is a huge drain on your wallet. Group your trips and errands together so that you make less trips in the car and you can save a substantial amount of money. For example, planning your meals for the week will result in one trip to the grocery store each week instead of seven. While you are out, why don’t you also go and pick up that rake you needed from the hardware store instead of making another trip later?
5. Eat Less by Drinking More Water
A Washington University study recently proved that most people who think they are hungry are actually just thirsty. In fact, in their study, when people drank a glass of water when they were hungry between their meals, the hunger pans went away almost every time! This is especially true when the midnight hunger pangs hit. By drinking more water, not only are you living a healthier lifestyle, you will also find that you are eating less and saving more money.

Bad Credit: The Truth About Rent-to-Own Stores

Posted on February 9, 2021 by - CREDIT BLOG

It can seem so easy – get a 250GB Compaq laptop, a 42-inch JVC 1080p LCD flat panel TV and two HP wireless TV connect adapters for only $129.99 per month! How about a full 15-piece living room and dining set for only $119.99 per month? You could get a sofa, loveseat, coffee table, two end tables, a matching rug, a dining room table and six chairs. Best of all, there are no credit checks and they’ll even throw in free delivery and set up!
There are ads like these every week in your Sunday paper. The rent-to-own industry has grown into a multi-billion dollar industry since its start in the 1960s. Targeting low-income consumers, rent-to-own stores make it possible to have the nice things that other people have, without the credit restrictions. If you don’t have a good credit rating, where else are you going to be able to get that big screen high definition TV for your Superbowl party?
The problem is that rent-to-own stores take advantage of the current credit climate and charge the equivalent of 80% to 160% interest rates per year! In the example above, the laptop, TV and HP wireless TV connect would cost me $1949.99 to purchase from my local rent-to-own store. However, if you did not have two grand to spend right now, but you wanted the TV for the Superbowl, you could pay them $129.99 for 24 months and own it that way.
Well, let’s do the math shall we? $129.99 for 24 months equals a total price of $3119.76. That is an interest rate of 80% per year!
Now, that is at the store’s advertised prices. They are the ones that said the equipment was worth $1949.99. So, looking at their specifications, we did a little online comparison-shopping at Amazon.
An equivalent 40″ Philips 1080p LCD flat panel TV at Amazon is $672.71 plus $31.99 shipping.
The HP Wireless TV Connect is $152.86 with free shipping
The Compaq Presario CQ61-420US 15.6-Inch Laptop (which has similar specifications to the one advertised at Aaron’s) is $549.95 with $8.99 shipping.
GRAND TOTAL: $1,375.52 plus shipping.
So the rent-to-own store is charging $574.47 more than you would pay on Amazon. When you add that overcharge into the equation, you get an equivalent interest rate of 113.4% per year!
Right now, the average consumer credit card interest rate in the USA is 15.32% annually. If you were to make that purchase on a credit card it would cost you $67 per month to pay off the balance in two years. That is a total charge of $1608, of which only $233 is interest. That is a total cost of ownership that is almost $350 cheaper than the Aaron’s “Every Day Low Price” of $1949.99!
Unfortunately, the exorbitant cost of ownership is only one of the problems with rent-to-own stores. These stores do nothing to build credit. As you are not technically buying from them, they are not technically extending credit to you. Therefore, there are no reports of your good payment history to the credit bureaus and your credit score will not improve.
Another problem is that it does not matter how many payments you have made, you don’t own the items until you complete the entire term of the lease. So, lets say you have made 20 payments at $129.99 and you miss a payment. As you don’t own the items, the rent-to-own companies have every right to ask for them back. It does not matter to them that you have paid $2599.80 for items you could have purchased for $1375. If you stop paying, they will come and take it all away. In fact, only 25% of people that “purchase” from a rent-to-own store actually end up owning the things they buy. That means 75% of their customers make monthly payments on items and then end up giving them back. What does the store do with the stuff they get back? They “rent” it to the next customer!
That’s right! If you think you are going to get a brand new TV or washing machine, think again. With a 75% return rate, the chances are incredibly high that the products you get are used. Because you are renting these items, the companies do not have to tell you how many times these items have been rented before. The TV you get could have had two previous “owners” and the store might have already received over $1,600 for the product. Then they turn around and rent it to you for another $3,400 over two years and, if you complete the lease and actually end up owning it, they have received over $5,000 for something that you could have purchased for as little as $1375!
The profits to be made in this business are astronomical… and these companies love the current credit scoring system. Over 25% of Americans have a credit score of less than 600 and would not be able to get a credit card to buy the things they want. As long as that situation continues to exist, these companies will have a dedicated market. So, don’t fall victim to the rent-to-own scam and start building a great credit score today.

Build Credit: 10 Best Websites For Frugal Living

Posted on February 8, 2021 by - Personal Finance

Creating personal wealth isn’t always about making more money. Sometimes it’s about spending less or spending smart as well. That’s where paying attention to ways you can economize not only your purchases, but also your time and your experiences can offer big rewards.
It’s true that for some the word frugal can bring up negative connotations. However, living frugally doesn’t have to mean you need to penny-pinch or live like a miser hoarding your money. True frugal lifestyles are about finding ways to get the best life has to offer at the cheapest or most “frugal” prices possible. It means making informed decisions about where and when you spend your money. If your goal is to get out of debt, or get ahead financially, finding ways to decrease your spending is going to be quite helpful.
With this in mind, below is a list of favorite websites that help promote frugal lifestyle choices and spending habits.
Frugal Living
There are hundreds (possibly even thousands) of ways to make your everyday life more efficient and profitable. From saving money with your nightly dinner meal to time saving tips that help you get more done, these sites will help you stash away some much-needed dough.
CheapCooking.com
Learn all the ins and outs of creating your meals on a budget.
Frugal Village
Everything from frugal living to frugal cooking tips.
Make Better Choices
Nothing’s worse than that sinking feeling of overspending or feeling like we’ve gotten duped. Avoid common pitfalls by doing some research first with these sites.
GasBuddy.com
Check all the prices of gas in your local area to find the best deals.
TripAdvisor.com
Make sure the hotel you booked is actually what’s being offered by browsing through the reviews of locations at TripAdvisor.com.
Angie’s List
Worried about doctor, a contractor or even a local business? Check out Angie’s List first to get reviews by other members on virtually every type of business. Caveat: This is a paid for membership site based on where you live. Most yearly fees are below $40.00.
Discounts & Coupons
It may feel annoying waiting while they ring up all your coupons, but when that savings gets you an extra tank of gas each week, you won’t mind the extra time spent.
Retail Me Not
Want great stuff from your favorite stories, but don’t want to pay full price? This site features coupon codes from all of the top retailers.
CurrentCodes.com
Less flashy than Retail Me Not, CurrentCodes.com offers coupons and special offers from a wide selection of online retailers. The categories covered are quite extensive, featuring coupons for everything from computers to baby products.
CoolSavings.com
Want to save money on the products you already buy? This site allows you to search by your zip code for coupons available at stores in your area.
The Grocery Game
Like having the inside scoop on local deals? The Grocery Game does just that. They provide you a list of savings from grocery stories in your area so you know where to buy what at the cheapest prices. This is a membership site that charges $10 every 8 weeks. However, you can try it for four weeks free.
Daily Deals
Sometimes deals so great come by that you have to swoop them up. This is the thought process behind daily deal sites. Each day, you’re only offered one deal at an extremely discounted rate. If it’s something you’ll use, you’ll gain significant savings from taking advantage of the offer.
Woot
In addition to their main daily deal site they also have sites dedicated to specific products such as shirts, wine and kids.
Groupon
Want to book a local hotel for a discount rate? How about trying that new restaurant? Groupon is an excellent service for finding daily deals on services and products locally.
These are a few of our favorites. Take a few minutes and share yours!

Do You Make These 3 Credit Card Mistakes?

Posted on February 7, 2021 by - CREDIT BLOG

Credit is a modern convenience that many of us could not live without. It allows us to buy things that are well out of our immediate price range, like a home, a car or even a business. For the average American today, credit is pretty much a necessity.
However, with credit so readily available, and the downward trends of our economy, credit has become a system that is very much abused.
The majority of Americans just don’t understand how to use credit properly and make it work to their benefit. Unfortunately, that sometimes leads to people using credit for things that do nothing, but hurt their credit scores. Like the saying goes, “The road to hell is paved with good intentions.” Not knowing how your credit decisions can affect you could harm your financial standing significantly.
If you have a have a credit card, there are a few things you need to keep in mind to help use it for what it was meant for – improving your credit score.

  1. Never use your credit card for pulling cash out of the ATM.
    Think you need that cash ASAP? Think again. When you use your credit card to take cash out of an ATM, you’re being charged twice. You’re charged once for the ATM fee, and again with the interest on your credit card. In fact, most people don’t realize that credit card cash withdrawals are not eligible for interest-free periods. This means you start getting charged interest from day one. On top of that, you’re likely to get charged a higher interest rate on cash advances than on normal purchases. Your $100 dollar cash advance quickly spirals into a significantly higher amount. If you have any other option, it’s probably best to get the money you need a different way.
  2. Just say NO to retail credit cards.
    The lure of saving 10% – 15% off your purchase can be a strong one. How many times have you been offered such a discount on your purchase at a retail store if you apply for their store credit card? Have you ever stopped to think why they are pushing these deals if it’s such a “savings” for you? Let’s break it down.If you are late on a payment or only pay the minimum amount, the interest rate of retail store credit cards can be significantly higher than regular credit cards. Retail stores send you promotions and offers to get you to spend more at their store. Often, you’ll just put it on your card and keep accruing debt. Remember that it hurts your credit if your balance goes over 30% of your credit limit.Lastly, your credit score is determined by active credit. If you get a card at a store that you don’t frequent, you’re not providing good credit history and therefore the credit card becomes a liability. The better option is pass on the offer of “savings” and, if you really need to purchase something on credit, use a non-store-specific card instead.
  3. Don’t incur more debt by using credit cards to pay bills.
    When it comes right down to it, paying a bill on your credit card is going to do a lot more to damage your credit than it will to provide the help you seek. The problem is, you’re not actually paying anything. You’re simply transferring the debt from the company the bill is from to your credit card company. That’s not solving any problems. Not only are you not reducing the debt, you’re incurring new debt from the interest on our new balance. You also need to be careful that moving your debt from one place to another doesn’t increase your balance to over 30% of your credit limit. Credit cards should be used to increase credit, but only on things that help build your financial and personal worth – not things that decrease it with added charges.

Build Credit: Using Credit Cards As Tools of Financial Freedom

Posted on February 4, 2021 by - CREDIT BLOG

Credit cards have gotten a bad reputation as more and more people view these cards as vessels for temporary financial freedom. The thought of being able to buy whatever you want even if you don’t have the cash readily available is exhilarating. As times have gotten harder and more and more people are relying on credit to help them through, retail therapy has become a quick emotional fix. Unfortunately, if you don’t know how your spending habits hurt or help your credit, you could be paying for more than a quick dose of endorphins.
While credit cards certainly provide access to splurge on these instincts, that doesn’t mean they are all bad. In fact, it’s actually important to maintain three credit cards in order to improve your credit score. This may sound confusing, but your credit card history is a crucial factor in determining your overall credit score. As with many things, there are some points to watch out for. When using credit cards, you’ll want to keep these tips in consideration:

  • Always remember the 30/30 rule. 30 percent of your credit score is based on your outstanding debt, and if your credit balance is more than 30 percent of your credit limit, your score is going to drop. Never exceed 30% of your limit.
  • Make sure your credit card companies are reporting your actual credit limit. If they are reporting a lower credit limit, then your calculation for 30% of your credit debt is going to be reported incorrectly, therefore damaging your score.
  • Be aware of the credit balance myth. Some people believe that they must keep an ongoing balance on their credit card in order to improve their credit score. This mistaken belief causes some consumers to make unnecessary interest payments. The truth of the matter is that credit bureaus have no way of knowing whether you pay your balance in full or make monthly payments. If you have the financial resources to do so, pay your balance each month. That said, keep your cards active. If you never use your credit card, it will become inactive and stop helping your credit score.

So if you need the credit cards, but credit card debt is also damaging, the question then remains: What exactly should you be spending your money on? How can you use your credit cards to build good credit?
To keep things in perspective, consider the following statement: wealth is creating a state of abundance. If you are using credit cards to pay for something, not only are you paying for the item, but you’re paying extra for the right to “pay later.” So instead of moving forward financially, you’re actually creating more debt. With this in mind, it’s important to examine exactly what you are using your credit cards for. Buying a shirt or even a tank of gas for your car at an inflated rate doesn’t really make any sense when you factor in interest. However, purchasing a book on finances or taking a course that will teach you a skill you can monetize will be well worth the extra interest you incurred.
Therefore, credit cards should be used to increase your quality of life or your wealth, not used as a means to create more debt. The next time you’re about to charge something, consider whether that purchase is going to create a state of abundance or create a state of debt. This type of control will not only help you improve your credit rating, but it will also help you make better long-term financial decisions.

Bad Credit Is Bad News for the Unemployed

Posted on February 2, 2021 by - CREDIT SCORING

A recent report from Inc. Magazine says at that at least 60 percent of employers run credit checks on potential job applicants at least some of the time. This is a 17 percent increase from 2006.
And given the high unemployment rate, this is particularly concerning. With a much bigger pool of candidates to choose from, employers can narrow the pool of qualified candidates by looking at a job applicant’s credit score. Fearful that a poor credit score is a sign of irresponsibility, an employer might not offer a job to a candidate with bad credit.
This means that job applicants may be hit with a double dose of trouble. Not only are they out of work, but they also are unable to make regular payments on mounting mortgage and credit card bills, which is causing their credit score to plummet. Since many employers are making credit checks a mandatory condition of employment, job applicants may find themselves stuck in a vicious cycle: No job translates to no ability to pay bills, which in turn causes poor credit, which means a person might be ineligible for jobs.
If you are a job applicant worried that an employer will run a credit check, your best bet is to be candid with possible employers and let them know about your experience. Since the recession has had unfortunate consequences for many people, the employer might be sympathetic to your plight. Pitch your situation as a learning experience so that you can show the employer that you are ready to move on from your mistakes.
Explain that you have started the process of learning how to build credit to minimize damage and improve your credit score.
By taking serious steps to repair your credit, your credit report might indicate that you have had a shift in the positive direction. If you walk into a job interview armed with a the facts about your credit score, how you have turned over a new leaf, and what your credit report indicates about your current behavior, a potential employer might be sympathetic, especially if you have extenuating circumstances brought on by the recession.
Though credit checks for job applicants might create barriers in the already-tight job market, employers are also likely to value an honest account of your situation. By being forthright about your past mistakes and offering evidence of your progress, employers will be more likely to look past a three-digit number and offer you the job.

Five Common Credit Myths … Debunked!

Posted on February 2, 2021 by - CREDIT BLOG

Five Common Credit Myths
Here are five common credit myths … debunked at last!
Credit Myth #1: Requesting your own credit report will hurt your credit score.

The Reality: You can pull your own credit report every week without having your FICO score suffer. However, if a multitude of potential lenders frequently request your credit report, your score will suffer.
The credit bureaus distinguish between a “soft” inquiry—one that you initiate for the purposes of monitoring your credit—and a “hard” inquiry—one initiated by a lender for the purposes of determining whether to grant you a loan or credit card.
The former is considered responsible and will never hurt your score. But too many “hard” inquiries indicate that you might be:
1.     In financial jeopardy and looking for a way to pay your bills.
2.     Preparing for a spending spree.
Either way, your score will suffer.
Credit Myth #2: If you pay for everything in case and don’t use credit cards, your credit score will be flawless.

The Reality: One of the biggest myths is that the less credit a person has, the better his or her score will be. But it’s not true.
Having no credit can be just as bad as poor credit. If the credit scoring models don’t have information to judge a person’s behavior, they will take the safe route and assign a low FICO score to that person.
Some people want to wipe their hands clean of credit cards. They decide not to have credit cards, to pay for everything with cash. But that’s not really a good move.
For example, what happens if you have an emergency and need a loan? If you have no credit history, your FICO score will be low or possibly even non-nonexistent.
In that case, you’ll have a hard time qualifying for a loan at a low interest rate. Eventually, most people want to buy homes.
Guess what? A person without credit will only qualify for a loan at the highest interest rates – and pay thousands of extra dollars in interest over the lifetime of the mortgage!
So use credit, and use it responsibly by learning how to build your credit score.

Credit Myth #3: If you pay all of your bills on time and in full each month, you must have a perfect credit score.

The Reality: Unfortunately, the credit-scoring process doesn’t work that way. While paying your bills on time is a very important factor, only 35 percent of your credit score is based on whether you pay your bills on time.
Other key factors and their weight in influencing your credit score include:

  • The amount of money you owe (30 percent).
  • The length of time you have had credit (15 percent).
  • The type of credit you have (10 percent).
  • The number and frequency of credit inquiries (10 percent).

Even being rich can’t guarantee you a good credit score. I’ve seen people with millions of dollars in the bank have credit  scores below 720.
Credit Myth #4: There’s no difference in credit scores reported by the major credit bureaus.

The Reality: There are three different agencies (Experian, TransUnion, and Equifax) providing as many as four different types of credit scores – and they are not all the same!
Depending on who is requesting your score, each bureau will apply different formulas to calculate the score. Plus, each bureaus has different information on file – some credit card companies might only report to one or two bureaus.
All this means that your score can be different on the exact same day!

Credit Myth #5: A smart move for gaining control of your finances is to take most of your credit cards out of your wallet, cut them up with scissors, and throw them away!
The Reality: If you have too many credit card accounts, credit bureaus might think you have overextended yourself.
But getting rid of those extra credit cards could also be hazardous to your financial health. Reason: closing all those accounts might hurt you credit score.
How? By lowering your overall utilization rate and shortening the average age of your active accounts.
Instead of cutting up your credit cards, pay down the balances so they are below 30 percent of the credit limit on each.
But keep the accounts open and active. Doing so protects you from suffering lowered limits, a byproduct of inactive accounts.
– Philip Tirone