Credit Score Archives — Beating Broke

Do Payday Loans Affect Your Credit?

August 9, 2021 By MelissaB Leave a Comment

If you’re in a tight spot financially, payday loans can be attractive, especially if you have bad credit and have few other resources. A payday loan is usually for a small amount (less than $500), and you need to pay it back in two to four weeks. Even better for many is that payday loan companies don’t check your credit. Any individual is eligible for a payday loan. However, payday loans charge an exorbitant interest rate, and if you’re not able to pay the loan back in time, you can find yourself trapped in a negative payday loan cycle. This happens if you must continue to borrow money to pay what you already owe and what continues to grow because of the interest rates. When you get to this point, you may be concerned about payday loans’ effect on credit.

Payday Loans’ Effect on Credit

How payday loans affect your credit depends on whether you pay them off on time or if you default on them.

If You Pay Them On Time

If you pay your payday loans off on time, the loans have no effect on your credit. That means they won’t negatively affect your credit, but they also won’t do anything to improve your credit.

If you’re looking for methods to improve your credit, rather than payday loans, look to a secured debit card. Most people can qualify for a secured debit card even if they have bad credit.

If You Default on a Payday Loan

If you default on a payday loan, then your credit may be affected. Often, in this case, a payday lender will give your information to a debt collector. When this happens, the loan will appear on your credit report, and it will negatively affect your credit score.

Keep in mind, the payday loan will stay on your credit report for six years. Even if you work hard to improve your credit for three years after you defaulted on a payday loan, a bank may not want to lend you money for a car loan or a mortgage. If the lender sees payday loans on your credit report, those are red flags to the lender.

If You’re Taken to Court

Some payday lenders may choose to take you to court if you default on payments. If you lose the case, once again, this appears on your credit report and will negatively affect your credit score for six years.

Final Thoughts

Before you take out this type of loan, be aware of payday loans’ effect on credit. A payday loan, even one that is paid on time, will not boost your credit score because the payday loan company doesn’t report it to the credit bureau. However, if you default or the payday lender must take you to court to get payment, then the payday loans can negatively affect your credit score for six years. If there is any other option to tide you over until the next payday, use that option rather than taking out a payday loan. For many borrowers, payday loans are traps that continue to spiral out of control months after you take out the original payday loan.

Read More

Options When Consolidating Payday Loans

How to Pay Down Your Credit Card Faster Even If You Don’t Have Extra Money

Help Your College Student by Adding Them as an Authorized User to Your Credit Card

Debunking Myths about Filing for Personal Bankruptcy

November 23, 2018 By Thomas Bawdy Leave a Comment

If you’re thinking about filing for personal bankruptcy (either chapter 7 or 11), then the most dangerous adversary you face at this time isn’t an army of aggressive creditors: it’s a horde of devastating myths!

Indeed, there is arguably more misinformation floating around online and offline about bankruptcy than there is reliable information. That’s the bad news. The good news is that you can arm yourself with facts so that you can make informed decisions that are best for your current and long-term financial interests.

To that end, let us debunk the most enduring — and potentially catastrophic — myths about filing bankruptcy:

Myth: Filing for bankruptcy is an admission of financial irresponsibility or incompetence.

Fact: Across the U.S., more than 1.5 million individuals file for bankruptcy protection each year. The vast majority of these people aren’t thrill-seeking spendthrifts. They’re regular, ordinary people who fell into a debt hole that became a debt trap. For some, it happened slowly over time. For others, they were financially sideswiped by unexpected medical bills, home repairs, job loss, divorce, and the list goes on.

The message here is simple: if you decide to file for bankruptcy, then be assured that it’s nothing to be embarrassed about or ashamed of. Unsustainable debt happens. Filing for bankruptcy is a legal process designed to help people get out of debt and start fresh. It’s a protection, not a punishment.

Myth: Filing for bankruptcy will destroy your ability to get a loan in the future.

Fact: Yes, it’s true that filing for bankruptcy will damage your credit score (the actual number depends on where your credit score is right now — the higher your current score, the larger the drop).

However, it’s not true that filing for bankruptcy will permanently destroy your ability to get a loan in the future. Within months of filing for bankruptcy you can start rebuilding your credit score by applying for secured credit cards, and paying all of your other bills on time and in full. Within a year you’ll be eligible for a car loan or personal loan (you could actually get a car/personal loan sooner, but the rates will be sky high), and in a couple of years you’ll qualify for a competitive-rate mortgage.

Ironically, many people who file for bankruptcy end up surpassing their old credit score ceiling, because in their new post-bankruptcy life they are in control of their saving and spending, and are far more aware of the dangers of only paying the minimum amount on credit cards, buying “too much car” or “too much house,” and so on. They’re like people who, after getting a serious health scare, end up taking their health and wellness to unprecedented levels. They go from couch potato to marathon runner.

Myth: To save money, you should represent yourself in bankruptcy court.

Fact: If you have a legal background — and this doesn’t mean a few law classes in college or a neighbor who was once a paralegal — then you might be fine representing yourself in bankruptcy court.

However, if you’re like most people — i.e. you couldn’t write a book on how to correctly and safely file for bankruptcy — then do yourself an immense favor and consult a bankruptcy lawyer. You’ll not only avoid potentially costly mistakes, but you’ll save a great deal of time and stress. Why stress? Because once you file for bankruptcy, you want to ensure that everyone else around the table — from the court-appointed trustee, to all of the creditors who want a piece of the settlement pie, and even to the judge who is a human being and can make errors — behave in a legally compliant and appropriate way. A bankruptcy attorney ensures this happens.

The Bottom Line

Arming yourself with bankruptcy facts — and debunking myths — will help you make an informed decision on whether moving ahead in this direction is in your best financial interest.

If so, will it be a walk in the park? No. But it won’t be a trek through a minefield, either. With the right information, guidance and support, you’ll make it through this phase and into your new, better financial life ahead.

Help Your College Student By Adding Them as an Authorized User to Your Credit Card

October 22, 2018 By MelissaB 1 Comment

I got my first credit card when I was in college. At first I was responsible, but then I began to charge more than I could afford on my meager student salary. I still remember the first purchase I made on my credit card that I knew I could not pay off immediately—a $37 tennis racket because my friend and I wanted to play tennis that summer.

Unfortunately, that lead to a habit of over charging because I had very little income coming in. My experience is not unique. Approximately 90% of undergraduate and graduate students who have credit cards carry a balance each month (Debt.org).

Boost a Student's Credit Score — Boost Student’s Credit Score

If you’d like to help your teen or college student develop a responsible credit pattern as well as a good credit score, the secret may not be to get him his own credit card, but instead to make him an authorized user on your account.

As an authorized user, she’ll be able to use your card. You can either pay what she charges or have her pay what she charges. In addition, you’ll be able to keep an eye on her purchases and make sure she is using her privileges responsibly. This can get her into the habit of responsible credit card use so she can avoid debt in the future when she has her own card.

A Few Caveats

Before you pursue putting your child on your account as an authorized user, you’ll want to cover a few bases:

Have a Strong Credit Score

If you add your child as an authorized user to your account, she will “inherit” your credit score. If you have a high credit score (generally 700 or above), you will be giving your child quite a gift. With a high credit score, when she finishes college, she’ll more easily be able to rent an apartment and get her own credit card later in life.

If your credit score is low, you’ll be saddling her with an obstacle to overcome. It’s better for her to have no credit score than to inherit your low credit score.

Choose a Card that Reports Authorized Users to the Credit Bureaus

Not all credit cards report authorized users to the credit bureaus, which means your child won’t get your credit score. In general, the major credit cards do, while credit unions may not. To be sure before you add your child, confirm with the credit card company that they will report authorized users.

Only Do This With Responsible Children

Since you are ultimately required to pay any expenses put on your credit card by your child, only put a child who is financially responsible on your card as an authorized user. If your child has been irresponsible financially in the past, there is no use in tempting him with your line of credit.

See If There Is a Fee for Authorized Users

Finally, keep in mind that some credit cards charge a fee to add an authorized user. You’ll want to verify this is not the case for your particular card before you add your child.

If you’d like to help your child develop financial maturity and secure a good credit score, consider adding him as an authorized user.

Have you added a child as an authorized user or were you added as one? If so, what was your experience? Would you recommend doing this?