Can money buy happiness? Last year, both Forbesmagazine The Wall Street Journal researched this question. Their conclusions were, well, inconclusive.
“Well, maybe,” Forbes said.
“It’s true to some extent,” the Journal said.
Here’s the problem: How much money do you need to be happy? To be more specific, how much do you need to stop working? Earlier this year, the staffing firm AccounTempsasked employees what they would do “if you were to suddenly strike it rich.” Only 23 percent would quit their job, while 36 percent would stay put.
Of course, “strike it rich” means different things to different people. Let’s take a graphic look at “becoming a millionaire”…
$298,100 to buy a new home
That’s median price as of December 2014. And that’s for not an especially fancy one. Source: Census Bureau
$245,000 to raise a kid to adulthood
Includes housing, food, transportation, clothing, health care, education, child care, and “miscellaneous expenses.” And since the average American family has two children, double that. Source: Department of Agriculture
$16,000 on a 2015 Toyota Corolla
This is the cheapest trim option for the best-selling car of all time, the Toyota Corolla. Since the average American buys nine cars in his lifetime, and he lives an average of 79 years, that’s two new cars in 18 years. Sources: AutoBlog, Kelley Blue Book, CNBC, CDC
Tons of new blogs are launched each day by passionate people who love to share things and ideas online. Many blogs actively updated and gets popular and successful at a time, also many of them gets dead and become inactive. There are many reason of getting a blog dead or inactive. Most of people have no idea what it takes and how to start a successful blog. You can think of popular blogs and even you can start a blog and make it popular like that one.
For this, you should have patience. It could take few months hard work and will return nothing in start. You take hours to write articles and gets nothing. It usually happens at start for few months. Don’t lose hope and don’t give up. Keep updating your blog with the articles that establish readership and day will be no far when your blog will become popular and successful. You completely have to focus on your blog and have to sacrifice for many things to make it popular.
So, how to start a successful blog?
There are many things we have to care about…
1. Choose Niche For Your Blog
Most blogs gets unsuccessful because bloggers just focus on which topic will make them more money and they do not focus on their circle of interests. When you start blogging about an idea you’ve no interest. It would result in failure of your blog. You should be passionate about your blog’s idea. Think about your favorite websites and follow them and find the focus of your interest and follow it for your blog.
2. Think About How Your Blog Will Monetize
Before starting your blog, you must have an idea about your blog will monetize. For this reason, you must ask yourself some of the following questions and if get a positive answer, move on and start it.
Ways blog would monetize.
How long it would take to monetize.
What’s different and useful in your blog.
Problems that can be faced after launching.
If you get fully satisfied with the answers you get, you will not have to face any unexpected problem and no doubt it would give a super push in making your blog popular and successful.
3. Choose Blog Domain Name And Reliable Hosting
It could be a little hectic. Domain name is the most important part of branding your blog. Your blog domain name should be similar to your blog idea. Best is to try your keyword in domain name and try it on .COM extension because it’s the most popular extension. If can’t find on .COM, try any different but try the popular one like .NET, .ORG and many others. Once you found a perfect domain name for your blog, register it on domain hosting website like GoDadday.
It is essential to host your blog or website over a hosting website. Find a reliable,fast responsive and affordable hosting service. Hosting your blog will alot you a remote space on the server to store your blog contents that would never go offline. You can choose shared or dedicated server as per needs.
4. Design Professional Blog
Blog design makes first impression of your blog to the visitor. Your blog is judged through it’s look. Make your first impression so effective that visitors would love to stay. Always try to keep your blog design clean and professional. This would be helpful in finding content easily. And don’t place flash banners on the blog that make your blog look rough.
You should keep your first focus to establish readership. Make a fast loading blog design. It is essential to make your blog user friendly. Optimize the blog design in the way it loads pages super fast. If your blog loads faster, search engine lists your blog up in ranking and your website will get gain high organic traffic.
5. Search Engine Optimization Of Your Blog
The most important part of the blog is it’s optimization for the search engines. Your blog ranks up as you optimize it. You can optimize your blog in the following ways.
Post unique content. Avoid copying content from other websites. Write your own optimized content.
Choose a ‘focus keyword’ so wisely and write content related to it.
Add robots.txt and allow the permissions to the search engine for crawl.
Place sitemap to your blog. So,your blog pages and posts get indexed in the search engine.
If you’re using wordpress content management system, add any of the following SEO plugins.
WordPress SEO for all.
One SEO Pack.
SEO by Yoast
6. Keep Your Blog Up To Date
To run a successful blog, research articles time to time and act positively on feed backs. Write content related to your topic at least thrice in a week. Long term goal is to become an authority in your subject. Few following good things to follow for writing a successful content.
Update blog with latest news in your niche.
Subscribe to other good blogs related to your niche.
Research about your niche in books and on the internet.
Proofread your articles, be honest, be original and learn from the best.
7. Make Social Network Pages For Your Blog
After search engines, social networks are the largest source of traffic over the web. It is important to make your blog appear in social media. This will make your blog popular and people’s interaction increase for your blog.
Simply make article on your blog and share it on your social page. It’ll surely turn followers to visit your content and will become a source of traffic. There are few most popular social networks are Facebook, Twitter and Google+ and many others. Make a state of showing connections to your social networking profiles appear in your sidebar to encourage readers to follow you.
8. Engage Blog Readers
You must definitely attempt to engage your followers throughout feedback, social media marketing, your e mail list, not to mention, via your writing. It’s also possible to work with podcasts along with video clip in order to talk straight to your market. This can establish loyal readership that spreads the word about your blog.
9. Make Relationship To Other Blogs Of Your Niche
Sometimes, after working so hardly on your blog, making it’s design optimized and writing a unique search optimized content can not make your blog popular and blog readership doesn’t grow. This is really a discouraging and frustrating thing. Mostly bloggers quit blogging because they work so hard and get no grow in valuable readers.
To make your blog successful and popular, you have to make relations with other blogs of your niche. There are few ways to do this:
Be connective to other bloggers.
Make guest posts to other blogs.
Communicate and write on forums.
Be active on social networks.
Compete with other blogs.
10. Monetize Your Blog
Now, finally you have to look how your blog will generate revenues. Choose affiliate products that can be sponsored through your articles. Implement the monetization strategies to let your blog get high revenues.You are able to monetize your blog from affiliate networks, sponsors, premium posts and ad networks like Google Adsense, Infolinks and many more. Be careful in placing ads on the blog and make sure that ads do not effect the design of your blog.
These are the 10 most important strategies needed for how to start a successful blog.
Phil Reed, senior consumer advice editor for consumer auto site Edmunds.com, said a surprising number of people who aren’t sure of the answer to that question go to dealerships and essentially say, “Hi, I have no credit, and I want to buy a car.” It’s not an approach he recommends.
Instead, he suggests trying to get pre-approved for a loan before walking through the door. But even that could be more complicated than it seems. “You have to choose the right car and the right amount (to borrow),” he said. What you are looking for is reliable transportation you can afford. So your initial shopping may start at your computer.
If you have a relationship with a bank or credit union, Reed recommends starting there to look for financing. Particularly if you have a “thin” or nonexistent credit file, he advises trying to get an in-person appointment — and bringing pay stubs and any bank account records with you. “Make a case for yourself,” he said. Edmunds recommends putting at least 10% down on a used car. In addition to reducing the amount you’ll need to borrow, it shows the lender some commitment on your part. (A trade-in could also be used as a down payment, Reed notes.) We also advise checking your credit reports, if they exist, and credit scores. You want to know as much about your credit profile as a lender would.
Reed said that even though a dealership may well be able to beat an offer from your bank or credit union, if you have that loan approval, you needn’t worry about whether you can get approved. You already know you can be — now you can compare rates or negotiate as a cash buyer, focusing on price. You don’t want to feel so indebted to the dealer for “giving” you a loan that you fail to negotiate on the price of the car, he said. And if the dealer’s financing isn’t any better, you have an approval in your pocket.
Reed said it’s important to be confident the car is affordable to you even if it’s not the car you’d choose if you had more money and better credit. “If you have no credit, it’s not time to get your dream car,” he said. “You can move up later.”
He also cautioned that the interest rate you’re offered may seem appallingly high, but that may be part of the cost of not having much of a credit history. He said that if a car buyer is paying on time and building credit, refinancing is a possibility. He said a former dealership employee told him he once saw a customer decrease his interest rate from 13% to 2% in two years’ time, by improving his credit and refinancing. (You can check your credit scores for free every month on Credit.com to track your credit building progress.)
That’s one reason he advises biting the bullet and paying a higher interest rate over getting a co-signer. Co-signing will involve checking someone else’s credit and using that to qualify (it might get you a lower rate — or might not, depending on their credit score). It will tie their credit profile to the way you repay your car loan. Reed said if you’re going to do it, it’s pretty much a last resort, and it should be a relative. Bottom line, though: “It’s asking a lot.”
Better, he says, to finance the car yourself and pay on time, which will help build your credit. That way, you won’t have to go through worrying about whether you’ll qualify for a loan next time.
A. Even if you don’t have the cash to pay, you should still file your return on time. If not, you’ll end up owing even more, and that won’t be any good. And not filing at all isn’t an option.
As long as you file on time, you won’t face a penalty for filing late, said Joseph Matheson, a certified public accountant with Matheson & Associates in Whippany, N.J..
“Pay as much as you can with your tax return,” he said. “The more you can pay with the return, the less interest and late payment penalty you will incur.”
You can pay online with IRS Direct Pay, which is an electronic payment option available from the Internal Revenue Service, Matheson said. It allows you to schedule payments from your checking or savings account for no charge and you’ll receive an immediate payment confirmation.
Then, pay the rest of your tax as soon as you can.
“If it is possible, get a loan or use a credit card to pay the balance,” Matheson said. “The interest and fees charged by a bank or credit card company may be less than the interest and penalties charged for late payment of tax.”
Matheson said the IRS offers an Online Payment Agreement tool which allows you to ask for an installment agreement.
“You can use a direct debit plan. When you pay with a direct debit plan, you won’t have to write a check each month,” he said. “If you can’t use the IRS.gov tool, you can file Form 9465, Installment Agreement Request instead.”
But whatever your situation, don’t ignore a tax bill.
“The IRS may take collection action if you ignore the bill,” Matheson said. “Contact the IRS or your CPA right away to talk about your options. If you are experiencing a financial hardship, the IRS will work with you.”
No one really wants to talk about debt and certainly no one wants anyone else to know they have debt. The reality is that most people have debt and that debt is not necessarily a bad thing. In fact, you can use debt as a tool to help you get what you want in life. However, I have found that people will quickly tell me that they don’t have any debt at all because in reality they don’t want to catch the debt disease. Debt has the stigma of being dirty, bad and associated with people who don’t pay their bills. I can tell you that’s not really the case. Debt, when used as a tool, can be a good thing, something you live with and something you may even end up liking.
The Good, the Bad & the Ugly
The first step towards being able to embrace debt as a tool is understanding the difference between good and bad debt. Simply put: all debt can become bad debt if it becomes unmanageable. If you’re able to make your monthly payment in full and on time and you have positive cash flow, then congratulations, you have good debt. If you’re struggling to scrounge up the money each month and constantly find yourself making late payments or robbing Peter to pay Paul, then you have bad debt.
Budgeting Isn’t a Dirty Word
Budgeting is key to start making debt work for you instead of against you. Knowing how much money you have coming in and going out each month will tell you what sort expenses you can afford. Let’s say you’re looking to lease or finance a new car. After taking a look at your monthly expenses, you see that you have enough money left over each month to afford a $200 payment. A loan under $200 then would be good debt because you know you’ll be able to manage your payment. On the other hand, anything over $200 will be a stretch and would fall under the ‘bad debt’ category.
Pick Your Battles
Just like you wouldn’t use a screwdriver to hammer in a nail, there are some instances where debt just isn’t the right tool for the job. Let’s say for this year’s Super Bowl you want to get a better look at the game. You head to the store in hopes of picking up a new TV and find one that’s just perfect. Problem is, it’s way out of your price range. Thinking over your options, you decide that you could pick it up today by charging it to a credit card and paying it off over the next couple of months. You have to ask yourself if this really makes sense to you in the short and long term.
Can you afford the payments? Do you really need the item? What is going to change in the next few months in terms of your finances, meaning will you have more money/bills? Remember, if you wind up purchasing the TV, you don’t want to find yourself struggling to pay for it later.
Your Credit Is Married to Your Debt
This is true in sickness and in health. The reality is just about all debt shows up on your credit report. This can help your score or lower it depending on how you’ve managed your debt. It can help at first but then hurt it or hurt it but then help it. Let’s say you have that car loan we talked about earlier and you’ve been making on-time payments for two years. Then you lose your job and stop paying. Now the same credit account that was helping your credit has flipped and impacted your credit negatively when the lender reports that you have not paid your bill.
Arming yourself with the right knowledge and debt management strategies can help to turn debt from a burden into something beneficial. If you keep what I shared here in mind the next time you consider taking on debt, you’ll find yourself making much smarter financial related decisions. So stop living in fear of debt and start seeing it for what it can do for you today.
There’s a big misconception that private student loans can never be discharged in bankruptcy. People have repeated that statement so often they believe it to be a fact. The only problem is it’s not quite true.
Some private student loans are clearly eligible to be wiped away in a consumer bankruptcy. Even in a Chapter 7 bankruptcy, it takes only about 90 days to forgive the debt tax-free.
And while these special rules apply to private student loans that meet some criteria, all private students loans are no longer legally collectible once they have expired under the statute of limitations in your state. In that case, while they may be listed as a debt on your bankruptcy filing, there isn’t much of a need since the lender can no longer sue you or garnish your wages over those debts. In some states, the statute of limitations is as little as three years. In others it is 15 years.
But for some private student loan debt you don’t have to wait that long. You don’t even have to wait a week.
Where Did You Go to School?
If you owe private student loans for a school that was not accredited, your loans can probably be discharged in a Chapter 7 bankruptcy right away. Even some big-time lenders still make private student loans to such unprotected organizations. It’s quite common to find vocational and trade school students with these types of unprotected loans. Flight schools for pilots seem to notoriously be unaccredited. Yet pilots errantly labor under hundreds of thousands of dollars of unmanageable student loans believing there is no hope for them. You can see some real case studies showing how easily these loans were discharged.
In particular the issue that makes these private student loans so easily dischargeable in bankruptcy is the fact the school was not a “eligible educational institution” or that the loans were for a “qualified higher education expense.”
In order for a loan to be qualified as a private student loan:
“(1) it must have been made under a government or nonprofit student loan program, or (2) it must be a qualified educational loan under section 221(d)(1) of the Internal Revenue Code, for attending an eligible education institution as defined in section 221(d)(2) of the Internal Revenue Code, and incurred for costs of attendance as defined in section 472 of the Higher Education Act.”
As bankruptcy attorney Craig Andresen says, “For example, perhaps you were not an “eligible student” at the time the private student loan was made to you; or maybe the loan was not incurred to pay ‘qualified education expenses’; or perhaps the loan was not for attendance at an ‘eligible education institution’ because the school was not accredited under Title IV of the Higher Education Act. All these are requirements imposed by section 221(d) of the Internal Revenue Code. Failure of a private student loan to meet any of these criteria means that the loan is fully dischargeable, because it would not qualify under section 523(a)(8) of the bankruptcy law.”
But the characteristics of a private student loan get even more specific. Just because a school was accredited, they must also have offered Title IV federal loans or the private loans may not be protected from discharge in bankruptcy.
Some attorneys have also reported to me other types of entities have been financing services using private student loans. One facility on particular was an inpatient drug treatment facility. Clearly that does not seem to be a protected category for private student loans.
How You Used the Loan Matters
But wait, just because your school might have met all the requirements of a Title IV of the Higher Education Act of 1965, that doesn’t mean some or all of your private student loans are not eligible to be eliminate in bankruptcy. If your loans were used for things other than a “qualified higher education expense” the law does not protect those amounts. So if you used your private student loan money for things other than tuition, books, supplies and required equipment, that part of your student loans may be eliminated in bankruptcy today.
Private student loan bankruptcy discharge is one of those issues in the debt world that many just make the wrong assumptions about. It pays to learn more.
One of the best ways to eliminate your mortgage debt is moving into a 15-year fixed-rate loan. With the average spread a full 1% compared to its 30-year mortgage counterpart, a 15-year mortgage can provide an increased rate of acceleration in paying off the biggest obligation of your life.
Can You Pull It Off?
In most cases, you’re going to need strong income for an approval. How much income? The old 2:1 rule applies. Switching from a 30-year mortgage to a 15-year fixed-rate loan means you’ll pay down the loan in half the amount of time, but it effectively doubles up your payment for each month of the 180-month term. Your income must support all the carrying costs associated with your home including the principal and interest payment, taxes, insurance, (private mortgage insurance, only if applicable) and any other associated carrying cost. In addition, your income will also need to support all the other consumer obligations you might have as well including cars, boats, installment loans, personal loans and any other credit obligations that contain a monthly payment.
The attractiveness of a 15-year mortgage in today’s interest rate environment has mass appeal. The 1% spread in interest rate between the 30-year mortgage and a 15-year mortgage is absolutely real and for many, the thought of being mortgage-free can be very tempting. Consider today’s average 30-year mortgage rate of around 4% on a loan of $400,000 — that’s $287,487 in interest paid over 360 months. Comparing that to a 15-year mortgage over 180 months, you’ll pay a mere $97,218 in interest. That’s a shattering savings of $190,268 in interest, but there’s a catch — your monthly mortgage payment is going to be significantly higher.
Here’s how it breaks down. The 30-year mortgage in our case study pencils out to a $1,909 monthly payment covering principal and interest. Weigh that against the 15-year version of that loan, which comes to $2,762 a month in principal and interest, totaling $853 more per month, but going to principal. This is why the income piece makes or breaks the 15-year deal. Independent of your other carrying costs and other credit obligations, you’ll need to be able to show an income of $4,242 a month to offset just a principled interest payment on the 30-year fixed-rate mortgage. Alternatively, to offset the principled interest payment on the 15-year mortgage, you would need and income of $6,137 per month, essentially $1,895 per month more in income just to be able to pay off your debt faster. As you can see, income is a large driver of debt reduction potential.
What to Do If Your Income Isn’t High Enough
When your lender looks at your monthly income to qualify you for a 15-year fixed-rate loan, part of the equation is your debt load.
Lenders are going to consider the minimum payments you have on all other credit obligations in the following way. Take your total proposed new 15-year mortgage payment and add that number to the minimum payments on all of your consumer obligations and then take that number and divide it by 0.45. This is the income that you’ll need at minimum to offset a 15-year mortgage. Paying off debt can very easily reduce the amount of income you might need and/or the size of the loan you might need as there would be fewer consumer obligations handcuffing your income that could otherwise be used toward supporting a stable mortgage plan.
Can You Borrow Less?
Borrowing less money is a guaranteed way to keep a lid on your monthly outflow maintaining a healthy alignment with your income, housing and living expenses. Extra cash in the bank? If you have extra cash in the bank beyond your savings reserves that you don’t need for any immediate purpose, using these funds to reduce your mortgage amount could pencil very nicely in reducing the 15-year mortgage payment and interest expense paid over the life of the loan. The concept of the 15-year mortgage is “I’m going to have to hammer, bite, chew and claw my way through a higher mortgage payment in the short term in order for a brighter future.”
Can You Generate Cash?
If you can’t borrow less, generating cash to do so may open another door. Can you sell an asset such as stocks, or trade out of a money-market fund in order to generate the cash to rid yourself of debt faster? If yes, this is another avenue to explore.
You may also want to explore getting additional funds via selling another property. If you have another property that you’ve been planning to sell such as a previous home, any additional cash proceeds generated by selling that property (depending upon any indebtedness associated with that property) could allow you to borrow less when moving into a 15-year mortgage.
Are You an Ideal Match for a 15-Year Mortgage?
Consumers who are in a financial position to handle a higher loan payment while continuing to save money and grow their savings would be well-suited for a 15-year mortgage. The other school of thought is to refinance into a 30-year mortgage and then simply make a larger payment like you would on a 25-year, 20-year or 15-year mortgage every month. This is another fantastic way to save substantial interest over the term of the loan, since the larger-than-anticipated monthly payment you make to your lender will go to principal and you’ll owe less money in interest over the full life of the loan. As cash flow changes, so could the payments made to the loan servicer, as prepayment penalties are virtually non-existent on bank loans.
There is an important “catch” to taking out a 15-year mortgage — you also decrease your mortgage interest tax deduction benefit. However, if you don’t need the deduction in 15 years anyway, the additional deduction removal may not be beneficial (depending on your tax situation and future income potential).
If your income is poised to rise in the future and/or your debt is planned to decrease and you want to have comfort in knowing by the time your small kids are teenagers that you’ll be mortgage free, then a 15-year loan could be a smart move. And when you’re mortgage is paid off, you’ll have control of all of your income again as well.
Proximity to retirement is another factor borrowers should consider when carrying a mortgage into retirement isn’t ideal. These consumers might opt to move into a faster mortgage payoff plan than someone buying the house for the first time.
Three days. That’s the fastest loan officer Scott Sheldon has ever seen someone get approved for a mortgage.
“He had every single iota of possible documentation you could imagine upfront,” said Sheldon, who’s a senior loan officer in Santa Rosa, Calif., and regularly writes about mortgages for Credit.com. That three-day turnaround was unusual, but so was the time it took roughly two months to get mortgage approval. “If the borrower was just a little bit more transparent upfront, we probably wouldn’t have had that.”
Mortgage approval is a multi-step process, but the more consumers do from the beginning, the more likely it is to go quickly. Sheldon said he’s currently seeing a five- to six-day timeline for mortgage underwriting approval and about 18 days from the start of the process to issuing a commitment letter — when the lender commits to giving you the loan. The initial underwriting approval is often contingent on receiving more documentation from the borrower.
“Many times the documentation and supply opens up more questions,” Sheldon said. “We actually just had one that went upward of 45 days (for final loan approval) because the borrower’s financial picture kept changing.”
The cleaner your financial history, the faster your approval process is likely to go, but speed is more reliant on how much information you provide your lender from the beginning. Sheldon said the applicant whose loan approval took 45 days had a lot of financial issues — a low credit score, previous short sale, previous foreclosure and outstanding debt with the Internal Revenue Service — and these problems weren’t clearly disclosed from the start.
“My best advice to buyers is let your lender pre-approve you — give them at least 72 hours to really pre-approve you with all your financial documents, including a credit report,” Sheldon said. He said consumers often expect pre-approval in a day, but that’s not enough time to thoroughly complete the process, especially if important documentation hasn’t been submitted. “All loans today go through automated underwriting. … It’s only as good as the information we put in there.”
If the pre-approval is based on flawed information, borrowers risk needing the lender to pull together a loan while they’re trying to sign a contract for a property. Loan issues could complicate the transaction, which is something to avoid when making one of the largest financial decisions of your life. Before you start shopping for a home, look at your credit reports, bank statements, outstanding debts and credit scores (if you don’t know what your credit profile looks like, check Credit.com’s free credit report summary, updated every 30 days, to get an idea of how lenders see you), and be prepared to keep supplying paperwork as they request it. You can also get your free annual credit reports on AnnualCreditReport.com.
You’ve won a prize! I’m in a foreign country, and I need cash. We’re temporarily unable to accept credit cards. Your dream apartment is available immediately at an incredible price!
These are statements that get attention and often tempt the most reasonable, intelligent and trusting consumers into literally handing over their hard-earned dollars to complete strangers. Money transfer scams come in many forms, so it is vital to stay on top of the latest scams to steal your money. Some fraudulent attempts can tug at your heartstrings, entice you financially and intrigue your curiosity. However, often what seems to good to be true…is.
Protect yourself against consumer fraud by not falling victim to money-scamming schemes. Here is some information about money transfer scams:
Know who is contacting you to receive or send money.
Research to see if others have had experience similar to yours.
Be aware that sending money via wire transfer is like handing over cash. Once it is out
of your hands, it is gone.
Use a credit card for online purchases, even if the seller requests a wire transfer.
Help educate others by reporting these incidents.
Wire money to someone you don’t know, including someone advertising an apartment
or vacation rental, a potential employer or an online-only acquaintance.
Wire money to someone in crisis who claims to know you. Verify the identity and
story through a direct source, such as a phone call.
Deposit a check from someone who tells you to send some of the money back to them.
The check will bounce after the money is sent.
Send money to receive money.
Never give out your bank account or credit card numbers in response to an unsolicited call, text message or e-mail. This can allow thieves to transfer money from your account.
If you think you have been a victim of a fraudulent money transfer, report the claim to the money transfer company and ask that it be reversed. It is highly unlikely that the transaction will be refunded, but it is important to report these activities. Don’t forget to file a complaint with the Federal Trade Commission at ftc.gov/complaint.
Credit cards and other loans can serve as a lifeline, when making ends meet may seem out of reach during times of financial hardship. Unfortunately, relying too much on these types of loans can actually damage already poor credit, and recent data indicates that this kind of problem could be getting worse.
New data from credit bureau Experian shows that consumers with average to poor credit are spending more of their available credit. Looking at data from the last quarter of 2014 and the last quarter of 2013, consumers in all credit levels increased the amount of money they spent on their cards, relative to their credit limits. Since credit scores are determined in part by the amount of available credit in use, this trend could spell trouble for people with already weak credit scores.
Credit limits can be tricky, because even if you have up to $1,000 to spend on a single card, that doesn’t mean you should. Having a card balance close to your limit can damage your credit standing. It’s called credit utilization — how much you use of your available credit — and it’s the second most influential aspect of your credit score (payment history is first).
Keeping your credit utilization low isn’t always as easy as it sounds. Using less than 30% of your available credit — or better yet, less than 10% — is a good guideline for utilization, but when your credit limit is $1,000, or even or $500, keeping your utilization low can be a challenge.
People with bad credit who have credit cards often have very low credit limits, so to keep their credit utilization low, they have to be careful about how they use their cards. For example, if someone with very poor credit, between 300 and 499 on the VantageScore 3.0 scale, has a $500 credit limit she should only spend $150 on it before paying it off to keep her utilization at 30% or lower, in order to help her credit score. If the consumer really wanted to work on her credit, she might want to only spend $50, to keep her utilization at 10% or lower.
Many people in that situation, however, aren’t doing that, according to Experian’s data, which indicated that people with the lowest credit scores had nearly maxed out their available credit in the last quarter of 2014. Even those with fair credit didn’t do a great job of keeping their debt levels low: The average utilization rate for mid-tier credit card users was well over half the limit. The average credit utilization rate across the board was 20%, but here’s how the data breaks down by credit level:
Super prime (781 to 850 VantageScore 3.0)
Average credit utilization in Q4 2014: 5.7%
Prime (661 to 780)
Average credit utilization: 27.5%
Near prime (601 to 660)
Average credit utilization: 63.7%
Subprime (500 to 600)
Average credit utilization: 76.7%
Deep subprime (300 to 499)
Average credit utilization: 95.6%
That gap between near prime and prime consumers is huge. Of course, it’s a lot easier to keep your credit utilization down when you’re approved for a high credit limit, as people with super prime credit scores generally are. At the same time, lowering your credit utilization is one of the easiest ways to improve your credit score, so if you have poor credit, it’s something you can focus on.
First, you have to know your credit limits and pay attention to your spending. If you have a very low limit but you prefer to use the card for frequent transactions, consider paying off the card multiple times a billing period to keep utilization low. Once your credit improves, you may be able to qualify for a higher limit. As you work to improve your utilization and your credit standing as a whole, you should check your credit and make sure your information is properly reported to the credit bureaus. You can get a free summary of your credit report every 30 days on Credit.com to track your progress.