How to Pay Down Credit Cards to Boost Your Credit Score

Dartboard with discountsIf you know anything about credit scores, you know carrying high credit card balances is a problem. In fact, your debt-to-credit ratio (how much you owe vs. your total available credit) makes up about 30% of your overall credit score. And revolving debt, like credit cards, weigh heavier than other outstanding debt – like your mortgage or a car loan. So if you’re carrying a bunch of maxed-out credit cards, your credit score is likely not great.

The most straightforward way to improve your debt-to-credit ratio is to simply pay down those balances. But chances are if you’re in a lot of debt, you can’t pay off all the balances right away.

Here’s the good news: You don’t have to pay your credit cards off to boost your credit score. But to get the most credit score traction out of every extra payment, you do need to come up with a plan for paying down your credit cards in a certain way.

The Snowball Method

The snowball method is excellent for paying off debt quickly and efficiently. Basically, you throw extra money at one debt, and when it’s paid off, put the extra plus the old debt’s minimum payment toward the next debt. Repeat this until you’re debt-free.

This is an excellent way to get out of debt, if just getting out of debt is your goal. But what if your goal is to get out of debt while also boosting your credit score as quickly as possible? Maybe you’re hoping to apply for a mortgage soon, or a car loan?

In this case, the snowball method probably isn’t how you want to start. Eventually, you might switch to that, but you may want to begin by evening out your credit card balances instead.

Lowering Your Debt-to-Credit Ratio

When your credit score is calculated, your overall debt-to-credit ratio is reviewed, but also the individual debt-to-credit ratios of your various credit cards and other revolving debt accounts.

Here’s an example:

•Card 1: $5,000 balance/$10,000 limit = 50% debt-to-credit ratio.

•Card 2: $4,500 balance/$5,000 limit = 90% debt-to-credit ratio.

•Card 3: $500 balance/$1,500 limit = 33% debt-to-credit ratio.

•Overall: $10,000 balance/$16,500 = 60% debt-to-credit ratio.

In this case, your overall 60% debt-to-credit ratio will ding your credit score pretty severely. A “good” debt-to-credit ratio is around 30%, and you’re nearly doubling that.

But since your score also accounts for individual credit cards, you can see that Card 2 is hurting you the most — it’s nearly maxed out, which is not good. Card 3 is posing the smallest problem, since it is nearly in that “good” range.

In a situation like this, you’ll boost your credit score if you focus on paying down Card 2 first. Depending on the interest rates of each of these cards, you might choose to pay that card down all the way.

Or if it’s a card with a lower APR, consider putting money toward the balance until it’s at or near $1,500 to reach the 30% debt-to-credit ratio. Then move on to Card 1 or whichever card has the highest interest rate.

Now, this strategy isn’t guaranteed to add hundreds of points to your credit score. But because you’re improving individual debt-to-credit ratios for each of your credit cards, you will make progress more quickly than if you just snowballed your debt in this situation.

Still, you need to combine this with some aspects of the debt snowball, including the intensity with which you pay down your debt. After all, the only way to try to achieve credit score perfection is to pay your credit cards off completely, and refuse to carry a balance again.

Why Not Just Spread It Around?

Why not just transfer some of the balance from Card 2 to Card 3? Or get another credit card to transfer some of that balance?

You could. In fact, moving balances to lower rate cards can be a good strategy for both boosting your credit score and getting out of debt. But just shifting your balances around isn’t going to help much here, partially because the credit limit on Card 3 is so low to begin with.

What if you do have a $0 balance card in the mix? In this case, you still don’t want to transfer another card’s balance. This is because one part of your credit utilization mix is the number of accounts that carry a balance. So having three accounts carrying a balance and one with no balance is better than having four accounts carrying a balance, even if that move improves one card’s debt-to-credit ratio.

Need to transfer a high rate credit card balance without any balance transfer fees, to a lower rate card? This is possible at First Financial, where our credit card rates are as low as 10.9% APR and we have no balance transfer fees!* And for a limited time – if you are approved for a balance transfer of $5,000 or more to our VISA Platinum Credit Card, you will receive 10,000 bonus CURewards Points! You can apply for the balance transfer by stopping into any branch or calling 866.750.0100 to be sent a balance transfer request form.**

You Can’t Game the System

In the long run, you need to focus on getting your credit card balances paid off. In the meantime, bringing cards below a 30% (or even 50%) debt-to-credit ratio may boost your credit score more quickly than simply snowballing your debt. This is especially true if your debt snowball would leave a maxed-out credit card in the mix for months to come.

Need to get your credit score in check? Try First Financial’s First Score Program, a low cost, interactive session ($30) with a First Financial expert, which simulates your credit score with various “what if” scenarios. You can email us at firstscore@firstffcu.com or call 866.750.0100, Option 4 to get started.

If you have a great deal of debt, we also have a free, anonymous online debt management tool called Debt in Focus. In just minutes, you will receive a thorough analysis of your financial situation, including powerful tips by leading financial experts to help you control your debt, build a budget, and start living the life you want to live.

*APR varies from 10.90% to 17.90% when you open your account based on your credit worthiness. This APR is for purchases, balance transfers, and cash advances and will vary with the market based on the Prime Rate. Subject to credit approval. No Annual Fee. Other fees that apply: Cash advance fee of 1% of advance ($5 minimum and $25 maximum), Late Payment Fee of up to $25, Foreign Transaction Fee of 1% plus foreign exchange rate of transaction amount, $5 Card Replacement Fee, and Returned Payment Fee of up to $25. A First Financial membership is required to obtain a VISA Platinum Card and is available to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties.

**Additional bonus points will be reflected within 30 days from the balance transfer approval and can be viewed when signed into your VISA Platinum Card Account online through Online Banking. In order to redeem bonus points, an offer reference must be made to a First Financial representative. Bonus points can only be redeemed one time per member, on an approved balance transfer of $5,000 or greater during the promotional period of 4/28/14 – 12/31/14.

Article Source: Abby Hayes for Dailyfinance.com, http://www.dailyfinance.com/2014/05/13/how-to-pay-down-credit-cards-boost-your-credit-score/#!slide=2594951

5 Reasons To Switch To A Credit Union Credit Card

6fe47_big-bank.topSince the second part of a federal bill known as the CARD Act, credit cards have become a lot friendlier to consumers. Credit card companies are now prohibited from a long list of former dirty business practices some engaged in, ranging from switching the date that a customer’s bill was due to retroactively raising rates.

But because so many of the outlawed practices were also huge revenue generators for the companies issuing cards, some have responded by preemptively raising rates across the board and introducing new fees. Citigroup informed some customers that they would owe $90 if they don’t charge at least $2,400 a year, while American Express and Bank of America have each introduced annual fees for some cards as high as $100. Even those with pristine credit are paying at least two percentage points more in interest this year, according to a study by LowCards.com.

If you feel like your credit card company is trying to bleed you with new fees, there is a better way: opt for a credit card issued by a credit union. These not-for-profit financial institutions are owned by members, who typically share some sort of affiliation like working at the same university or being a member of a teacher’s union. While credit unions issue the same Visa and MasterCards as for-profit institutions like JP Morgan Chase and Wells Fargo, these cards often come with a number of protections and benefits that you won’t get anywhere else.

Here are five reasons to switch to a credit card issued by a federal credit union:

1. Interest rate caps. Federal law prohibits federal credit unions from charging rates higher than 18%. For-profit credit card companies, however, have no restrictions on the interest rate that they can levy on account holders. The average interest rate for cards issued by for-profit institutions is currently 16.7%, according to Credit Card Monitor, though many customers with less than perfect credit often pay rates above 20%. If you habitually carry a balance, having a fixed limit on the amount of interest you could be charged could save you thousands of dollars a year.

2. Lower interest rates. The interest charges on credit union issued cards were 20% lower than the same cards issued by banks, according to a study released in October 2013 by the Pew Foundation, a non-profit public interest group. In a survey of 400 cards, the study found that the best advertised rate for credit union cards was 9.9%, while the lowest advertised bank rate was 12.2%. The highest advertised rate for a credit union card was 13.7%, which again was lower than a bank’s at 17.9%.

3. Lower fees. The same Pew study found that credit unions levied lower fees and other penalties for their credit card customers than banks. The average credit union member pays $20 for paying their bill late or going over their credit limit; at banks, the average penalty was $39. Banks also charged as high as 21% for a cash advance, compared with a high of 13.7% rate charged by credit unions.

Did you know First Financial’s VISA Platinum Credit Card only has a 1% cash advance fee of the advance ($5 minimum, $25 maximum)?  Plus, there are no balance transfer fees at First Financial – AND you’ll earn rewards on all your purchases!* Learn more about our card by clicking here.

For a limited time – if you are approved for a balance transfer of $5,000 or more to First Financial’s VISA Platinum Credit Card, you will receive 10,000 bonus CURewards Points! You can apply for the balance transfer by stopping into any branch or calling 866.750.0100 to be sent a balance transfer request form.**

4. Credit unions are member-owned. Every credit union is owned by its members. That means that these institutions do not have the same pressures of Wall Street banks to maximize revenue in order to please investors. Instead, profits on credit cards and other loans go back to credit union members in the form of lower loan rates and better account dividends.

5. Increased service. 70% of credit union members thought that their financial institution put members’ financial interests above their own, according to a recent survey published by Forrester Research. 58% of regional bank customers had the same positive view toward their financial institution. Wells Fargo had the highest customer satisfaction of any major bank, with a scant 40% positive rating.

The National Association of Federal Credit Unions operates a website, culookup.com, that can help you find a local credit union. Each credit union has its own membership requirements. Some are broad, for example: the DVA Credit Union, which is open to anyone who lives, works, worships or attends a school in Washington, D.C. Others, such as the Ukrainian National Federal Credit Union, are restricted to members of a religious organization.

To become a member of First Financial, you need to live, work, worship, volunteer, or attend school in Monmouth or Ocean Counties in NJ.  Once you are a member, your immediate family members are eligible for membership too!***

First Financial’s VISA Platinum Card comes fully loaded with:

  • Rates as low as 10.90% APR*
  • No Annual Fee
  • No Balance Transfer Fees
  • Platinum line of credit up to $25,000
  • Travel Benefits
  • Zero Fraud Liability
  • 24/7 Customer Service
  • And – for each purchase you make with your Platinum Card you’ll earn CURewards redeemable for travel, merchandise items, and merchant gift cards!

*APR varies from 10.90% to 17.90% when you open your account based on your credit worthiness. This APR is for purchases, balance transfers, and cash advances and will vary with the market based on the Prime Rate. Subject to credit approval. No Annual Fee. Other fees that apply: Cash advance fee of 1% of advance ($5 minimum and $25 maximum), Late Payment Fee of up to $25, Foreign Transaction Fee of 1% plus foreign exchange rate of transaction amount, $5 Card Replacement Fee, and Returned Payment Fee of up to $25. A First Financial membership is required to obtain a VISA Platinum Card and is available to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties.

**Additional bonus points will be reflected within 30 days from the balance transfer approval and can be viewed when signed into your VISA Platinum Card Account online through Online Banking. In order to redeem bonus points, an offer reference must be made to a First Financial representative. Bonus points can only be redeemed one time per member, on an approved balance transfer of $5,000 or greater during the promotional period of 4/28/14 – 12/31/14.

***$5 in a base savings account is your membership deposit and is required to remain in your base savings account at all times to be a member in good standing. All credit unions require a membership deposit.

Click here to view the article source by David Randall of Forbes.

Help – I spent too much on the holidays and I’m still paying for it months later!

tighten belt on dollar conceptIf the holidays have left your budget overstretched, there are ways to recover (even if 3 months have passed) … you just need to act as quickly as you can.

While it might be tough to admit it (case in point: you’ve ignored the debt you racked up over the last few months), the first step to reducing your post-holiday debt is realizing and prioritizing it. 

Beverly Harzog, author of Confessions of a Credit Junkie, says the best way to start a re-payment plan is to go after the debt on the highest interest rate card first and once that is paid off, go after the next one and so on and so on.

If you overspent this holiday season and know you won’t be able to pay off your credit card bills when they arrive next month, you need to adjust your spending habits ASAP.

Consumers should look at their spending categories and aim to shave small amounts off of each area (even if it’s $5 or $10 to start). Making many small cutbacks will be less painful than trying to find an extra $1,000 all at once to help pay off the credit card balance.

If you put a lot of your holiday gift spending on a high-interest rate credit card, Harzog recommends transferring the balance to a credit card with a lower interest rate. Even if you can reduce the interest rate just a little bit, it will help pay it down faster.

Did you know First Financial Federal Credit Union has a lower rate VISA Platinum Credit Card, great rewards, no annual fee, and no balance transfer fees? Apply today!*

If you are facing significant debt, it might be time to find new ways to generate extra income that is earmarked solely to paying off the debt. If you don’t want to get a traditional part-time job, review your talents and skill set to find alternative ways to make money, whether it’s giving piano lessons, fixing computers, catering, or doing web design.

Ed Gjertsen, Vice President at Mack Investment Securities, recommends the seven-day cash challenge to break an overspending habit. With this challenge, you estimate how much money you spend each week and then take out that amount of cash at the start of the week and see how long it lasts.

“When people do this, by Wednesday or Thursday they are usually out of money,” he says. “They don’t think of all the times they swipe that card. It gives them a reality check of how much they are spending.”

If you need an anonymous, online tool to help you get your debt in check – try Debt in Focus – First Financial’s free and anonymous online debt management tool. In just minutes, you will receive a thorough analysis of your financial situation, including powerful tips by leading financial experts to help you control your debt, build a budget, and start living the life you want to live.

*APR varies from 10.90% to 17.90% when you open your account based on your credit worthiness. This APR is for purchases, balance transfers, and cash advances and will vary with the market based on the Prime Rate. Subject to credit approval. No Annual Fee. Other fees that apply: Cash advance fee of 1% of advance ($5 minimum and $25 maximum), Late Payment Fee of up to $25, Foreign Transaction Fee of 1% plus foreign exchange rate of transaction amount, $5 Card Replacement Fee, and Returned Payment Fee of up to $25. A First Financial membership is required to obtain a VISA Platinum Card and is available to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties.

Article Source: http://www.foxbusiness.com/personal-finance/2013/12/24/help-spent-too-much-on-holidays/

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Debit vs Credit Cards: Which is safer to swipe?

holiday-credit-or-debitWhile the tens of millions of Target shoppers who had their credit and debit card information stolen likely won’t be on the hook for any fraudulent transactions that may occur, debit card users could face much bigger headaches than credit card users.

That’s because debit and credit cards are treated differently by consumer protection laws. Under federal law, your personal liability for fraudulent charges on a credit card can’t exceed $50. But if a fraudster uses your debit card, you could be liable for $500 or more, depending on how quickly you report it.

“I know people love their debit cards. But man oh man, they are loaded with holes when it comes to fraud,” said John Ulzheimer, credit expert at CreditSesame.com, a credit management website.

Plus, if someone uses your credit card, the charge is often credited back to your account immediately after it’s reported, Ulzheimer said. Yet, if a crook uses your debit card, not only can they drain your bank account, but it can take up to two weeks for the financial institution to investigate the fraud and reimburse your account.

“In the meantime, you might have to pay your rent, your utilities and other bills,” said Beth Givens, director of the Privacy Rights Clearinghouse. The organization recommends that consumers stick to credit cards as much as possible.

Whichever card you decide to swipe, here are ways to protect yourself from scammers.

Be vigilant with your accounts: The Target hack is just the latest in a long history of data breaches, and it likely won’t be the last.

As a result, you should check your debit and credit account activity at least every few days and keep an eye out for any unfamiliar transactions. If you notice anything fishy, notify your financial instituion or credit card company immediately.

“Waiting until the end of the month to check out your credit card statement for fraudulent use is a relic of the past,” Ulzheimer said. “Fraud is a real-time crime, and we as consumers have to be constantly engaged.”

Set your own fraud controls: Financial institutions have their own internal fraud controls, but some transactions can slip through the cracks, said Al Pascual, senior analyst of security risk and fraud at Javelin Strategy & Research.

Many financial institutions will let you set alerts for account transactions. Even better, some allow you to block transactions that are out of the ordinary for you, such as for online purchases at a certain kind of retailer or for any purchases over $500.

“We believe that consumers are going to know best as to how to protect their account,” he said. “They know their own behaviors.

Did you know that First Financial has ID Theft Protection services? When you enroll in one of these services, one of the benefits you’ll receive is an automatic alert sent to you via email and text message, allowing you to confirm whether or not any recent activity is fraudulent. With Fully Managed Identity Recovery services from First Financial, you don’t need to worry. A professional Recovery Advocate will do the work on your behalf, based on a plan that you approve. Should you experience an Identity Theft incident, your Recovery Advocate will stick with you all along the way – and will be there for you until your good name is restored. Click here to learn more and get started today!

Watch out for fraud hotspots: You should be especially wary of using a debit card online and at retailers more vulnerable to fraud.

Gas stations and ATMs are hotspots for so-called “skimmers,” or machines that scammers install to capture your card information. Watch out for ATM parts that look unusual and always cover your hand when typing your PIN in case a camera is watching, said Shirley Inscoe, a senior analyst with the Aite Group.

Don’t let your guard down: If you think your information has been compromised, don’t assume everything’s fine after a few months. Stolen card information is often sold to a variety of groups on the black market who may hold onto it for months or even years.

“Many times these fraud rings will wait until the news dies down and people have forgotten about it before they use that data,” Inscoe said. “It may not be used until next winter, so it really is a good idea for people to monitor their activity.”

If you fall victim to ID Theft, don’t panic – First Financial is here to help! Report the incident regarding any of your First Financial accounts immediately, by calling us at 866.750.0100 or emailing info@firstffcu.com

*Article by Melanie Hicken of Yahoo Finance – click here to view the article source.

What’s the Worst Kind of Debt?

DEBT inscription bright green lettersWhat is the worst kind of debt to carry? Is it student loan debt, credit cards, a mortgage — or something else? Even the experts don’t always agree on which debt is “good debt” and which is “bad,” so imagine how confusing it can be to consumers who are dealing with debt!

Student Loan Debt

Why student loan debt is the worst: The loans are often given to young people with no credit experience and no clue how they will pay them back. Balances are often high, and the jobs borrowers counted on to make payments may be non-existent or take a really long time to acquire. Finally, unlike every other type of consumer debt, it is very difficult to discharge balances in bankruptcy.

And why it may not be: College graduates, on average, still earn significantly more over their lifetime than those without a college degree. In that sense, student loan debt can be considered an investment that pays off in future earning power. In addition, students may be able to defer payments on their student loans during times of economic hardship (usually at a cost), which makes them more flexible than other types of loans. In addition, borrowers may be eligible for reduced payments and loan forgiveness under the Income-Based Repayment Program or other loan forgiveness programs.

How does student debt affect credit scores? Large balances typically don’t hurt credit scores as long as the payments are made on time.

Looking to consolidate your student loans?  First Financial can help with our Student Loan Consolidation Product, cuGrad.  Get started today by clicking here.*

Credit Card Debt

Why credit card debt is the worst: With interest rates hovering around 15 percent on average — and more than 20 percent for some borrowers — credit card debt is often the most expensive kind of debt consumers carry. And with the low minimum monthly payments that issuers offer, cardholders can find themselves in debt for decades if they aren’t careful.

And why it may not be: While making minimum payments on credit cards is not a great idea over the long run, having that option can come in handy in a financial pinch. It can give cardholders time to get back on their feet without ruining their credit.

As far as credit scores are concerned, as long as cardholders keep balances low (usually below 10 to 20 percent of their available credit), and make minimum payments on time, credit card debt should not hurt credit scores. Bills

Transfer your high rate credit card balances to First Financial’s low rate Visa Platinum Credit Card with rewards, no annual fee, and no balance transfer fees!  Get started today.**

Mortgage Debt

Why mortgage debt is the worst: If you wonder how bad mortgage debt can be, just ask the owners of some $8.8 million homes that CoreLogic said had negative or near-negative equity as of the second quarter of 2013. That means those owners owe close to, or more than, what the property is worth. That also means they can’t sell those houses without shelling out money to pay off their mortgage or doing a short sale that damages their credit scores. Even for those who aren’t under water, rising taxes and/or insurance premiums, the cost of maintenance and loans that typically take 30 years to pay off can make one’s home feel like a financial prison at times.

And why it may not be: Over time, homeownership remains one of the key ways average Americans build wealth. If you are able to keep up with your home loan payments, eventually the home will be paid off and provide inexpensive housing or rental income. Equity that has built up can be accessed through a reverse mortgage or by selling the house, or it can be passed along to heirs — sometimes tax-free.

When it comes to credit scores, this type of loan will generally help, as long as payments are made on time. Even large mortgages shouldn’t depress credit scores, unless there are multiple mortgages with balances. That’s usually a problem that affects real estate investors however, not homeowners with one or two homes.

Refinance your mortgage with First Financial!  We’ve got a great 10 year fixed rate mortgage that might be perfect if you are looking to refinance. Click here to learn more.***

Tax Debt

Why tax debt is the worst: If you owe the Internal Revenue Service or your state taxing authority for taxes you can’t pay, you can suffer a variety of painful consequences. If a tax lien is filed, your credit scores will likely plummet. In addition, these government agencies usually have strong collection powers, including the ability to seize money in bank accounts or other property, or to intercept future tax refunds.

And why it may not be: The IRS offers repayment options that may allow a tax debt to be paid off over time at a fairly low rate. (Similar programs are available for state tax debt in many states). And unlike applying for a loan, you don’t have to have good credit to get approved for an installment agreement.

The good news when it comes to credit scores is that tax debt itself isn’t reported to credit reporting agencies; a tax lien is the only way that it may show up. By entering into an installment agreement, you may be able to get a tax lien removed from your credit reports, even before you’ve paid off what you owe.

Auto Loan Debt

Why auto debt is the worst: The average auto loan now lasts five and a half years, and some 12 percent last six to seven years, according to Edmunds.com. That means payments will last long after that new car smell has worn off and well into the years when maintenance and repair costs start creeping up. Even more troubling, these borrowers may be stuck if they need to sell their vehicles since they may be “upside down,” owing more than what they can sell their car or truck for.

And why it may not be: Many consumers budget for a car payment, and as long as they aren’t hit with unexpected expenses, they are able to make this payment a priority. In addition, borrowers may be able to refinance their auto loans and lower their monthly payments. Plus, cars often get people to work, where they can earn the money they need to pay off debt.

Vehicle loans that are paid on time can help credit scores, and are rarely a problem unless someone has several car loans outstanding at once or misses a payment.

If you’re thinking about refinancing your auto loan – look no further than First Financial!  We may be able to save you money each month on your current car payments by refinancing.  Ask us how much we might be able to save you today.****

The Worst Kind Of Debt

When it comes down to it, the worst type of debt is … (drumroll please), the one you can’t pay back on time. If that happens, your credit scores will suffer, your balances may grow larger due to fees and interest, and you may find yourself borrowing even more as you try to keep up with your payments.

Want an anonymous, online tool to help you get your debt in check?  Try Debt in Focus – our free and anonymous online debt management tool. In just minutes, you will receive a thorough analysis of your financial situation, including powerful tips by leading financial experts to help you control your debt, build a budget, and start living the life you want to live.

Article Source: http://www.huffingtonpost.com/creditcom/whats-the-worst-kind-of-d_b_4220046.html

*The cuGrad Private Student Loan Consolidation is available to borrowers who are carrying private student loan debt. Federal student loans cannot be consolidated with the cuGrad Private Student Loan Consolidation. If you are seeking a federal student loan consolidation, you can learn more details about the process here: http://www.loanconsolidation.ed.gov/   

**APR varies from 7.90% to 17.99% when you open your account based on your credit worthiness. This APR is for purchases, balance transfers, and cash advances and will vary with the market based on the Prime Rate. Subject to credit approval. No Annual Fee. Other fees that apply: Cash advance fee of 1% of advance ($5 minimum and $25 maximum), Late Payment Fee of up to $25, Foreign Transaction Fee of 1% plus foreign exchange rate of transaction amount, $5 Card Replacement Fee, and Returned Payment Fee of up to $25. A First Financial membership is required to obtain a VISA Platinum Card and is available to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties.

***APR = Annual Percentage Rate. Subject to credit approval.  Credit worthiness determines your APR. Available on primary residence only. A First Financial membership is required to obtain a mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties. Equal Housing Lender.

****APR = Annual Percentage Rate. Subject to credit approval. Credit worthiness determines your APR. A First Financial membership is required to obtain an auto loan and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties.

This Incredibly Common Practice Could Tank Your Credit

ccsRevolve a balance on your credit cards? It’s something many of us do, especially as the holiday shopping season kicks into high gear. But consider yourself warned: It could also be viewed as a red flag by lenders, especially if you’re paying down a smaller share of your debt each month.

Credit bureau TransUnion came out with a new product it calls CreditVision, which gives lenders a two-and-a-half year look back window at how much of your available credit you use and whether you revolve a balance from month to month.

The conventional wisdom is that as long as you keep your credit utilization — the ratio of your balance to your credit limit — under 30% and make your payments on time, it’s OK to roll over a balance from month to month. But TransUnion says people who don’t pay their balance in full every month, which it calls “revolvers,” are up to three times more likely to fall behind on a new loan within two years than people with otherwise similar risk profiles who pay off their credit cards entirely every month, which it calls “transactors.” Therefore, it might be a good idea to pay your balances in full more often than not if you’re looking to get some kind of loan in the future.

“Without the data available in CreditVision —historical balances and actual payment amount — it is very difficult, and inaccurate, to determine whether consumers are transactors or revolvers,” says Charlie Wise, vice president in the financial services business unit of TransUnion.  ”Our research has shown that consumers who are transactors are significantly lower risk on new loans than consumers who are revolvers and have lower subsequent delinquency rates on new loans.”

Although Wise says this doesn’t mean lenders avoid people who revolve balances, but serial balance-carriers should take note. “A consumer’s payment behavior on their credit cards and loan accounts may in fact impact their credit score,” Wise says, once TransUnion starts offering scoring models that incorporate this historical data later in the quarter.

With the introduction of CreditVision, all of the big three credit bureaus now give lenders the ability to take a deep dive into your past charging and payment history.

Equifax came out with a product called Dimensions in August that gives lenders a two-year look back. Among other uses, the company says lenders can pinpoint customers most receptive to balance-transfer pitches and determine how much more debt they can take on before they can’t keep up with their payments anymore.

Experian has offered something similar for a couple of years now as part of its TrendView product. It lets lenders see if people are paying off their cards in full every month, carrying balances or “rate surfing,” transferring balances from one teaser rate to another.

“It can be good or bad, depending on what they’ve been doing,” says Trevor Carone, Experian’s senior vice president of sciences and analytics. If they’ve been paying down their debt, lenders now have proof of that, which is particularly good for people who are wiping out a substantial debt quickly.

On the other hand, if your balances are growing from month to month or if your payments have dropped to just the minimum, “That’s a sign of risk, and lenders will take that into consideration,” Carone says.

It’s a double-edged sword if you’re trying to get a handle on your debt. While it’s great if you’re making strides towards knocking out a big balance, it also means you’re more likely to be targeted for new offers which could lead to temptation and we don’t need an invitation to rack up more debt.

Just over 38% of Americans revolve holiday credit card debt, according to Odysseas Papadimitriou, CEO of industry site CardHub.com, and we’re on track to end this year a collective $41.2 billion deeper in credit card debt this year. For the 13% of Americans surveyed by Consumer Reports last November who were still paying off their holiday shopping bills from 2011, this new visibility into their debt could be bad news.

“Short-term changes, if they’re seasonal — lenders expect that,” Carone says. ”If your behavior is persistent for six months or more, it becomes more predictive.”

If you run up a balance around the holidays and then pay it off over the course of a few months, a lender can predict that you’ll continue to behave that way in the future. But if the amount you’re paying on those bills drops as the months go by, or if you pile this year’s Black Friday splurges onto last year’s still-existing debt, it  might not be appealing to see that — even if you never miss a payment.

Don’t forget about our free, online debt management tool, Debt in Focus. In just minutes, you will receive a thorough analysis of your financial situation, including powerful tips by leading financial experts to help you control your debt, build a budget, and start living the life you want to live. We also have our First Score Credit Counseling program; a low cost, interactive session ($30) with a First Financial expert, which simulates your credit score with various “what if” scenarios. You can email us at firstscore@firstffcu.com or call 866.750.0100, Option 2 to get started.

Click here to view the article source by Martha C. White of Time.com.