Paying Your Bills On Time
Commonly, people assume because they pay their bills regularly that their credit is strong. This is not entirely true. Simply paying your bills irrespective of the due date isn’t always as important as when you pay your bills. Have you ever found yourself between pay checks, and your credit card payment is due? Did you know that waiting those few days to your next salary check before paying actually has an impact your credit rating?
Your card payment, after the 30 day due date is now classified as 30 days late and is reported to the credit bureau by your card provider. Had you made a partial payment of even $10, you wouldn’t be late, short paid, perhaps, not late. Only non-payments (not partial payments) are reported and affect your credit rating. So this means that even if you’re between paydays and short of cash, keep that precious credit rating clean!
How Many Credit Cards Do You Need?
Imagine that you just walked into your favorite department store, and in your path sits the sales representative behind a small folding table. In front of them are pads of blank application forms attached to clipboards, with a pen dangling from a length of string.
The pitch begins, “Would you like to apply for our credit card? It takes only a few minutes of your time”.
As you consider the time you have (which you never seem to have enough of) the representative adds value by offering a free gift hoping you’ll apply just to get the gift. Your eyes light up as you see the very shiny (and free) pen set they are offering. Without a second thought you pick up the clipboard and begin enthusiastically completing the application. The sales representative behind the table smiles, assures you that you will receive a letter in the mail advising of your approval (or decline) in a week or so, and then you are on your way. Ten minutes maximum. Makes you feel good to know you’ll have the card in case you need it.
Store staff tries to interest as many people as possible to complete an application. They are paid a bonus (in some cases) on how many complete applications they can collect during their stint at the table. They don’t care if you qualify or not! All they care about is convincing you this department store credit card is perfect for your needs. (They don’t tell you their interest rates are 10% to 20% more than a regular line of credit would be with your bank).
So what happens with your application? Why are they trying to collect such a large volume of new applications? Good question right?
The representative folds the table, your application is delivered by courier to a central processing center, where it is keyed into a computer, then reviewed by a computer program that spits out a decline or approval based on how well your application scored. A letter is then automatically printed and mailed informing you of the decision. The more applications the computer scoring model reviews, the more the volume of approved credit cards the department store is able to issue. More cards means more people carrying a balance, and paying interest – and that is a very healthy increase for the merchant and loan company.
They not only want your borrowing power (that also increases theirs), they also want their plastic in your wallet. Once in your wallet you are more likely to shop at their store over another. This is referred to as securing wallet share, or trying to keep a piece of your wallet (spending) while at the same time keeping their competitors away from you. Just to keep things in proper perspective, let’s review the answers to a few questions you should ask.
Does This Credit Card Company Have Your Best Interests in Mind – or Their Own? Short Answer is NO!
While you’re completing their clipboard application you’re making many choices, most of which you are likely not to be aware of:
This includes all the credit you have including credit with their competitors. They can see what credit limits are available to you and what your present balances are. They can see your repayment history for every credit card, loan, or car payment you have ever made! They know if someone has placed a collection item against you, and if you have not paid a debt in the past.
You are also asked to complete an address section, which updates the credit bureaus to establish your current address. If you have moved recently, anybody reviewing your credit background will see how transient you are. Had you not applied, no one would have known.
You likely identified whether you’re single, married or common-law. This will be updated on your bureau report and may seem harmless. Depending on what country you live, some banks cannot ask for spousal information if the spouse is not a joint applicant, unless relying on alimony, child support, or separation payments from them. You may find that applying completely on your own has a greater impact on whether you’re approved. After all - is it anybodys business what your marital status is when you’re paying all your bills from your own income?
Continued in the Carol’s Borrowing Series Category of Clf.
Other Posts of Interest
A LOAN CALCULATOR FOR CRUNCHING YOUR NUMBERS IS BELOW; Enter your loan amount, how many years, the interest rate, and payment frequency (14 for biweekly, 30 for monthly, 7 for weekly. Very helpful so you know exactly what the loan will cost you in interest payments and you will know the total COB (cost of borrowing).
Post a Comment