Americans have become accustomed to living a lifestyle accompanied by debt. The negative side effects of debt have been minimized to a mere inconvenience, something to be dealt with at a later time. In fact, according to figures from the Federal Reserve, the total U.S. outstanding consumer debt was $3.33 trillion as of January 2015. This figure includes car loans, student loans and revolving debt, but not mortgages.

“Sound and responsible financial management starts with facing the realities of our individual financial circumstances,” said Scott Smith, personal finance expert and president of CreditRepair.com. “Truthfully evaluating our income level, debt obligations, spending habits, savings habits and future financial goals will get you started on the right path to living a responsible financial life.”

Smith recommends avoiding the following self-deceivers:

1.  I don’t know what my credit score is, but that’s okay. I’ll only need it when I decide to buy my next car or finally purchase a new home. It’s very important to know your credit score and responsibly manage it in every situation in life. Credit scores are not only used for securing a loan, but also for insurance pricing, job applications and rental agreements.

2.  I’ll just take a little from my savings account, but I’ll pay it back next month. Don’t borrow against yourself. Having an established savings plan is very important in every stage of life. If a circumstance comes up that demands you pull funds from your savings plan, make sure to get back on the savings train as quickly as possible.

3.  Investing is too complicated and besides, only the rich get richer. Most of the time the “rich get richer” because of their discipline. Investing and saving is important for everyone, regardless of their current financial situation.

4.  Maybe if I turn my voicemail off the debt collectors will stop calling. Dealing with debt collectors can be very frustrating and sometimes even intimidating, but consumers do have rights protecting them and debt collectors have laws that govern their ability to pester you.

5.  I deserve a break. I’ll just charge my vacation and pay it back later. Although circumstances sometimes arise that require the use of credit to cover unexpected expenses, those situations should be minimized as much as possible. If credit card debt is incurred, pay it off as soon as possible. The interest charged is a serious penalty and is not worth the instant gratification that a vacation or expensive pair of shoes may bring.

The bottom line: self-improvement is a tall order, but making excuses for poor financial judgment will do nothing to improve your life. Focus on ways to enhance your financial situation now. Your future self will thank you.

For more tips on managing your money, or your credit, visit www.CreditRepair.com, a site that empowers every individual to achieve the credit scores they deserve and enjoy a lifestyle of greater opportunity.

Photo courtesy of Getty Images

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The post Financial Fibs: 5 Lies to Stop Telling Yourself appeared first on AKAMom Magazine.

Even the most well-informed consumers do not fully understand how credit scores work and may still believe in some of the most common myths about them. The following guide will help clear up some of these credit score myths and provide tips to keeping your score in the best shape possible.

Myth 1: Checking your credit hurts your credit score

One of the most common beliefs about credit scores is that checking your own credit will lower your credit score. Fortunately, requesting a copy of your own credit report will not have an effect on your credit score. Your credit score is only impacted when the credit check is made for credit cards or loans.

This myth can be very dangerous to your credit score as it discourages you from monitoring your credit report. It is important to review your credit report periodically to identify and address any inaccuracies. Keeping an eye on your credit report will allow you to confirm that your payment performance is accurate and will enable you to remove any accounts that are falsely reported. Errors on your credit report can put a damper on your credit score and impact how lenders evaluate your credit worthiness.

Myth 2: Paying your bills on time is all that’s necessary to keep a good credit score

Many consumers believe that all they must do to keep a strong FICO score is pay their bills on time, but there is more to a good credit score than just a good payment history. Paying your bills on time accounts for just 35% of your credit score. The other 65% is comprised of the amount owed (30%), length of credit history (15%), new credit (10%) and type of credit (10%). It is important to take all of these components into account when reviewing your credit profile.

It is also important to note that your credit score is impacted by both positive and negative information on your credit profile. Late payments will have a negative effect on your score; however, if you improve your payment habits and consistently pay on time, you may see an increase in your credit score.

Myth 3: Lowering your credit limits helps your credit score

Asking your lenders for lower limits does not necessarily improve your credit score. In fact, maintaining substantial credit limits can actually help your score so long as you do not run up the debt to the maximum limit. When reviewing your credit profile, most lenders look for a fairly wide gap between the limit available and the actual amount of credit you are using.

As you know, your FICO score is based on a number of calculations. How much debt you owe makes up 30% of your score and can be calculated using your debt-to-available credit ratio. Debt is how much money you owe on all your credit cards, and the available credit is the sum of all the credit lines that are open. The lower your debt-to-available credit ratio the better your score. Therefore, if you reduce your credit limits but maintain the same debt, your debt-to-credit ratio will increase and can reflect negatively on your credit score.

For example, if you have $3,000 debt on your credit card with a limit of $10,000, you’re debt-to-available credit ratio is 30%. If you were to lower your credit limit to $7,500, you’re debt-to-available credit ratio

Myth 4: Closing a credit account can help your credit score

Closing credit cards does not help your credit rating. In fact, when you close an account your credit score may take a hit. Because the length of your credit history makes up roughly 15% of your FICO score, closing a credit card with a long payment history could be detrimental to your score.

If you stop using one of your oldest credit cards over a period of time, the card issuer may stop reporting updates on the account to the credit bureaus or close the account altogether. Even if the account still appears on your credit report, this long-standing credit account will not positively impact your score as much as it would if it were actively being used. The longer your credit history, the better. So it may be good for your score to keep an older account open and use the card at least once a month.

If you feel you must close an account, it is better to close the most recently opened cards first. For example, if you recently opened up a credit card to receive a discount, this would be the account to consider closing first.

Myth 5: Opening many credit cards is good for my credit score

Very often, many consumers believe having several active credit cards help improve their FICO score. However, the truth behind this myth depends on a number of factors. Depending on your overall credit history, opening several credit card accounts can actually hurt your credit score. For instance, having several credit cards with either high balances or high credit limits can have a negative effect on your credit score.

Regardless of the number of credit cards you have, whether 5 or 25, maintaining high balances can hurt your FICO score. To lenders, having high balances on credit cards indicates you may be a higher risk and this can impact whether credit is extended to you. Furthermore, having high debt-to-credit ratios on your open credit accounts will not help your credit score either. Overall, opening too many credit cards only affects your credit score if you don’t handle them properly.

About Balboa Capital

This article was written by Balboa Capital, a leading provider of small business loan products and equipment leasing. Established in 1988, Balboa Capital is one of the largest privately-held independent financing companies in the United States delivering industry-leading technology and innovative marketing tools that small and medium-sized customers require to fuel the growth and success of their business. For more information, please visit www.balboacapital.com.

The post Five Common Myths That May Be Affecting Your Personal Credit Score appeared first on AKAMom Magazine.

After countless hours spent holiday shopping, you finally finished. Now, you’re faced with the credit card payments as you roll into the new year. While it may have been difficult to keep your finances – particularly your credit cards – top of mind amid the dash from store to store, those payments aren’t going anywhere.

Managing your credit can seem like a daunting task – but it doesn’t have to be. Even if you’ve blown your budget and maxed out your cards, you can still take control of your credit and become financially fit in 2014.

Here are five things you should do right now to help get your credit back on track and sustain your financial reputation all year long:

* Review your credit report. Start with taking a comprehensive look at what’s there, good and bad. Make sure you thoroughly review your report for any errors or mistakes, especially after the holidays. Tools like AnnualCreditReport.com let you check your report annually for free. It’s also a good idea to check your credit score to see if it’s dropped and to give you a basis for comparison moving forward. Resources such as Credit.com allow you to easily pull your score.

* Know what you owe. Tally up those balances and determine your debt to credit ratio – that is, the amount of money you owe on your cards versus your available credit, which accounts for approximately 30 percent of your credit score. If you’re using more than half of your available credit, this will likely lower your credit score. This means that if you have three credit cards with a combined limit of $10,000, your total balance should be below $5,000.

* Be sure to pay your bills on time and at more than the monthly minimum. Sure, it’s intuitive, but simply paying your bills on time accounts for about 35 percent of your credit score. Start with your holiday shopping bills and make sure that at least the minimum required balance is paid – even if you can’t pay them in full.- Also, pay more than the minimum payment every month to pay down your balance faster and decrease interest charges.

* Pay off the card with the highest interest rate first. These are the cards that are costing you the most, so paying them off ahead of a card with a lower interest rate will save you more money in the long run.

* Keep your cards open. Unless you have a compelling reason to close a card – for instance, if you’re paying a large fee on it – it’s best not to close credit cards, especially ones where you have a long positive payment history. When closing a card, not only can your debt to credit ratio increase, you also end up losing the history associated with the card and change the mix of your credit, which could negatively impact your score. And, in the future, do your research before signing on that dotted line. It may have been tempting to open up a retail store credit card to save 15 percent on a recent purchase, but those savings are now ultimately going to end up on your billing statement as interest. Instead, look for a card that works with your lifestyle. Review your options and find a card with a great rewards program and the lowest interest rate possible.

To learn more about budgeting, credit and personal finance, check out a recent Google Hangout, Better Money Habits: Understanding Credit. You can also visit BetterMoneyHabits.com, a free platform from Bank of America in partnership with the Khan Academy offering dozens of personal finance videos on everything from using credit to saving and budgeting that you can watch any time.

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