All the questions this week were great. The questions touched on many topics that I am frequently asked.
#21's Mom! - I am afraid your friend is correct. Credit limits are being decreased with or without customer notification. This is a change in the current economic times. Previously credit card companies were more than happy to increase your credit limits with the same notification.
hosersgirl – hosersgirl asked if credit scores have dropped since the decreased available credit. Your credit score is still calculated the same way based on your payment history, amounts owed, length of credit history, new credit, and types of credit in use. The decrease in the available credit can have a negative effect on your credit score since it will increase your debt utilization ratio. This is the percent of the used available balance. It is preferred that a consumer use no more than 30% to 40% of the available credit.
Kristin Smith - The ability to purchase a house is based on many factors, your credit score is one. That is where a foreclosure or short-sale will affect a person. A foreclosure will be reflected on the credit report for seven years. The impact of that action will diminish as time progress. If a short-sale was done prior to the foreclosure and all debts paid, whether it be through a loan or forgiven by the creditor, there should be no impact on your score. However, if the short-sale was done in conjunction to a foreclosure, then the impact on the credit score will be the same as the foreclosure.
Georgia – How many credit cards are too many to have open at one time? I believe an adult does not need more than one or two credit cards. This is due to the fact that the spending temptation increases with each piece of plastic in our wallets. Closing out extra credit cards will temporarily lower your score. However, the long-term and personal benefits can exceed the impact to your score.
Nikki - As the economy continues to retract, creditors are looking for the least risky customers. That is shown through high credit scores. Credit scores range from 300 to 850. The scores that are considered best are climbing. So if a person with a 710 credit score was “A” quality at one time, the score may have now increased to 720 to qualify for “A” rates.
Krista - I struggle with that same issue of explaining the value of money and that it does not just appear to my kids . To help my kids, I have them do basic chores in the house just because we all need out to help to make the house work. Extra chores are there if they want something special such as a baseball bat or a game. I also hold them accountable for the quality of the chores based on age. Once they start making money, you will find it interesting on how they actually do spend their money. My son wanted a quarter for popcorn at school. I asked him about money in his piggy bank. He said he did not want to spend it:-) Be careful they will learn what you teach them.
kimberlr - Credit card companies raise rates on anything they may perceive makes the consumer more risky. Higher interest rates are given to higher risk consumers. However, one late payment does not mean you are riskier. It means you are human. Recently a new law was signed stopping this from happening without due notification from the credit card company. I always believe we can ask for anything. Call the credit card company and ask for your rate to be lowered. This works for asking for fees to be refunded, if you have a legitimate reason. If the credit card company is unresponsive, contact your financial institution and see about what they will offer you. It may be a lower rate since you have a relationship with them. Then transfer your balance.
It was a hard choice this week, but I can only award two winners. So, CONGRATULATIONS Kristin Smith and kimberlr. We will be contacting you with instructions on picking up your Corvallis Knights tickets for the July 3 Fireworks Night. Please keep the questions coming. We have two more weeks remaining to win tickets for simply throwing your financial questions my way---thanks!
Money Mom