AH, THE TEMPTATION
Ah, the temptation
When one can print money
To print it and print it --
As much as one needs!
Ah, for one moment
The outlook is sunny:
Wealth is restored!
The project succeeds!
People are working,
Beginning to spend;
Credit is flowing,
The market is pleased;
Banks once again
Have money to lend;
One has a sense
That the moment was seized.
The problem is nothing
Can never be something:
Money just printed
Was not bought or sold.
There was no exchange
Of one thing for one thing:
Something produced,
Like laughter or gold.
And so we've increased
Our money without
Increasing the value
Of what it can buy.
The outcome must be
Without any doubt,
According to laws
Of demand and supply.
When there is more money
In relation to things,
Prices will rise
In response to demand.
Since just-printed wealth
No exchange for goods brings,
The goods stay the same
As the dollars expand.
Prices rise quickly,
Leaving us nothing
More than we had
When we first began.
And so we learn nothing
Can never be something
The hard way -- again --
As we sink in the sand.
Wednesday, May 30, 2012
Sunday, May 27, 2012
Minimize Risk and Increase Business as a Secured Creditor
In these poor economic times, entrepreneurs may be witnessing neighbors in small business struggling with bad debts owed to them. Uncollected payments can quickly cascade into cash flow trouble for the small business owner. After all, credit is tight, and a small business is only as viable as the money coming in. If it is not a bank financing secured car and real estate loans, how can a business make sure that its interests will be protected when one of its customers is unable to pay its bills?
Extending credit as a secured party creditor may be more effective than costly collection agencies as a means of recouping bad debt. As a secured party creditor, entrepreneurs have rights to property belonging to a debtor if an invoice remains unpaid. Due to manufacturing processes, it may be impossible to take possession of the material listed on the unpaid invoice. A secured party creditor, however, can hold alternate property as collateral.
The first step to becoming a secured party creditor is to execute a security agreement with the borrower. Some small businesses may be reluctant to treat their customers as borrowers. However, implementing a secured interest relationship with a troubled customer may be a safe way to prevent severing a long-term business relationship. In the security agreement, the creditor should include the repayment terms and the definition of default, including the date the payment is due, the amount of the payment, the amount of time it must be past due to constitute the redemption process. The security agreement must be signed by both the debtor and the creditor.
After the security agreement is signed, it is time to execute the UCC-1 form. This form, originating from the Uniform Commercial Code, is an essential component to a secured loan. Depending on the state, these forms are most likely found at the Secretary of State's office. On this form, the creditor must list the property that is to serve as collateral. To uphold the claim, it is important that this description be as specific as possible. Once the collateral is listed clearly, both the borrower and the creditor sign the form.
The Uniform Commercial Code UCC-1 form is not valid until it is filed. Again depending on the state, this form will most likely need to be filed with the Secretary of State. The UCC-1 serves as a public notice that the property in question serves as collateral for the security agreement between the creditor and the borrower.
With the UCC-1 form filed properly, a small business will now have the assurance that it can recoup losses in the event that a customer defaults on payment. Some small businesses may be reluctant to require security for debts. However, by extending credit in these times while minimizing risks, entrepreneurs may likely be attracting more customers than small businesses who insist on stringent credit standards.
Extending credit as a secured party creditor may be more effective than costly collection agencies as a means of recouping bad debt. As a secured party creditor, entrepreneurs have rights to property belonging to a debtor if an invoice remains unpaid. Due to manufacturing processes, it may be impossible to take possession of the material listed on the unpaid invoice. A secured party creditor, however, can hold alternate property as collateral.
The first step to becoming a secured party creditor is to execute a security agreement with the borrower. Some small businesses may be reluctant to treat their customers as borrowers. However, implementing a secured interest relationship with a troubled customer may be a safe way to prevent severing a long-term business relationship. In the security agreement, the creditor should include the repayment terms and the definition of default, including the date the payment is due, the amount of the payment, the amount of time it must be past due to constitute the redemption process. The security agreement must be signed by both the debtor and the creditor.
After the security agreement is signed, it is time to execute the UCC-1 form. This form, originating from the Uniform Commercial Code, is an essential component to a secured loan. Depending on the state, these forms are most likely found at the Secretary of State's office. On this form, the creditor must list the property that is to serve as collateral. To uphold the claim, it is important that this description be as specific as possible. Once the collateral is listed clearly, both the borrower and the creditor sign the form.
The Uniform Commercial Code UCC-1 form is not valid until it is filed. Again depending on the state, this form will most likely need to be filed with the Secretary of State. The UCC-1 serves as a public notice that the property in question serves as collateral for the security agreement between the creditor and the borrower.
With the UCC-1 form filed properly, a small business will now have the assurance that it can recoup losses in the event that a customer defaults on payment. Some small businesses may be reluctant to require security for debts. However, by extending credit in these times while minimizing risks, entrepreneurs may likely be attracting more customers than small businesses who insist on stringent credit standards.
Friday, May 25, 2012
Long Term Auto Loans - Trouble-free On Your Pocket Giving You Lot Of Time To Repay
You may have a dream of your to drive your own car on the road. It can be your passion. However if you do want your own car, but do not have enough financial backup to make it to the end, then you should think acquiring auto loans. And the best auto loans available in market nowadays are long term auto loans.
Long term Auto Loans are a more convenient and borrower friendly variant of the traditional Auto loans. They provide you with cheaper interest rates compared to others, and at the same time, make no compromise whatsoever with the other features of the Auto loan.
These loans can be either secured or unsecured. While the secured option involves pledging collateral with the lender, the unsecured option has no such conditions. Also, whether the person has a good credit history or a bad credit history, he can avail these auto loans on easy terms.
The interest rates for Long term auto loans are the lowest in its class, owing to the longer term of repayment period associated with them. This feature of these auto loans makes it stand apart from others. Generally a period of 10-25 years is associated with the long term auto loans.
To find these loans online dealing will be very smooth since there will be less paper works. You have to submit some proofs regarding your citizenships, age and employment status. As soon all those is verified by the lenders loan amount will be transferred to your bank account.
Long term Auto Loans are a more convenient and borrower friendly variant of the traditional Auto loans. They provide you with cheaper interest rates compared to others, and at the same time, make no compromise whatsoever with the other features of the Auto loan.
These loans can be either secured or unsecured. While the secured option involves pledging collateral with the lender, the unsecured option has no such conditions. Also, whether the person has a good credit history or a bad credit history, he can avail these auto loans on easy terms.
The interest rates for Long term auto loans are the lowest in its class, owing to the longer term of repayment period associated with them. This feature of these auto loans makes it stand apart from others. Generally a period of 10-25 years is associated with the long term auto loans.
To find these loans online dealing will be very smooth since there will be less paper works. You have to submit some proofs regarding your citizenships, age and employment status. As soon all those is verified by the lenders loan amount will be transferred to your bank account.
There Is No Recession For Financial Planners
If there is one field of career in India that has not been affected by the global economic recession, it is that of financial planning. Anyone who has a little deeper insight into India's economy knows that global financial crisis that has seriously hampered the world economy since 2008, still has its effects on Indian economy as well. But, though somewhat ironically, the crisis in the domain of finance-or at least a real threat of the crisis to appear anytime-has paved a flowery way for career aspirants in the field of financial planning.
The more the financiers feel uncertainty, the more they tend to seek better financial planning. This is the secret behind the overgrowing popularity of CFP training.
Is the Threat Real?
Do you doubt there is any real threat of recession? You may, but for those whose millions of rupees are at stake are already aware of the real situation. As per the data just released, the overall growth performance has been unexpectedly poor in India in the last quarter. The manufacturing sector has particularly performed poor-the growth rate in this sector has been as dismal as 5.3 percent. Though this figure is not so poor when compared with the world's large economies, it is by all means disappointing for ambitious Indian economy.
Basing on this real challenging picture, the scope for any ambitious and efficient financial planner is wide. It is the time that Indian intellect has to show its potential in fighting the recession and thereby to show the road to success to entire world. Financial planning is a bright field engrossed with challenges as well as possibilities.
This is the reason why youth in great numbers are seeking career in this field. More and more students are tending to opt for finance as their specialization niche in their business administration courses. Moreover, there are some uniquely designed courses for people seeking career in the challenging field of finance. The courses offered at ICFP, are include post graduation program in Financial Planning, MBA in Financial Analysis incorporating the American cfa, and so on. These courses are designed to serve specific requirements of people with different backgrounds and exposure to financial world.
Tailored Approach of Institutes
The institutes that glow at these times of apparent recession have been intelligent enough to avoid cut the feet to befit shoes. They have tailored the courses to address the varying needs of people. If you are already employed in some financial institution and want to sharpen your skills by a wider exposure and exercises alongside a precise grip on the basicsyou have a unique course for you. On the other hand, if you are a raw stuff for the financial instructors, you are also welcome.
Challenges Coupled With Rewards
The challenge is enormous in financial world. This is no exaggeration, but reality. There are principles and rules that govern the market and growth in industry and services. But these rules are the most fragile at the time of crisis. It was not out of any silly blunders on the part American financiers that they fell overnight in 2008 and onwards. They were as cautious as everand as vigilant as ever-but they eventually failed to foresee their fates through the flow of the events in the real estate and mortgage sectors. And the bubble of virtual financial growth abruptly burst!
Indian people too cannot be free of such sequences. What does it call for? It calls for sharp and potent young brains to take up the challenge, the enormous and critical challenge to save the fate of entrepreneurs and Indian economy.
But, if you have the guts to immaculately combine your theoretical knowledge with practical situations having innumerable variable to amaze you all the times, you are paid for this skilllucratively!
The growth prospects for your career in the niche filed of financial planning know no practical limits. The field demands focused and pragmatic solutions to real challenges, but embraces those with potential and a fine vision in financial matters with fabulous success in life. When are you going to look for a CFP institute that will help you to broaden your horizons in the slackening economy?
Impending Recession Calls for a Basic Planning
The matter of the fact is that planning is always fruitful in any business. But it becomes even more important in the times of recession. A greater care is required while drawing a plan to counterbalance the impending threats associated with recession.
The more the financiers feel uncertainty, the more they tend to seek better financial planning. This is the secret behind the overgrowing popularity of CFP training.
Is the Threat Real?
Do you doubt there is any real threat of recession? You may, but for those whose millions of rupees are at stake are already aware of the real situation. As per the data just released, the overall growth performance has been unexpectedly poor in India in the last quarter. The manufacturing sector has particularly performed poor-the growth rate in this sector has been as dismal as 5.3 percent. Though this figure is not so poor when compared with the world's large economies, it is by all means disappointing for ambitious Indian economy.
Basing on this real challenging picture, the scope for any ambitious and efficient financial planner is wide. It is the time that Indian intellect has to show its potential in fighting the recession and thereby to show the road to success to entire world. Financial planning is a bright field engrossed with challenges as well as possibilities.
This is the reason why youth in great numbers are seeking career in this field. More and more students are tending to opt for finance as their specialization niche in their business administration courses. Moreover, there are some uniquely designed courses for people seeking career in the challenging field of finance. The courses offered at ICFP, are include post graduation program in Financial Planning, MBA in Financial Analysis incorporating the American cfa, and so on. These courses are designed to serve specific requirements of people with different backgrounds and exposure to financial world.
Tailored Approach of Institutes
The institutes that glow at these times of apparent recession have been intelligent enough to avoid cut the feet to befit shoes. They have tailored the courses to address the varying needs of people. If you are already employed in some financial institution and want to sharpen your skills by a wider exposure and exercises alongside a precise grip on the basicsyou have a unique course for you. On the other hand, if you are a raw stuff for the financial instructors, you are also welcome.
Challenges Coupled With Rewards
The challenge is enormous in financial world. This is no exaggeration, but reality. There are principles and rules that govern the market and growth in industry and services. But these rules are the most fragile at the time of crisis. It was not out of any silly blunders on the part American financiers that they fell overnight in 2008 and onwards. They were as cautious as everand as vigilant as ever-but they eventually failed to foresee their fates through the flow of the events in the real estate and mortgage sectors. And the bubble of virtual financial growth abruptly burst!
Indian people too cannot be free of such sequences. What does it call for? It calls for sharp and potent young brains to take up the challenge, the enormous and critical challenge to save the fate of entrepreneurs and Indian economy.
But, if you have the guts to immaculately combine your theoretical knowledge with practical situations having innumerable variable to amaze you all the times, you are paid for this skilllucratively!
The growth prospects for your career in the niche filed of financial planning know no practical limits. The field demands focused and pragmatic solutions to real challenges, but embraces those with potential and a fine vision in financial matters with fabulous success in life. When are you going to look for a CFP institute that will help you to broaden your horizons in the slackening economy?
Impending Recession Calls for a Basic Planning
The matter of the fact is that planning is always fruitful in any business. But it becomes even more important in the times of recession. A greater care is required while drawing a plan to counterbalance the impending threats associated with recession.
Tuesday, May 22, 2012
The Advantages And Disadvantages Of Refund Anticipation Loans
Advantages:
1. Instant Cash
If you are low on cash and cannot wait for your refund to pay off some bills, a refund anticipation loan could certainly fill that role. While cash advances on a paycheck could pay for small bills that are due very soon, if you have a larger sum to pay off and no other way to do so, a refund advance loan could be very helpful.
2. Short Processing
As opposed to other large loans, a refund anticipation loan has a short application and approval process. Normally processing will take no more than a day, and the loan can be distributed within 24-48 hours. In comparison, traditional loans can take weeks to be approved and distributed.
3. No Tax Prep Fees
Usually if you decide to get a refund anticipation loan the tax preparer will deduct the cost of their services from your refund. This can be a great option for those who might not otherwise be able to afford the fees associated with professional tax preparation.
Disadvantages:
1. Interest and Fees
Unfortunately, the interest ad fees associated with these types of loans can be quite high. This is mostly due to the fact that the loan itself does not come from the preparers handling your taxes. Although you typically apply for and receive the loan through at a tax preparer's office, they almost always outsource to third party lending banks.
2. Payment Responsibility
Like with any loan, you are ultimately responsible for repaying the bank for the money they lent you. Therefore, if for any reason the lending bank does not receive the amount the full amount of your refund from the IRS then you will be held responsible for the difference.
3. Lack of Loan Education
Unfortunately, hundreds of people take advantage of refund anticipation loans every year without fully understanding their options. As with any major financial transaction you always want to carefully consider the pros and cons before making a decision, and when it comes to refund anticipation loans if you do not need the funds right away then you would probably be better off waiting for a check from the IRS.
1. Instant Cash
If you are low on cash and cannot wait for your refund to pay off some bills, a refund anticipation loan could certainly fill that role. While cash advances on a paycheck could pay for small bills that are due very soon, if you have a larger sum to pay off and no other way to do so, a refund advance loan could be very helpful.
2. Short Processing
As opposed to other large loans, a refund anticipation loan has a short application and approval process. Normally processing will take no more than a day, and the loan can be distributed within 24-48 hours. In comparison, traditional loans can take weeks to be approved and distributed.
3. No Tax Prep Fees
Usually if you decide to get a refund anticipation loan the tax preparer will deduct the cost of their services from your refund. This can be a great option for those who might not otherwise be able to afford the fees associated with professional tax preparation.
Disadvantages:
1. Interest and Fees
Unfortunately, the interest ad fees associated with these types of loans can be quite high. This is mostly due to the fact that the loan itself does not come from the preparers handling your taxes. Although you typically apply for and receive the loan through at a tax preparer's office, they almost always outsource to third party lending banks.
2. Payment Responsibility
Like with any loan, you are ultimately responsible for repaying the bank for the money they lent you. Therefore, if for any reason the lending bank does not receive the amount the full amount of your refund from the IRS then you will be held responsible for the difference.
3. Lack of Loan Education
Unfortunately, hundreds of people take advantage of refund anticipation loans every year without fully understanding their options. As with any major financial transaction you always want to carefully consider the pros and cons before making a decision, and when it comes to refund anticipation loans if you do not need the funds right away then you would probably be better off waiting for a check from the IRS.
90 day loans : easy funds with viable repayment options
With a diminishing income value, it must be tough for you to fulfill all your monetary obligations. But then, there are certain expenses, for which you cannot make any compromise. In order to tackle these expenses, you have to source the funds through some other means, as you are virtually out of funds. This is precisely when you can opt for the provision of 90 day loans no credit check.
Based on your primary requirement, you can avail funds anywhere in the range of 0-00, which of course is based on your prevailing circumstances. While attaining the funds, you are never required to pledge any collateral. This in turn enable you to source the funds, without much of a risk.
Even those having problems related to CCJs, IVA, arrears and defaults too can derive these loans. This of course is made possible by the tendency of the lenders, who do sanction the funds, without looking in to the credit profile.
In order to qualify for these loans, you must be employed in a reputed organization for the past few months. The monthly income should be a minimum of 00. A valid checking account is also required and that your age should be more than 18 years.
With the amount derived, you can take care of needs related to paying medical bills, clearing loan installments, educational purposes, credit card payments and so forth.
As for the repayment tenure for the loans, it spans over a period of 90 days. The interest rate charged can be marginally high. But with a detailed and proper research, you can indeed come across lenders offering the loans against affordable terms.
Using the online mode to attain these loans enable you to derive the funds, without much of any paperwork. The application process is simple and for the same, you are never required to undergo any obligation. Besides, the amount once released will get deposited automatically in to your bank account.
It is by acquiring 90 day loans, which then assist you o overcome any sudden or unforeseen monetary crisis.
Based on your primary requirement, you can avail funds anywhere in the range of 0-00, which of course is based on your prevailing circumstances. While attaining the funds, you are never required to pledge any collateral. This in turn enable you to source the funds, without much of a risk.
Even those having problems related to CCJs, IVA, arrears and defaults too can derive these loans. This of course is made possible by the tendency of the lenders, who do sanction the funds, without looking in to the credit profile.
In order to qualify for these loans, you must be employed in a reputed organization for the past few months. The monthly income should be a minimum of 00. A valid checking account is also required and that your age should be more than 18 years.
With the amount derived, you can take care of needs related to paying medical bills, clearing loan installments, educational purposes, credit card payments and so forth.
As for the repayment tenure for the loans, it spans over a period of 90 days. The interest rate charged can be marginally high. But with a detailed and proper research, you can indeed come across lenders offering the loans against affordable terms.
Using the online mode to attain these loans enable you to derive the funds, without much of any paperwork. The application process is simple and for the same, you are never required to undergo any obligation. Besides, the amount once released will get deposited automatically in to your bank account.
It is by acquiring 90 day loans, which then assist you o overcome any sudden or unforeseen monetary crisis.
Monday, May 21, 2012
Your Credit Utilization Ratio
Credit utilization ratio - a significant factor in your credit score
Most consumers who keep a close eye on their credit score know exactly what a credit utilization ratio is; it's the percentage of your total credit limits that you actually use.
A balance of 00, with a 00 total credit limit on all revolving accounts, equals a 20% credit utilization ratio.
A low credit utilization ratio is good for your credit score; it's recommended to keep it under about 30% of your total credit limits, and less than that is even better.
Your credit score will suffer if you use too much of your available credit; thirty percent of your credit score is based on your credit utilization ratio. Maxed-out credit cards will wreak havoc on your credit score.
It's important to be aware of how your credit utilization ratio affects your credit score at any given time, especially if you plan on applying for credit in the near future, such as a home mortgage or car loan, or even a credit card.
A better credit score saves you money in the form of better interest rates and more generous benefits from your lender or creditor.
Responsible credit card users' credit score may not truly reflect their credit habits.
The funny thing about credit utilization is that it simply shows how much you use your credit cards. But it doesn't really say anything about how well you can afford to pay your debts.
Credit cards are no longer used strictly for emergencies like they used to be, and using a credit card doesn't mean that you don't have the money in the bank.
Many use credit cards daily for the convenience of it; swiping a credit card is so much quicker than pulling out cash and waiting for change. In our fast-paced society, those few extra seconds can make a difference in our day.
And the rewards are another reason many responsible consumers choose to use their credit card for monthly bills and daily purchases, when they could just as easily use a debit card for the same convenience.
Smart credit card users know how to get free use of somebody else's money every month, by using their credit card and then paying the full balance before finance charges are assessed.
But using a credit card for most purchases brings up your credit utilization ratio, especially if your credit limits aren't much higher than the amount of credit you actually use each month.
For example, you may consistently put 00 on your 00 limit card every month. You never put more on your card than you can pay off each month, and you may not see the need to apply for additional credit cards or a credit limit increase because you believe you will never need more credit at your disposal.
This would seem like the habits of a smart, responsible borrower. But that kind of usage would put your credit utilization ratio at 66%, something that make creditors nervous and damages your credit score.
And keep in mind your credit utilization ratio is not a fixed number; it can change dramatically over the course of one month, depending on when you pay your bill and when the creditor reports your payment and balance to the credit bureau.
Paying your full balance each month would put you at a zero percent ratio immediately after the creditor receives the payment; that should be good for your credit score.
But what if your creditor reports your balance just before you make the full payment? Your credit score will suffer for it, no matter how good of a grip you have on your finances.
A borrower with a low credit utilization ratio may still be in over their head in debt.
A credit limit increase is normally considered to be a good thing. It shows that you've been good at handling your debt with on-time payments, and that the creditor trusts you enough to let you loose with more available credit.
It also brings your credit utilization ratio down, as long as you don't increase your debt load. A lower credit utilization ratio means a higher credit score, and a higher credit score means that you're financially in good shape, right? Well, not always.
The higher credit limits probably won't present a problem for those who are careful about how they use credit. Having more credit available doesn't mean you have to use it, and financially responsible consumers will control their spending, no matter what their credit limits are. These consumers can enjoy the privelege of a higher credit score, and the better financing deals that go with it.
But let's just say we have someone who has managed their debts well in the past, and they have several credit cards with a total credit limit of ,000. They carry a balance of 00, and their monthly payments rarely exceed the amount of the interest charges and new purchases each month.
So the 00 balance is pretty consistant from month to month. With a 20% credit utilization ratio and a good credit score, creditors may eventually decide to increase their total limits to ,000.
Some consumers in this situtation will spend a little more than usual when they get their credit limit increase. With higher credit limits at their disposal, they can let their balances grow to 00, while still maintaining a low 20% credit utilization ratio.
A 20% ratio may be great for a credit score, but 00 is a lot of credit card debt to carry around if you can't afford to pay it off every month, or at least within a few months. A low credit utilization ratio can give consumers the illusion of a manageable level of debt. In reality, the debt may be more than the consumer can afford to get ahead of within a reasonable amount of time.
The worst-case scenario is when a troubled borrower routinely requests credit limit increases in order to keep a good credit score, while maintaining their otherwise out-of-reach lifestyle. Credit limits keep increasing while the debt keeps growing, until the day the borrower realizes they've let their spending get out of hand.
It may eventually become difficult for them to even make the minimum payments on thousands of dollars worth of credit card debt. From there, their credit scores and financial health can be damaged pretty badly.
Be smart in handling your debt.
So, even though your credit score is important for you to get additional financing, it's important to ensure that the dollar-amount of your debt remains at a manageable level.
Someone with a relatively low credit score may own more than they owe and have plenty of money in the bank, while someone with a higher score is barely scraping by and living off of their credit cards. A credit score has much to do with the financing that's available to you, but it really has nothing to do with your overall financial picture.
A good credit score is still important. It's what makes homeownership and buying a nice car possible. It's what get you better deals on credit cards and lines of credit.
A good credit score will make it easier to attain the things we need and want, but having a good credit score, in itself, won't improve your financial situation; it only means that it's easier to borrow money.
Understand where your credit fits into your overall financial picture, and make decisions to improve your financial health, not just your credit score. With careful planning and responsible spending, someday, you may not ever have to borrow money again.
Most consumers who keep a close eye on their credit score know exactly what a credit utilization ratio is; it's the percentage of your total credit limits that you actually use.
A balance of 00, with a 00 total credit limit on all revolving accounts, equals a 20% credit utilization ratio.
A low credit utilization ratio is good for your credit score; it's recommended to keep it under about 30% of your total credit limits, and less than that is even better.
Your credit score will suffer if you use too much of your available credit; thirty percent of your credit score is based on your credit utilization ratio. Maxed-out credit cards will wreak havoc on your credit score.
It's important to be aware of how your credit utilization ratio affects your credit score at any given time, especially if you plan on applying for credit in the near future, such as a home mortgage or car loan, or even a credit card.
A better credit score saves you money in the form of better interest rates and more generous benefits from your lender or creditor.
Responsible credit card users' credit score may not truly reflect their credit habits.
The funny thing about credit utilization is that it simply shows how much you use your credit cards. But it doesn't really say anything about how well you can afford to pay your debts.
Credit cards are no longer used strictly for emergencies like they used to be, and using a credit card doesn't mean that you don't have the money in the bank.
Many use credit cards daily for the convenience of it; swiping a credit card is so much quicker than pulling out cash and waiting for change. In our fast-paced society, those few extra seconds can make a difference in our day.
And the rewards are another reason many responsible consumers choose to use their credit card for monthly bills and daily purchases, when they could just as easily use a debit card for the same convenience.
Smart credit card users know how to get free use of somebody else's money every month, by using their credit card and then paying the full balance before finance charges are assessed.
But using a credit card for most purchases brings up your credit utilization ratio, especially if your credit limits aren't much higher than the amount of credit you actually use each month.
For example, you may consistently put 00 on your 00 limit card every month. You never put more on your card than you can pay off each month, and you may not see the need to apply for additional credit cards or a credit limit increase because you believe you will never need more credit at your disposal.
This would seem like the habits of a smart, responsible borrower. But that kind of usage would put your credit utilization ratio at 66%, something that make creditors nervous and damages your credit score.
And keep in mind your credit utilization ratio is not a fixed number; it can change dramatically over the course of one month, depending on when you pay your bill and when the creditor reports your payment and balance to the credit bureau.
Paying your full balance each month would put you at a zero percent ratio immediately after the creditor receives the payment; that should be good for your credit score.
But what if your creditor reports your balance just before you make the full payment? Your credit score will suffer for it, no matter how good of a grip you have on your finances.
A borrower with a low credit utilization ratio may still be in over their head in debt.
A credit limit increase is normally considered to be a good thing. It shows that you've been good at handling your debt with on-time payments, and that the creditor trusts you enough to let you loose with more available credit.
It also brings your credit utilization ratio down, as long as you don't increase your debt load. A lower credit utilization ratio means a higher credit score, and a higher credit score means that you're financially in good shape, right? Well, not always.
The higher credit limits probably won't present a problem for those who are careful about how they use credit. Having more credit available doesn't mean you have to use it, and financially responsible consumers will control their spending, no matter what their credit limits are. These consumers can enjoy the privelege of a higher credit score, and the better financing deals that go with it.
But let's just say we have someone who has managed their debts well in the past, and they have several credit cards with a total credit limit of ,000. They carry a balance of 00, and their monthly payments rarely exceed the amount of the interest charges and new purchases each month.
So the 00 balance is pretty consistant from month to month. With a 20% credit utilization ratio and a good credit score, creditors may eventually decide to increase their total limits to ,000.
Some consumers in this situtation will spend a little more than usual when they get their credit limit increase. With higher credit limits at their disposal, they can let their balances grow to 00, while still maintaining a low 20% credit utilization ratio.
A 20% ratio may be great for a credit score, but 00 is a lot of credit card debt to carry around if you can't afford to pay it off every month, or at least within a few months. A low credit utilization ratio can give consumers the illusion of a manageable level of debt. In reality, the debt may be more than the consumer can afford to get ahead of within a reasonable amount of time.
The worst-case scenario is when a troubled borrower routinely requests credit limit increases in order to keep a good credit score, while maintaining their otherwise out-of-reach lifestyle. Credit limits keep increasing while the debt keeps growing, until the day the borrower realizes they've let their spending get out of hand.
It may eventually become difficult for them to even make the minimum payments on thousands of dollars worth of credit card debt. From there, their credit scores and financial health can be damaged pretty badly.
Be smart in handling your debt.
So, even though your credit score is important for you to get additional financing, it's important to ensure that the dollar-amount of your debt remains at a manageable level.
Someone with a relatively low credit score may own more than they owe and have plenty of money in the bank, while someone with a higher score is barely scraping by and living off of their credit cards. A credit score has much to do with the financing that's available to you, but it really has nothing to do with your overall financial picture.
A good credit score is still important. It's what makes homeownership and buying a nice car possible. It's what get you better deals on credit cards and lines of credit.
A good credit score will make it easier to attain the things we need and want, but having a good credit score, in itself, won't improve your financial situation; it only means that it's easier to borrow money.
Understand where your credit fits into your overall financial picture, and make decisions to improve your financial health, not just your credit score. With careful planning and responsible spending, someday, you may not ever have to borrow money again.
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