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Get The Highest Credit Score Possible: New Credit Card Study Reveals the Key

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Refinancing Student Loans and credit scores

Getting a high credit score can make it easier for consumers to save on life’s biggest purchases. But many Americans who are stuck with average or below average credit may find it difficult to move up the credit score ladder.

In a new study, MagnifyMoney partnered with  VantageScore Solutions to see how much credit consumers are using — and how that impacts their credit score.

In the study, VantageScore delved into the credit score profiles of U.S. consumers who are using credit cards in 2017. Scores analyzed were on a 300 – 850 scale, using the VantageScore 3.0 score model.

We decided to home in on utilization — that’s how much credit people are using compared to how much credit they have available to them. Then, we looked at how credit utilization corresponded to credit scores.

What we found is that people with excellent credit share one main trait in common: They have very low utilization rates.

If you want the highest score, you need to make sure you haven’t missed any payments in the past and don’t have any public records, collection items or judgments. However, what this data show is that, even if you have a perfect payment history, low utilization is critical to getting the highest score.

Key findings include…

  • The best scores have 16x the credit limit of the worst scores: People with the best scores (above 800) have available credit of $46,735, 16x that of the $2,816 of those with the worst scores (below 450), but their outstanding balances are about the same at $2,231 (above 800) versus $2,653 (below 450)
  • People with scores 601-650 have the biggest credit card bills: People with scores between 601 and 650 carry the biggest balances, at over $10k, or nearly 2x the average of all consumers.
  • The average credit card holder has $29,197 in credit lines. With an average balance of $5,720, the average holder is using 20% of available credit.
  • Getting above 700 is the biggest hurdle. People with scores 701-750 have average utilization of 27% versus 47% for those with scores 651-700, the biggest utilization gap of any score band. Average balances for people with scores 651-700 are about $3,000 higher than those with scores in the 701-750 range.

The Power of the Utilization Rate

One of the most influential metrics in credit scoring is called “revolving utilization.” This metric, informally referred to as the debt-to-limit ratio, calculates just how leveraged your credit cards are at any given time by comparing your balances to your credit limits. According to VantageScore, and using data provided by the three credit reporting agencies, people with credit scores above 800 have an average debt-to-limit ratio of just 5%.

To calculate the debt-to-limit ratio, you have to do a little math. The first thing you’ll do is add up the balances on all of your credit cards, which includes retail store and gas credit cards. Now add up the credit limits of those same cards and any other unused credit cards. Now you’re ready to do the math. Divide the total credit card balance by the total credit limit, then multiple that number by 100 and you’ll get your percentage.

NOTE: Do NOT include any balances or original loan amounts from installment loans such as mortgages, student loans or auto loans. Revolving utilization is only calculated from your revolving credit card accounts.

Inside the Wallet of Someone With Perfect Credit

As you can see from the chart above, those of you with VantageScore credit scores over 800 have an average debt-to-limit ratio of just 5%. The math it took to get to 5% looks something like this: You have an average total balance of $2,231 and an average total credit limit of $46,735. When you divide $2,231 by $46,735, you get 5%, which is a fantastic debt-to-limit ratio.

Inside the Wallet of Someone With Bad Credit

On the other end of the score range — those of you with the lowest possible scores, 450 and below — you have an average debt-to-limit ratio of 94%, which is very high and very poor. Your average total balance is $2,653 and an average total credit limit of $2,816. When you divide $2,653 by $2,816, you get 94%.

 

It’s important to point out that the debt-to-limit ratio is just that, a ratio. It’s all about the relationship between the balance and credit limit, not so much how large or how small your balances are, or how large or how small your credit limits are. In fact, the people whose scores are the very lowest don’t have that much more average credit card debt than those with the highest scores — $2,231 for the high scorers and $2,653 for the low scorers.

The significant difference between the two populations is in the credit limits. The folks with the highest scores have the largest total credit limit, $46,735, as compared to $2,816 for those with the lowest scores.

You can see just how problematic it is to have lower limits, because even modest credit card balances can have a seriously negative impact on your credit score.

Use These Findings to Boost Your Credit Score

Here are MagnifyMoney’s tips on improving a low credit score:

Step 1: Get a line of credit

In order to establish credit history, you need to have a form of credit. The simplest way for you to begin will be to open a credit card. If your score is low or non-existent, you’ll need to apply for a secured or store card.

  • Secured Card:  You’ll use your own money as collateral by putting down a deposit of a few hundred dollars with the bank. Typically, that amount will then be your credit limit. Once you prove you’re responsible, you can get back your deposit and upgrade to a regular credit card. [Read more here]

  • Store Card: People with a low credit score can often still get store cards because banks are more likely to approve users who apply through the store. The catch is that the interest rates are often very high. [Read more here]

Step 2: Keep your utilization rate low

Your goal should be to never exceed 30% of your credit limit. Ideally, you should be even lower than 30%, because the lower your utilization rate, the better your score will be.

We recommend you make one small purchase a month to keep your utilization low and help increase your credit score at a faster rate.

Step 3: Pay in full, and on time, each month

The easiest way to prove you’re responsible is to only charge what you can afford. Never use your credit card to buy an item you won’t be able to pay off on time and in full each month.

Being late on your payments has a very negative impact on your credit score.

There is also no advantage to only paying the minimum amount due on your card. That will only result in you paying interest, and does nothing to help your credit score. So just save yourself money and pay your entire bill.

Step 4: Avoid credit card debt

This goes hand-in-hand with step three. By only purchasing what you can pay off in full, you’ll never accumulate credit card debt.

If you’re already in debt from the misuse of credit cards, make sure you continue to pay at least the minimum due on time each month.

Paying on time is the number one indicator of a responsible borrower. You might also consider applying for a personal loan, and using the money from the loan to pay off your credit card debt.

Personal lenders have interest rates that start as low as 4.25%, and some may approve people with credit scores as low as 550. You can shop around for a personal loan without hurting your score, because the lenders will approve you using a soft inquiry (which doesn’t impact your score).

A study by MagnifyMoney parent Lending Club showed that people who paid off their credit card debt with a personal loan saw their score increase by 31% on average, right away. You can look for the best personal loans using this personal loan tool. After you pay off your credit cards with the proceeds of the loan, do not build up your debt again. Instead, just make one purchase each month and pay it off in full.

Once you pay off your cards, resist the urge to close them. Closing your cards will not only lower your utilization rate but also remove some of your credit history. The longer your credit history, the better your score may be, so closing out an older account may ding your credit.

Step 5: As your score improves, so do your options for better credit cards

You’ll start to get credit card offers as you begin to build your credit history and improve your score. Credit card companies still love sending snail mail.

Beware of any offers, especially for cashback cards, while your score is below 650. These cards typically provide little value and can smack you with high interest rates if you fail to follow step three.

Not sure if an offer is a good deal? Try checking it out in our cashback reward cards page. Our Magnify Transparency Score will let you know if it’s the real deal.

Once you get your credit score above 680, the good credit card offers will start rolling in. You can have your pick of the top-tier reward credit cards and start using your regular spending to get cash back or rack up points for travel.

Step 6: Protect your score

Once you’ve achieved a higher credit score, but sure to protect it by following these steps:

  • Always pay on time – late or missed payments will cost you dearly

  • Try to keep your credit used below 30% of your available credit

  • Be sure to check your credit reports for accuracy and signs of fraud – you’re entitled to one free report per year from each of the three credit bureaus. You can get the reports at AnnualCreditReport.com. 

If you have any questions or just want a helping hand, please reach out to us at [email protected] or tweet us @Magnify_Money

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Featured, Health

5 Ways to Keep Medical Debt From Ruining Your Credit

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Your physical well-being isn’t the only thing at stake when you go to the hospital. So, too, is your financial health.

According to the Consumer Financial Protection Bureau, more than half of all collection notices on consumer credit reports stem from outstanding medical debt, and roughly 43 million consumers – nearly 20% of all those in the nationwide credit reporting system – have at least one medical collection on their credit report.

Now, you might be inclined to think that, because you’re young or have both a job and health insurance, medical debt poses you no risk. Think again. According to a report from the Kaiser Family Foundation, roughly one-third of non-elderly adults report difficulty paying medical bills. Moreover, roughly 70% of people with medical debt are insured, mostly through employer-sponsored plans.

Not concerned yet? Consider that a medical collection notice on your credit report, even for a small bill, can lower your credit score 100 points or more. You can’t pay your way out of the mess after the fact, either. Medical debt notifications stay on your credit report for seven years after you’ve paid off the bill.

The good news is that you can often prevent medical debt from ruining your credit simply by being attentive and proactive. Here’s how.

Pay close attention to your bills

Certainly, a considerable portion of unpaid medical debt exists on account of bills so large and overwhelming that patients don’t have the ability to cover them. But many unpaid medical debts catch patients completely by surprise, according to Deanna Hathaway, a consumer and small business bankruptcy lawyer in Richmond, Va.

“Most people don’t routinely check their credit reports, assume everything is fine, and then a mark on their credit shows up when they go to buy a car or home,” Hathaway said.

The confusion often traces back to one of two common occurrences, according to Ron Sykstus, a consumer bankruptcy attorney in Birmingham, Ala.

“People usually get caught off guard either because they thought their insurance was supposed to pick something up and it didn’t, or because they paid the bill but it got miscoded and applied to the wrong account,” Sykstus said. “It’s a hassle, but track your payments and make sure they get where they are supposed to get.”

Stay in your network

One of the major ways insured patients wind up with unmanageable medical bills is through services rendered – often not known to the patient – by out-of-network providers, according to Kevin Haney, president of A.S.K. Benefit Solutions.

“You check into an in-network hospital and think you’re covered, but while you’re there, you’re treated by an out-of-network specialist such as an anesthesiologist, and then your coverage isn’t nearly as good,” Haney said. “The medical industry does a poor job of explaining this, and it’s where many people get hurt.”

According to Haney, if you were unknowingly treated by an out-of-network provider, it’s would not be unreasonable for you to contact the provider and ask them to bill you at their in-network rate.

“You can push back on lack of disclosure and negotiate,” Haney said. “They’re accepting much lower amounts for the same service with their in-network patients.”

Work it out with your provider BEFORE your bills are sent to collections

Even if you’re insured and are diligent about staying in-network, medical bills can still become untenable. Whether on account of a high deductible or an even higher out-of-pocket maximum, patients both insured and uninsured encounter medical bills they simply can’t afford to pay.

If you find yourself in this situation, it’s critical to understand that most health care providers turn unpaid debt over to a collection agency, and it’s the agency that in turn reports the debt to the credit bureaus should it remain unpaid.

The key then is to be proactive about working out an arrangement with your health care provider before the debt is ever sent to a collection agency. And make no mistake – most providers are more than happy to work with you, according to Howard Dvorkin, CPA and chairman of Debt.com.

“The health care providers you owe know very well how crushing medical debt is,” he said. “They want to work with you, but they also need to get paid.”

If you receive a bill you can’t afford to pay in its entirety, you should immediately call your provider and negotiate.

“Most providers, if the bill is large, will recognize there’s a good chance you don’t have the money to pay it off all at once, and most of the time, they’ll work with you,” Dvorkin said. “But you have to be proactive about it. Don’t just hope it will go away. Call them immediately, explain your situation and ask for a payment plan.”

If the bill you’re struggling with is from a hospital, you may also have the option to apply for financial aid, according to Thomas Nitzsche, a financial educator with Clearpoint Credit Counseling Solutions, a personal finance counseling firm.

“Most hospitals are required to offer financial aid,” Nitzsche said. “They’ll look at your financials to determine your need, and even if you’re denied, just the act of applying usually extends the window within which you have to pay that bill.”

Negotiate with the collection agency

In the event that your debt is passed along to a collection agency, all is not immediately lost, Sykstus said.

“You can usually negotiate with the collection agency the same as you would with the provider,” he said. “Tell them you’ll work out a payment plan and that, in return, you’re asking them to not report it.”

Most collection agencies, according to Haney, actually have little interest in reporting debt to the credit bureaus.

“The best leverage they have to get you to pay is to threaten to report the bill to the credit agencies,” he said. “That means as soon as they report it, they’ve lost their leverage. So, they’re going to want to talk to you long before they ever report it to the bureau.

“Don’t duck their calls,” he added. “Talk to them and offer to work something out.”

Take out a personal loan

Refinancing your medical debt into a personal loan is another move you can consider making, particularly if you can get a lower interest rate than you could with a credit card, and you aren’t able to secure a 0% credit card deal. Peer-to-peer lenders LendingClub and Prosper both start with APRs as low as 6.95%, and LendingClub’s origination fee starts as low as 1%.

Even better, SoFi offers personal loans at a rate as low as 5.99% and has no origination fee (although you do need a relatively high minimum credit score to get a loan, at 680).

MagnifyMoney’s parent company, LendingTree, features a handy personal loan tool where you can shop for the best loan for you.

Bottom line

Dealing with medical debt can be particularly stressful, as you have to worry about money matters along with managing health issues. However, having medical debt does not have to spell disaster. If you follow one or more of the steps above, you should be able to keep your finances healthy.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Have a question to ask or a story to share? Contact the MagnifyMoney team at [email protected]

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Featured, Health, News

How Weight Loss Helped This Couple Pay Down $22,000 of Debt

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Photo courtesy of Brian LeBlanc

Brian LeBlanc was fed up. The 30-year-old policy analyst from Alberta, Canada, had struggled with his weight for years. At the time, he weighed 240 pounds and had trouble finding clothes that fit. He decided it was time to change his lifestyle for good.

LeBlanc started running and cutting back on fast food and soft drinks. He ordered smaller portions at restaurants and avoided convenience-store foods. About a year into his weight-loss mission, his wife Erin, 31, joined him in his efforts.

“The biggest change we made was buying a kitchen food scale and measuring everything we eat,” Brian says. “Creating that habit was really powerful.”

Over two years, the couple shed a total of 170 pounds.

But losing weight, they soon realized, came with an unexpected fringe benefit — saving thousands of dollars per year. Often, people complain that it’s expensive to be healthy — gym memberships and fresh produce don’t come cheap, after all. But the LeBlancs found the opposite to be true.

Erin, who is a payroll specialist, also managed their household budget. She began noticing a difference in how little money they were wasting on fast food and unused grocery items.

Photo courtesy of Brian LeBlanc

“Before, we always had the best intentions of going to the grocery store and buying all the healthy foods. But we never ate them,” she says. “We ended up throwing out a lot of healthy food, vegetables, and fruits.”

Before their lifestyle change, Brian and Erin would often eat out for dinner, spending as much as $80 per week, and they would often go out with friends, spending about $275 a month. Now, Brian says if they grab fast food, they choose a smaller portion. Now they might spend only $22 on fast food per month, instead of over $200.

What’s changed the most is how they shop for groceries, what they buy and how they cook. Brian likes to prep all his meals on Sunday so his lunches during the week are consistent and portion-controlled. They also buy only enough fresh produce to last them a couple of days to prevent wasting food.

Losing weight — and student loan debt

Photo courtesy of Brian LeBlanc

Two years after the start of their weight-loss journey, they took a look at their bank statements to see how their spending had changed. By giving up eating out and drinking alcohol frequently, they were spending $600 less a month than they used to, even though they’ve had to buy new wardrobes and gym memberships.

With their newfound savings, the LeBlancs managed to pay off Brian’s $22,000 in student loans 13 years early. Even with the $600 they were now saving, they had to cut back significantly on their budget to come up with the $900-$1,000 they aimed to put toward his loans each month. They stopped meeting friends for drinks after work, and Erin took on a part-time job to bring in extra cash. When they needed new wardrobes because their old clothing no longer fit, they frequented thrift shops instead of the mall.

When they made the final payment after two years, it was a relief to say the least.

Now the Canadian couple is saving for a vacation home in Phoenix, which they hope to buy in the next few years, and they’re planning to tackle Erin’s student loans next. They’re happy with their weight and lives in general, but don’t take their journey for granted.

“There were times we questioned our sanity, and we thought we cannot do this anymore,” says Erin. But they would always rally together in the end.

“There are things that are worth struggling for and worth putting in the effort,” Brian says. “Hands down, your health is one of those things.”

Other Ways Getting Healthy Can Help Financially

Spending less on food isn’t the only way your budget can improve alongside your health. Read below to see how a little weight loss can tip the scales when it comes to your finances.

  • Spend less on medical bills. Health care costs have skyrocketed over the past two decades, but they’ve impacted overweight and obese individuals more. A report on the “state of obesity” in America found that obese adults spend 42% more on healthcare per year than those of normal weight.
  • Buy cheaper clothes. Designers frequently charge more for plus-size clothing than smaller sizes. Some people claim retailers add a “fat tax” on clothes because there are fewer options for anyone over a size 12. It might not be fair, but it’s the way things are.
  • Save on life insurance. Your health is a huge factor for life insurance rates. Annual premiums for a healthy person can cost more than for someone who is overweight, because BMI (body mass index) may be a factor for determining pricing.

Getting Healthy for Cheap

Still worried that an active lifestyle will require you to spend more money? Here are some tips on keeping costs low while you improve your lifestyle.

  • Get a family membership. Gyms often provide a discount if you sign up for a family membership instead of an individual one. Most of these deals are only beneficial for households with children, but some might offer a lower price if you sign up with a spouse or partner. Always ask the gym about any special deductions they might have.
  • Skip the fancy gym. Many would-be exercisers skip the gym pass because they assume it will be expensive. Before you give up, call around and compare prices. Try your local YMCA, as they often have income-based membership.
  • Shop at thrift stores. Finding inexpensive workout clothes can be another barrier to exercising. Who wants to spend $75 on yoga pants? Don’t visit the mall for your new duds. Your local thrift shop or consignment store will have running shorts and tank tops for only a few dollars. Secondhand clothes also make more sense if you’re in the midst of losing a lot of weight and changing sizes frequently.
  • Go vegetarian. Meat is often the most expensive item in your grocery cart. If you’re trying to eat healthier and concerned about money, try vegetarian protein options like lentils, beans,and quinoa. You don’t have to fully adopt the vegetarian lifestyle, but just reducing your meat intake can have a significant impact on the grocery bill.
  • Buy frozen produce. Frozen produce is often as healthy as buying fresh, but it can be significantly less expensive. Frozen veggies and fruit also last longer, decreasing the risk of food waste. You can often find coupons, and the long shelf life makes it easy to stock up if there’s a sale on your favorite green beans.
  • Cut back on eating out. Ever wonder how restaurant-quality food can be so much better than what you make at home? You guessed it: more salt, more sugar, more butter and more fat. By limiting the meals you eat out, you’ll avoid all that — as well as those outrageous restaurant markups. If you do eat out, you can do your best to pick the healthy choice. You may also choose to take advantage of cashback credit cards that may reward you for your healthy dining out.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Zina Kumok
Zina Kumok |

Zina Kumok is a writer at MagnifyMoney. You can email Zina here

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