Category Archives: Credit Scores

What is Installment and Revolving Credit?

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In the realm of personal finance, it’s important to understand your options when it comes the type of credit you can have. While there is a plethora of information available to demystify credit and its various elements, two of the most important forms of credit you must understand are installment and revolving credit.

What is Installment Credit?

In a basic sense, installment credit is credit that has a specific number of monthly payments. Examples of such forms of installment credit is home mortgages, auto loans, student loans, personal loans and any other type of loan that features a specific amount and payoff date.

In terms of your credit report, installment credit debt affects your score in very specific ways. One of the biggest questions consumers have regarding installment credit is the affect it has on your credit score after it’s been satisfied. These loans are most likely reported to all three major credit bureaus, therefore all account activity is reflected on your credit report.

Installment debt affects your credit report in a different way than other forms of debt because outstanding balances are often secured via some form of asset. For example, with a home mortgage your home is your asset. Since this form of credit is often more stable, it’s influence on your credit score is minimal. This is why paying off an installment loan early rarely boosts your credit score. Therefore, it’s far more important to focus on making on-time payments rather than paying off the balance early. Even with hundreds of thousands of dollars of installment debt, you can achieve a credit score over 700, according to VantageScore.

What is Revolving Credit?

Revolving credit is far more common than installment credit. In a nutshell, revolving credit is any credit line that doesn’t have a fixed number of payments, which is the opposite of installment credit. The clearest example of this type of debt is credit cards. While you have a monthly payment as long as there is a balance, as soon as it’s paid off the credit line is not closed. Basically, this form of credit can be withdrawn, repaid and then withdrawn again. As long as you keep your balance under you credit limit, you can repeat this cycle over and over again.

In terms of your credit score, revolving credit is among the most powerful elements. Because of this, it’s essential that you not only pay your payments on time, but also keep your balance below your credit limit. Doing so can cause a substantial boost to your credit score. If you are curious about what credit score is needed to buy a house please contact us.

Should I Declare Bankruptcy?

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The thought of filing Chapter 13 bankruptcy is an unattractive option for millions of consumers, especially if own a home or are planning on purchasing a home in the future. While this should be a last resort, filing for bankruptcy can provide much needed financial relief for those in dire circumstances. Determining whether or not you should file for bankruptcy is a highly individualized process; however, there are some general tips to follow, which clarify whether or not you should go through this process.

When Should I Declare Bankruptcy?

The answer to this questions depends on your current financial standing. In order to clarify where you are currently in terms of debts and financial ailments, answer the following questions:

I. Are you only able to make minimum payments on revolving debts, such as credit cards?

II. Is your phone constantly ringing from bill collectors?

III. Are you having to use credit cards to pay for life necessities, such as food and gas?

IV. Are you unaware how much money you actually owe creditors?

If you answered yes to three or more of these questions, then you may want to consider filing for bankruptcy. Obviously, you should only file if debt consolidation is not an answer. For example, those who cannot afford their monthly bills sometimes aren’t able to afford the monthly payments from a debt management program offered by credit counseling agencies. If this is your current standing, then you should deeply consider filing for Chapter 13 or Chapter 7 bankruptcy.

Bankruptcy Types:

For consumers, there are two primary forms of bankruptcy, which include:

I. Chapter 7 Bankruptcy – This form of bankruptcy liquidates all non-exempt assets with the primary goal of satisfying creditors. Generally speaking, this is the ideal option for those who have a large sum of unsecured debt, such as credit cards and medical bills. If you have limited income, then this is your best option.

II. Chapter 13 Bankruptcy – This form of bankruptcy is slightly less serious as it doesn’t eliminate debts, but rather restructures your debts by providing a low monthly payment plan. This is the ideal option if you have a decent income and wish to avoid loosing your home while simultaneously paying off owed money.

While the advantages and disadvantages of filing for either Chapter 7 or Chapter 13 bankruptcy vary from person-to-person, the true benefit is based upon your financial desires. Perhaps the most important reason why individuals file for bankruptcy is to prevent lawsuits, wage garnishment or asset seizure. If you’re interested in possibly filing for bankruptcy, speak to a bankruptcy lawyer to determine what your best options actually are.