It looks like the days of credit-shyness have come to an end. Following the Recession, Arizona consumers were timid about taking on new debt. Recently, though, auto loan, student loan, and credit card debt levels have shot up. These levels now to exceed pre-Recession highs. While this may seem like cause for alarm, a lot of economists think that it’s a good sign. It shows that Arizonians and other Americans are feeling more confident about their financial stability. However, there are some warning signs out there that might indicate the need for caution.
After all, it’s difficult to predict just how long the economy will remain stable. Therefore, even the most confident Arizona consumers should always have a backup plan just in case something goes wrong. Namely, keeping an eye on your credit reports and building an emergency fund may go a long way toward protecting your credit score in the event of a financial crisis.
Why Arizonians should be Aware of how Every Type of Consumer Debt can Lead to Credit Score Problems
On the one hand, the fact that Arizona consumers are getting over their credit-shyness is a very good thing. Using credit consistently and responsibly is the only way to build good credit. On the other hand, over-confidence can lead to overwhelming debt and a damaged credit score.
One type of debt that seems to be almost unavoidable for a lot of Arizonians is student loan debt. College is expensive, but higher education is also a good investment because, ideally, having a degree will lead to landing a good job. Currently, Americans collectively carry about $1.34 trillion in student debt, and a lot of recent college graduates are finding it difficult to keep up with payments. In fact, around 10.98% of student loan debt is more than 90 days past due, and this is cause for concern.
As young professionals just starting out, Arizonians may not think much about defaulting on student loans. However, bad student loan debt can destroy your credit score. Bad credit makes it harder to get a car loan or mortgage.Even if it takes careful budgeting and a lot of self-discipline, staying current with student loan payments will pay off tremendously in the end.
Speaking of car loan, it is actually possible for bad credit buyers to receive auto financing. The subprime auto loan industry has, in fact, been booming in the past few years. Lenders have started to pull back a bit from the subprime market, but there are plenty of car loans out there for Arizona consumers with credit scores of 620 or less.
The problem is that most of these subprime auto loans come with very high interest rates. Often, car buyers with low credit scores don’t realize how much they’ll really be paying for the vehicle they’re buying. This can lead to late payments, default, and, eventually, repossession, which is devastating to damaged credit scores.
No matter what your credit score looks like, if you finance a car purchase, it’s important to read the contract carefully and know exactly how much you’ll be paying over the course of the loan. When you’re planning your household budget around your car payment, don’t forget to consider the monthly costs of car ownership such as fuel, maintenance, and potential repairs. Also, with any budget, your savings – or emergency fund – should never be neglected. Having money set aside is the best insurance against unexpected expenses.
Arizona consumers still aren’t carrying as much credit card debt as they did before the Recession, but credit card debt is on a steady rise. Also, consumers with less than perfect credit may find that it’s now easier to get approved for a credit card. This is due to the fact that more credit card issuers are offering low-credit limit cards to applicants with lower credit scores.
Because a lot of these newly issued credit cards have limits of $300-$500, the consumers who receive them should be extra cautious with how they use them. Ideally, Arizona credit card holders should be using 30% or less of their available credit at any given time. Otherwise, their credit scores may not be positively affected. In fact, if you’re using 50% or more of any credit line, you may actually see a drop in your credit score. So if your available credit is $300, you should be charging no more than $90 at a time. A good way to manage this type of situation is to only purchase fuel for your car with your credit card and pay off the balance every month. Eventually, after you’ve paid your bill on time for several months, your spending limit should increase.
Managing Credit Cards
Most credit cards come with notoriously high interest rates, and these may climb even higher as the prime rate increases with the improving economy. In order to avoid heavy interest charges, Arizona credit card users should keep their balances low or pay them off every month. Otherwise, purchases end up costing more than they should and debt starts to accumulate. Even though most financial experts are panicking right now over heavy consumer credit card use, they all agree on one thing. There’s only so much credit card debt that the average consumer can handle. When debt becomes unmanageable, consumers miss payments and, often, accounts go into debt collections.
How Arizonians can Manage Credit Use and Protect their Credit Scores
Again, taking out loans and using credit can be great ways to build a good credit score as long as payments are made responsibly. It’s also crucial to set money aside in case you lose your job, incur an injury that keeps you out of work, or in case an emergency expense comes up. If you have enough money saved up, you’ll be able to cover your debt payments during your down time or pay for a sudden expense without having to go further into debt.
In addition, you should regularly check your credit reports. Even if you manage all of your accounts perfectly, mistakes are often made by the credit bureaus when it comes to credit reporting. If this comes as a surprise to you, don’t feel bad. A lot of Arizona consumers don’t know that about 80% of credit reports contain errors of some kind.
If you know for a fact or even suspect that there are inaccuracies on your credit reports, you can get a FREE credit repair lawyer to help you through the disputing process. This will help to ensure that you have the credit score you deserve and that all of the hard work you’ve put into credit repair won’t go to waste because of credit reporting mistakes.
The Free and Legal way to Get Better Credit
Don’t let errors on your credit reports bring your credit score down. At Arizona Credit Lawyers, we’ve been cleaning up credit reports for consumers since 2008 for free. How do we do it? All of our fees come from the defendants in settled cases. This is why our clients pay nothing for the work we do.
Let’s start the conversation about what we can do for your credit. Set up your free consultation today by calling Attorney Gary Nitzkin at (480)771-6001 or sending him a message through our contact page.