Why You Want To Be A Deadbeat

 

As always, we like to keep it real. Today we are going to tell you about a word used in the credit card industry that may surprise you. It will definitely give you perspective on how credit cards work and the way credit card companies think about their business, and YOU, their client. Also, it hopefully acts as a reminder not to let those alluring introductory APRs and 0% balance transfer offers sound appealing. Needless to say, you should avoid (like the plague) jeopardizing your credit score by charging up more than you can comfortably pay off at the end of each month. More on that in a sec.

 

Definition from CreditCards.com
n. A “deadbeat” is the unflattering term sometimes used in the credit card industry for consumers who pay off their balances every month, using the lenders’ money but paying no interest on it. The more-polite, official term is “transactor.”

Why should I care about my credit score?

Did you know that 35% off your credit score is attributed to how consistent you are at paying off your credit card and doing so on time? So? Your credit score dictates the interest rate you will be dealt on other things in life like a mortgage or car loan. The lower your credit score, the higher your interest rate. The higher your rate, the more absolutely dollars you will pay during the coarse of the loan. During your lifetime, that can rack up tens if not hundreds of thousands of dollars in extra fees. We are sure you can find better things to do with your money.

Take away and the extra edge

If you are already a Deadbeat, congrats! Your are disciplined enough to keep your purchases in line with your income. Now, if you want a little extra edge, call your credit card company and ask them to raise your credit limit. It just so happens that 30% of your credit score is attributed to how much debt you carry in relation to how much you have available to use. This number is called your credit utilization ratio (CUR). If you keep your spending as is but raise your credit limit, this will result in your utilization ratio going down. A low CUR is favorable for a high credit score.

 

If you are still struggling with balances on your credit cards, we urge you to put a plan in place to get your debt paid off (in full) as soon as possible. 8 times out of 10, people who carry credit card debt, carry it on more than 2 cards. That said, start by continuing to pay the minimum on all your cards and then put any extra cash each month towards the card with the highest interest rate. As soon as you pay that card off, keep going with that strategy until all cards are paid off in full. There are other strategies out there but this one is the most cost effective (you pay the least in interest charges).

 

If you need a little extra help getting and keeping things organized, we are always here! Good luck on becoming a Deadbeat!

SHOWHIDE Comments (6)
  1. Great question! So after the 2008 financial crisis, a lot of people, regardless of whether or not they pay their balance on time had their credit limits lowered. CC companies were doing this to lower their overall potential risk. Don’t worry, simply call your credit card company and speak with them nicely. If you do pay off your balance in full regularly, use this to support your argument for why they should increase your limit. Most likely, if you can prove that you are a low risk credit card user (you don’t carry a balance, pay your card off each month and on time, etc) they will be happy to increase your limit on a case by case basis. The rule of thumb is to keep your Credit Utilization Ratio around 30%. So if you have a credit card limit of $10,000, you should try to carry a balance of no more than $3,000. Hope that helps!

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