How do you tell a relative to repay a loan without offending them? Is there a right way to use credit? Can you improve your credit score by taking out a loan?
Those are just a few of the questions that have recently provoked interesting discussions within the Mint Answers community.
We launched Mint Answers a few weeks ago to give consumers a platform to voice their personal finance and investing questions. Since then, hundreds of you have asked – and many more have chimed in with responses. (At Mint Answers, your questions are answered by experts, as well as by other community members like you.)
Below are three of the most popular questions for the past week. Find and ask (or answer) more at answers.mint.com.
Keep in mind, my brother is a full-grown adult. He’s owes me a couple thousand dollars. I don’t want to make him mad or feel like a loser but I kind of want the money. How can I bring up the topic without causing ill-feelings?
1. You might ask if he is willing to make payments to you. But you have to be somewhat confrontational and it might be awkward. Unless … you are willing to just forgive the debt. I’ve done my share of “loaning” people money in my past, and won’t do it again. I like to help, but in the end it doesn’t truly help because a lot of times we are enabling people to keep doing the things that keep them needing to borrow money.
2. I tend to use public shame to get money back from my little brother, but he’s still in college and only owes me about $150 for gifts and stuff that we were supposed to “split” but he never reimbursed me for.
Is there a right or a good way to use credit? Or is using credit always a bad thing?
1. Depends on who you ask. You’ll find some people that say don’t ever use credit cards, because credit cards are always a bad idea. Others (like myself) will say credit cards are okay if you are tracking all your transactions and you pay off the balance completely every month, so that in effect you are using them like you would use a debit card.
Some people will say having a line of credit is good because you can use it in an emergency. But, I would say that is what your emergency savings is for.
The use of credit encourages an “I want it NOW” attitude. This type of selfish or immature attitude is usually considered negative. However, there ARE times when the use of credit may not only be necessary, but also okay: buying a home, a student loan, and a business loan.
2. In my opinion, the only good way to use revolving credit (like consumer credit cards) is by paying the balance off in full every month. If you start to spend more than you can afford and have to carry a balance and live paycheck-to-paycheck, your financial situation will go downhill from there.
The fact is, more and more business is being conducted online. I can’t tell you how many things I now buy from Amazon which I previously would have bought from a physical store. The vast majority of online retailers require payment via a credit card of some kind (or a debit card that can be used both ways). I still prefer an actual credit card because of the greater consumer protections it affords you.
Right now I have two credit cards with a combined limit of $7,000. I use both cards and have paid them off regularly for about two years now. I have no other debt to worry about so far.
I really want to boost my credit score. I currently have a “fako” score between 694 and 766. Since all my debt/credit is revolving, I was thinking that taking out a loan would diversify my credit history/type. While rates are low, I was thinking about taking out a CD-backed secured loan. Will this help my credit score?
1. It depends on what is on your credit report specifically. You have the 2 credit cards, so you show you can pay revolving debt. My experience, having gone from average to excellent credit over the course of a few years, is that best thing you can do to build good credit is to pay your debts on time over a number of years. Stuff like revolving credit lines, not having excessive debt, etc. all helps, but the key is just pay your debts consistently; you will get to 800 quickly.
2. How about changing your life and family by not worrying about or worshiping FICO? Be weird and don’t live beyond your means like the rest of society. Debt is the whole reason that our economy is in this mess in the first place.
3. If you start a CD or Savings Secured loan, you are paying interest on your own money! Not an ideal situation, but good if you need to build your credit score for one reason or another. I think, however, that you can have similar results by keeping your utilization lower. Use only 15% or less of your credit lines every month and pay off in full. Over time, this will have a greater effect on your score.
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