NCR Credit Repair Education

On the popular credit score spectrum of 300 to 850, where does a score start breaking bad?

Different sources cite 670 or 630 or 600. But each lender makes its own determination of which credit scores are considered risky.

You usually need a credit score of at least 620 to get a conventional mortgage (one not backed by a government agency).

A score in the 600s is typically high enough to qualify for some loans and credit cards. And generally, the best rates go to borrowers with scores in the mid-700s and above.

Your credit score is just one factor that lenders consider when evaluating your application for things like a loan, but it carries a lot of weight. Your credit score not only affects your odds of approval for loans and credit cards, it plays a big role in determining the interest rates and repayment terms you’re offered.

Here are some of the things that take your credit history into consideration:

• Credit cards
• Car loans
• Home loans
• Personal loans
• Private student loans
• Federal PLUS loans
• Car insurance premiums (in some states)
• Homeowners insurance

In addition, your credit history may be weighed during a job or rental application.

Non-Prime borrowers generally defined as those with credit scores from 601 to 660, and who have negative items on their credit report typically don’t get the lowest rates or most ideal terms when procuring a home or car loan.

For example, the interest rate on a subprime 30-year mortgage can be double or triple the average rate. A bigger down payment is usually required, and the repayment term may stretch to 40 or even 50 years, so the amount of interest paid over the life of the loan can be extraordinary.

Generally speaking, you have adverse credit when you have a negative mark on your credit report.
More specifically, creditors considers your credit adverse if you:

Are currently behind by 90 days or more on one or multiple debts

Have had a debt that was charged off or placed in collections.

Charged off means that the lender wrote the debt off as a loss on its balance sheet. Charged-off loans are still collectible.

Have been subject to one of the following:

Credit Card Default
Late Payments
Bankruptcy discharge
Tax lien
Wage garnishment
Write-off of a federal Student Loans

The average age of your accounts plays a role in your credit score, so you may want to keep some of your oldest cards open, even if you don’t use them often. Remember that closing cards also reduces your available credit, affecting your credit utilization ratio.

Opening cards affects your credit score as well. Every time you apply, the credit card company runs a hard inquiry on your credit, and your score takes a slight hit. Applying for a bunch of cards in quick succession can make it look like your financial situation has taken a turn for the worse.

Getting married and changing your name won't affect your credit reports, credit history or credit scores
One spouse's poor credit won't impact the other spouse unless you jointly apply for a loan or open a joint account.

Married couples do not have to apply for credit together.

Getting married means merging your lives and may also mean merging your finances. But there are some misconceptions about tying the knot and how it may impact credit reports and credit scores or not.

"No one said that talking about credit habits, credit card debt, budgets, retirement accounts, and savings is romantic. But it is important," said Zehra Mehdi-Barlas, director of public relations for Global Consumer Solutions at Equifax.

"If you and your partner decide to merge your finances, understanding his or her philosophy when it comes to credit, contributing to savings, setting financial goals, and creating regular budgets is not a conversation to shy away from. It is simply an important part of establishing a united approach for how you as a couple will handle these things in the future."

See how much you know about marriage and credit.

1. Your credit reports merge with your spouse’s when you get married.

FALSE. Your credit reports are linked to your personal information, which typically includes your Social Security number, so your credit reports and credit histories remain separate when you say “I do.” However, if you and your spouse open a joint account, or one of you adds the other as an authorized user on a credit card account, the history of that account will be reflected on both of your credit reports.

2. Changing my name won’t affect my credit reports and credit history.

TRUE. If you change your name after marriage, your credit reports will be updated with the new information. But your credit history and credit reports will not otherwise change.

After the Social Security Administration and creditors are notified of your name change, the new information will be reported to the three major credit bureaus (Equifax, Experian and TransUnion), so it's not necessary to contact them.

If you do want to contact the credit bureaus, you can contact Equifax by sending a letter with your request and a copy of your marriage certificate to:

Equifax Information Services, LLC
P.O. Box 740256
Atlanta, GA 30374

Be sure to include your name, address and Social Security number in your letter.

You can contact Experian and TransUnion online to find out the proper procedures for updating your credit reports.

3. Getting married impacts credit scores.

FALSE. Credit scores aren’t impacted in any way just from tying the knot.

4. Getting married automatically makes all your accounts joint accounts.

FALSE. Unless you add your spouse as an authorized user on a credit card account or the two of you jointly apply for a loan or open a joint credit card account, your individual accounts will not merge.

5. My poor credit won’t impact my spouse’s credit reports and credit scores.

TRUE. If one partner has had credit problems, the good news is that won’t affect the other partner’s credit reports or credit scores.

If the two of you open a joint account, however, that information will appear on both your credit reports (if the lender reports to any of the three major credit bureaus). And if you jointly apply for financing for a large purchase, such as a home or a car, lenders and creditors usually check both spouses’ credit information.

Some mortgage or other lenders may take the lowest middle credit score between both of you. That means they check scores from all three major credit bureaus and compare your middle score to your spouse’s, then use the lower one.

6. My spouse’s previous bankruptcy won’t impact my credit reports or credit scores if we keep our finances separate.

TRUE. Your credit histories always remain separate, unless the history includes a joint account or an account where one person is an authorized user. But it might be difficult for your spouse to be approved for credit as long as the bankruptcy remains on his or her credit reports. This timeframe varies from seven to 10 years, depending on the type of bankruptcy.

7. My spouse and I are still each entitled to one free copy of our individual credit reports annually from each of the three major credit bureaus.

TRUE. You and your spouse are each entitled to one free copy of your credit report every 12 months from each of the three major credit bureaus (Equifax, Experian and TransUnion). Requesting a free copy of your credit report has no impact on your spouse, and vice versa.

8. If I file a dispute over information about a joint account I have with my spouse I think is inaccurate or incomplete on my credit report, the information is automatically disputed on my spouse’s credit report.

FALSE. Because you both have separate credit reports, filing a dispute with one of the three major credit bureaus over information on your credit report won’t trigger a dispute on your spouse’s behalf. He or she would need to file their own dispute.

9. This is my second marriage. Having my maiden name and both my married names on my credit reports may impact my credit scores.

FALSE. Personal identifiable information such as your name does not impact credit scores.

10. Now that we’re married, we have to apply for everything together.

FALSE. Married couples are not required to apply for credit jointly. You can still apply for individual accounts without your spouse co-signing or being otherwise involved. If one partner has higher credit scores, applying individually not jointly for an account may be one option.

Debt settlement, also known as debt forgiveness, is when a borrower and lender agree to settle a debt for less than what’s owed. This process is typically done when a borrower is behind on payments.

The lender will want to close out the debt to reduce their risk of further missed payments, so they agree to “settle.” The borrower makes a lump sum payment on a reduced balance that both parties have agreed to.

Be prepared to pay taxes on the settled debt

Debt settlement may sound like the perfect solution. You don’t have to pay everything you originally owed, and you walk away debt-free. However, there are strings attached debt settlement does impact your taxes.

If more than $600 of debt is forgiven, it’s considered income by the IRS and is therefore taxable.

After agreeing to debt forgiveness, your creditor will provide you with a 1099-C form so you can claim the income on your next tax return. The form will include the specific amount of debt that was forgiven.

Even if you don’t receive a 1099-C form, you should still report the debt forgiveness as income (if it exceeds $600). The creditor might have submitted a 1099-C form to the IRS and you just didn’t receive a copy. If this happens and you don’t report the income, you can be subject to IRS penalties or an audit.

Note that debt settlement taxes apply even to foreclosures. In a foreclosure case, you might have to pay income tax on the difference between what you originally owed your mortgage lender and what they were able to sell your property for.

If you settled your mortgage debt outside of the 2007 to 2020 time period, you likely would have to pay income tax on the forgiven amount.

Usually, getting a loan doesn’t count as income, so what makes debt settlement different? Well, you borrowed money, and debt settlement means you don’t pay it all back. So you received additional money that needs to be accounted for.

When a creditor has a loan go into delinquency, they can eventually write off the debt. The same applies to a debt settlement. Your creditor can claim the difference between the original loan and what they received in their final payment as “lost income.” They do this to reduce their tax burden. So, in an effort to collect taxes on this money, the IRS passes the costs on to the borrower. From the IRS’s perspective, not paying your full loan is like being given money, so it should be taxed.

As debt settlement is considered income, it holds the same consequences as not paying your full taxes. Note that if you received a 1099-C form from your creditor, it’s guaranteed they submitted one to the IRS too. Not accounting for this income in your tax return will result in additional fees.

As we mentioned, don’t assume that not receiving a 1099-C form means the IRS didn’t get one either. It’s to the creditor’s advantage to file this form because they receive a “lost income” tax break for the amount.

When you don’t pay your taxes correctly, you can incur late fees, negligence penalties, interest penalties and civil fraud penalties. If you’re charged and convicted of tax evasion, it can result in up to five years in federal prison and a $250,000 fine.

The risks are too high, and it’s in your best interest to pay the taxes you owe. Even if the IRS doesn’t catch you initially, an audit in the future could catch everything.

Another critical factor to consider when considering debt forgiveness is how it impacts your credit. When you pay off your debt for less than what was owed, it shows up on your credit report and can lower your credit score by several points. This negative item can stay on your credit report for up to seven years.

The debt settlement process will also negatively impact your report. Most debt settlement companies that help you through the debt forgiveness process advise you to stop making payments on your debt for a few months.

This serves two functions: First, it puts your debt into delinquency, making the creditor more willing to engage in debt settlement conversations. And second, the debt settlement company will ask that you put the money you would have been paying every month into an account to start collecting your lump-sum payment.

Of course, missing several months of payments and having your account(s) go into delinquency status will cause your credit score to suffer. A reputable debt company will explain all this to you. But while your credit will initially suffer, it can bounce back over time if you consistently make good credit decisions.

Your credit score, as well as the information on your credit report, are key ingredients in determining whether you’ll be able to get a mortgage, and the rate you’ll pay.

Your credit report and your credit score are two different things. Your credit score is calculated based on the information in your credit report. Higher scores reflect a better credit history and make you eligible for lower interest rates.

You have many different credit scores, and there are many ways to get a credit score. However, most mortgage lenders use FICO scores. Your score can differ depending on which credit reporting agency is used. Most mortgage lenders look at scores from all three major credit reporting agencies – Equifax, Experian, and TransUnion – and use the middle score for deciding what rate to offer you.

Errors on your credit report can reduce your score artificially which could mean a higher interest rate and less money in your pocket so it is important to check your credit report and correct any errors well before you apply for a loan.

Your credit score is only one component of your mortgage lender’s decision, but it’s an important one.

Other factors include:

* Credit report
* Credit history with that lender
* The amount of debt you already have
* How much you have in savings
* Your total assets
* Current income

Tip: Don’t apply for a lot of new credit in a short time, especially if you are getting ready to get a mortgage. Doing so may negatively affect your score. Your credit score may decline if you have too many credit accounts. It can also go down if you apply for or open many new accounts in a short time. However, when you request your own credit report, or when your existing creditors check your credit report, those requests to see your credit report should not hurt your score.

Borrowers who come to the table with lower credit scores can find that their mortgage loan costs more because of their bad credit scores. This is true for first-time buyers as well as people buying second or third homes. A loan costs someone with a bad credit score more because of higher interest rates and the resulting higher monthly mortgage payments imposed on those with less-than-perfect credit.

Here’s a rundown of why and what your options might be if your credit score is less than ideal.

A conventional fixed-rate mortgage is a home loan originated by a bank, lender, or mortgage broker and sold on the primary mortgage market to Fannie Mae and Freddie Mac. Conventional loans are not guaranteed by a government agency where some loans are, such as FHA and VA loans. And the interest rate and terms are almost always fixed for the life of the loan. The majority of home loans are conventional loans.

The added cost of bad credit for a conventional mortgage

With a conventional mortgage loan, your credit score is the biggest driver of your costs.

If your credit score is between 620 and 679, you can expect to see higher costs when:

* You don’t have at least a 20% down payment (or 20% equity if you’re refinancing)
* Your loan size is more than $417,000-or whatever your county’s conforming loan limit is
* You’re refinancing to reduce your monthly payment.

Other factors that affect the price and rate of a mortgage include occupancy, property type, loan-to-value ratio, and loan program.

Also, when you have less than a 20% down payment so you’re financing 80% or more of the home price your lender will require that pay a mortgage insurance premium. That private mortgage insurance (PMI) premium might be 110% of the loan amount on an annualized basis.

The bottom line
It pays to have a good credit score when applying for a conventional loan. If you expect to buy a home in the next year, now’s the time to check your credit scores and credit reports and get yourself on a plan to build your credit.

If you are looking to buy a house with your spouse, it can be a very exciting time!

Qualifying For A Mortgage

Just like any loan, there are specific qualifications you must meet for any mortgage. The good news is that each lender may have different requirements or more heavily weigh certain qualifications than others. But in general, here are the four things any bank or lender will ask for:

Income (stable for 2 or more years)
Credit score
Debt-to-income ratio
A down payment
The value you and your spouse bring to each qualification will affect being approved for a mortgage as well as having more favorable terms on your mortgage.

You can also make up for shortcomings with other requirements. For example, if you have a high income but over the recommended 36% or less debt-to-income ratio, you may still qualify for the mortgage you need.

Your credit score is an important part of any mortgage application. Generally, you will want to have a minimum of 670. However, the higher your score, the better your mortgage will be.

If you or your spouse has a score lower than 670, this bad credit can greatly affect your application. This means that either your application won’t be accepted, or you won’t get the mortgage terms you were looking for. This also usually means higher interest rates for you and your spouse.

But, even with bad credit, you still have options. When you apply for a mortgage, you can choose between applying for a joint mortgage or opting to apply alone. There are pros and cons to each option; however, just because one spouse has a bad score doesn’t mean you can’t apply for a joint mortgage.

Applying for a joint mortgage means that the mortgage and house will be in both your and your spouse’s names. You will both own the house equally. You will both owe the monthly payments to your mortgage lender.

It also means that whoever reviews your application will need to look at both spouses’ financial history. If you or your spouse have truly terrible credit, it could still weigh against you.

Just because one spouse has bad credit, it doesn’t mean that filing for a joint mortgage isn’t an option! You just need to carefully consider why you are applying for a joint mortgage and what you can do to help your application. You can also take the time to improve the low score in question.

However, perhaps you have worked without success to improve your credit score. We are here to help - Or maybe their other financial qualifications such as income don’t make a significant impact on your loan application. If this is the case, then applying alone may be the best option.

Buying a house when one spouse has bad credit isn’t the end of the world. The easy way out of dealing with your spouse’s bad credit is to apply alone. Your lender may suggest you apply alone if you can obtain the loan you need without your spouse. Sometimes, if your spouse has bad credit but a much larger income than you, this could outweigh the bad credit and actually help your application.

Keep in mind that the names on the mortgage show who is responsible for paying back the home loan. Just because one spouse isn’t on the mortgage, it doesn’t mean they don’t own the home. The title of the home can still have both of your names on it. Both names can be on the title without both being on the mortgage. This would mean both share ownership of the home together, but only the spouse listed on the mortgage is legally responsible for making the mortgage payment.

Before taking the step of applying alone, make sure you have considered what your application would look like with and without the other’s financial support.

Yes, you can be denied a job because of bad credit in 39 states and the District of Columbia, while 11 states ban the practice in most cases. But all 11 states have exceptions, most of which concern being hired to jobs that involve finance or looking at credit late in the hiring process (such as after an interview).

The employer credit check is designed to check for financial problems that could pose a problem on the job. If you’re a public service employee, you might be a target for bribes. If you have significant debt, your employer might think you’re more willing to accept those bribes because they’ll get you out of your financial predicament.

In 2018, the acting mayor of Dallas took more than $450,000 in bribes, part of which he used to pay down debt.

Some companies also require credit checks because you’re applying for a finance-related position, and they want to know their future employee hasn’t defaulted on their student loans, for example. The thinking is if you’ve done a bad job managing your own finances, you probably can’t handle running the finances of a business either.

Types Of Jobs That Check Your Credit

Military Jobs. Before enlisting in the military, you must go through a background check that includes financial information and a credit check. ...

* Accountants and Financial Planners. ...
* Mortgage loan originator
* Prison Workers. ...
* Transportation Security Administration
* Lawyers. ...
Law Enforcement, Border Patrol, and Government Jobs. ...
* Casino Jobs.
* Parking booth operator

* PLEASE NOTE: Because people who work in banks have access to large amounts of money, a bank may require that employees have, and maintain high credit scores.

Many employers run background checks on potential staff members. This is different from a credit check and is a more common part of the hiring process. A background check verifies your identity and education, screens for criminal history, and checks other relevant details.

A report from the National Association of Professional Background Screeners found that companies who ran background checks included credit information on 16% of their candidates and 31% of them included some credit or financial information on those candidates.

An employer credit check is different than what a bank might see when approving you for a loan. The employer doesn’t see a total credit score so they won’t know if you’re rocking a perfect 850 or a bad credit score of 450.

If you’re applying for a job, you have the right to be notified of an employer credit check before it happens. The company is legally prohibited from notifying you after the fact that they’ve conducted an employer credit check.

You also have to sign a form saying that you’ve agreed to an employer credit check. Many companies get in trouble when they conduct a credit check without getting permission first.

Again, it’s not unheard of for a company to violate these rules, either by not giving you enough of a warning or by not asking your permission at all.

You have the right to say no to an employer credit check, though you should be aware that the employer then has the legal right to stop the application process too. If you’re up for a promotion, your current employer has the right to conduct a credit check, even though you’re already an employee. You can also deny this request.

When an employer sees something negative in a credit report, they have to give you a formal notice and a copy of the report. This gives you time to refute the information or state your side. They must give you a few days before deciding not to hire or promote you.

If they do decide not to hire you, they have to give you the name and contact information of the credit bureau they used. You also have a legal right to get a free report copy within 60 days.

State laws for credit checks vary
Some states have very strict laws that either prohibit or restrict how and when employers can conduct credit checks.

First of all, it’s important to know that your employer can’t just check your credit report without your knowledge and consent, so you won’t be taken by total surprise, at least.

“Employers may only check your credit reports with your expressed written consent. Of course, keep in mind that if you withhold your consent you are not likely to get hired either.”

McLean expanded on when and where potential employers can take your credit into consideration: “The FCRA mandates that the employer get written consent to run a credit check first, and if they decide not to hire someone based on information they find in the credit check, the employer must notify the person in writing and give the person an opportunity to explain what was found on the report. There are additional state and local prohibitions regulating the use of credit history in hiring decisions. Roughly a dozen states restrict the use of credit history in hiring, and a handful of cities also have similar restrictions in place.”


Cities such as Chicago and New York City have their own local laws regarding employer credit checks.

These states have limits on employer credit checks because they want employees to have more options and not get stuck in a cycle of poverty. If you have poor credit, a good job can help you dig your way out of the mess.

There are jobs where a credit check is required because of security or the potential for corruption and bribery. According to New York City government, these include “police and peace officers, and high-level positions involving trade secrets, financial authority, and information technology.”

Still, the law can limit credit checks even for people in those industries. If you’re a bank teller, you may not have your credit checked even though you’re technically working in the financial industry.

In general, if you’re a non-salaried worker in an entry-level position, your job should be exempt from employer credit checks.

It’s not uncommon for an employer to violate the law when reviewing an individual's credit report. Some major employers have been fined in recent years for violating state and federal laws.

Suppose you think the employer has violated the Fair Credit Reporting Act during this process. In that case, you can report them to your state or local government if they have specific laws pertaining to employer credit checks. Otherwise, you can report them to the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC).

“The consumer can report to the FTC or the CFPB, but those agencies don’t take action on behalf of individuals,” said consumer attorney Jay S. Fleischman, consumer attorney at Shaev & Fleischman, P.C. “For someone to get a resolution of the problem, they’d want to hire a lawyer.”

Hiring a lawyer can be expensive, but if you know multiple people who have been violated by the same company, you can consider hiring a lawyer together.

1. You’re too big of a risk for mainstream lenders.

Since banks like Citi, Bank of America, and Discover have rigorous standards for determining who qualifies for lending, you might not qualify for traditional loans or credit cards when you have a bad credit score.

2. You pay more for your loan

Not only will a good credit score help you bank with more reputable institutions, but it also gives you the best interest rates on loans.

According to Ulzheimer, consumers get the best deals on APR for auto loans with a score of 720 or higher, and for mortgages, 750 or higher.

Let’s say you’re applying for a mortgage with a FICO score of 620. For a $300,000 house, you might pay about 4.8% in interest with the current rates, whereas a buyer with a score between 760 and 850 would borrow at roughly 3.2% APR.

A 1.6% difference sounds small, but in this case, your lower credit score would increase your mortgage payment by about $275 per month costing you $99,000 over a 30-year term.

3. Your insurance premiums may go up

Most U.S. states allow credit-based insurance scoring, giving auto and homeowners insurance companies permission to factor your money habits into their assessment of your risk.

A dip in your credit score will not automatically increase your premium, nor will your policy be canceled if you drop below 600. But a bad credit score could prevent you from getting the lowest possible rate. If you want to see your credit-based insurance score, you can request a report through LexisNexis.

(Note: Credit-based auto insurance scoring has been banned in Hawaii, while credit-based home insurance scoring has been banned in Maryland. The practice has been banned entirely in Massachusetts and California.)

4. You may miss out on career opportunities

Good credit habits set you up for better career opportunities. In most states, employers are allowed to pull consumer credit reports to make hiring decisions, and even when deciding who to promote and reassign. (This is particularly true if the job comes with a lot of financial responsibilities.)

Your employer won’t see your exact credit score, but with your signed permission they can access your credit report and view information like your open lines of credit, any outstanding balances, auto loans, student loans, past foreclosures, late or missed payments, any bankruptcies and collections balances.

5. You’ll have a harder time renting an apartment

A credit score of 620 is often the minimum you need to qualify for an apartment, according to Experian.

Some landlords and property management companies are stricter than others, but you can breathe easier if your credit score is 700 or above. When you have poor credit, you may have to scramble to find a cosigner or pay a security deposit before you sign a new lease. It’s not impossible to rent an apartment with bad credit, but it can certainly be a lot harder.

6. You’ll have a tougher time with utilities, including the internet

“Utility companies are allowed to charge deposits when you have a poor credit score,” Ulzheimer explains. “And I don’t know any utility companies who are going to give you an account without a background check.”

In some states, there are protections against terminating your access to public service utilities like water, electric, gas, and heat (view the state-by-state policies on the Low-Income Home Energy Assistance Program’s website).

And if you are denied access to energy utilities due to poor credit, you may be able to pay a deposit or submit a letter of guarantee which acts essentially like a guarantor or co-signer agreement if you fall behind on your bills (read the FTC’s consumer information on utility services).

And as for non-public utilities, like internet and cable, there are fewer legal protections in place to guarantee access to these services, even though the U.N. now considers access to the internet a human right.

7. You won’t enjoy the best rewards credit cards.

The best rewards credit cards require the highest credit scores. When your score is good or excellent, you can access the best introductory offers and cash-back incentives available among credit products today.

Some higher-tier credit cards also give away special invitations to exclusive concert and event pre-sales, reward you with cash back on streaming services, and more.

Whether you’re a sports fan, a movie buff or an adventure seeker, one of CNBC Select’s top picks for cash-back cards is the Capital One Savor Cash Rewards Credit Card. It offers a competitive 4% cash back on dining and entertainment, 3% at grocery stores, and 1% on all other purchases. New cardholders can earn a one-time $300 cash bonus once they spend $3,000 on purchases within the first three months from account opening.

8. You delay building wealth and even retiring.

Bad credit can also have a long-term impact on your financial life. If you have high-interest credit card debt, you’re not able to put any money away for the future —  at least not enough to balance out your APR fees.

As long as your interest rates are high, you’re putting less money into equity and assets and more money into servicing debt. And debt has no return on investment; the money you pay in interest is cash that you will never see again.

There are different reasons someone might have bad credit, starting with low wages, says Kristin Lobenstein, a financial coach with Jewish Family Service of Greater Dallas.

“When someone cannot pay their bills, they look to credit cards and payday loans to pay for even their basic living expenses,” Lobenstein says. “And if something breaks, like transportation for work or a cell phone, credit cards are the only way to survive and keep their jobs.”

Low income could lead to high levels of debt or late payments, both of which can hurt credit scores. Poor money management habits unrelated to income can also be a culprit.

Thirty-five percent of your FICO credit score is based on payment history. If you habitually pay credit cards, loans, or other bills late (or not at all), that can be detrimental to your score. Likewise, carrying high balances or maxing out your cards can also harm your score, as 30 percent of your FICO calculations are based on your credit utilization.

Lobenstein says not having a budget is a problem if it results in overspending. Likewise, failing to track spending can lead to bad credit if it lands you in overwhelming debt. But it’s important to remember that bad credit can also be the result of things that may be beyond your control.

For example, say you get sick or injured and can’t work or you get laid off from your job. If you don’t have a sizable emergency fund to fall back on, that could put you at risk of falling behind on credit card payments and other bills. In that case, late or missed payments still lead to bad credit.

Regardless of the cause, bad credit can affect you financially in more ways than one. For example, bad credit can make it harder to:

* Get approved for new credit cards or loans
* Rent an apartment or get utilities in your name
* Buy a home
* Qualify for favorable interest rates
* Get hired for certain jobs

If you’re trying to get ahead financially, bad credit can be a barrier to reaching your goals. That can harm your mental health if it causes you to feel hopeless about your financial situation.

There’s also a link between debt and mental health. According to the Money and Mental Health Policy Institute, 46 percent of people who have debt problems also have mental health problems. And 86 percent of people who experienced mental health problems said those were made worse by their financial situation.

When spending money is a coping skill, for example, that can be problematic mentally and financially.

“If you believe what you’re buying is going to make you feel better, it’s more likely that you’ll prioritize the spending or incurred debt,” says Aja Evans, a New York City-based licensed mental health counselor. Learning to develop healthy coping skills that aren’t reliant on spending money could help to reduce the risk of going into debt.

First things first: If you pay your credit card balance in full every month, you won't have to worry about interest. That's because issuers give paid-in-full accounts an interest-free grace period, which usually lasts until the next due date.

If you aren't going to pay the full amount, then pay what you can as far ahead of the due date as you can. Your interest charge is usually calculated using your average daily balance during the billing period. When you pay ahead of your due date, you reduce your average daily balance.

Say you have a balance of $1,000 on the first day of your billing cycle, and you'll only be able to pay off $600. Assuming a 30-day cycle, if you waited until the due date to pay, your average daily balance would be $980.

($1,000 x 29 days) + ($400 x 1 day) = $29,400. $29,400 / 30 days = $980.

Now say you paid that $600 on the 21st day of the cycle. Your average balance becomes $800.

($1,000 x 20 days) + ($400 x 10 days) = $24,000. $24,000 / 30 days = $800.

You can save even more when you "pay as you go" making multiple payments as the month goes on.

Say you paid $200 on the seventh day of the cycle, then $200 on the 14th and $200 on the 21st. Your average daily balance drops to $660.

($1,000 x 6 days) + ($800 x 7 days) + ($600 x 7 days) + ($400 x 10 days) = $19,800.
$19,800 / 30 days = $660.

Paying the same amount on your credit card but paying it early and in installments reduced the interest in this case by nearly a third.

By consistently missing payments, you could end up paying hundreds of dollars in late fees. The negative consequences spiral once your credit score takes a hit, you could face thousands in interest when applying for future mortgages or loans. If you're unable to pay your bill on time, it may be time to cut up your card.

You should always handle credit cards with extreme care. Unlike debit cards, you're making purchases on credit meaning you're 100% liable for paying back everything you charge to your credit card. If you aren't careful, you can end up in a lot of debt.

There are principles to becoming a credit card master. If you take away anything away from this, you should always pay your bill on time and in full every single month. This strategy alone will help your personal finances tremendously.

The most important principle for using credit cards is to always pay your bill on time and in full. Following this simple rule can help you avoid interest charges, late fees and poor credit scores. By paying your bill in full, you'll avoid interest and build toward a high credit score.

Each month, your issuer will provide your credit card statement with two dates: the closing date and payment date:

* The closing date is the last day you can make a charge for a monthly statement. After the closing date, any new transaction will go onto next month's statement.

* The payment date tells you when the payment for a particular statement is due.

In addition to making on-time payments, it's essential to keep your balance low relative to your available credit limit. There are two main benefits to maintaining a small balance:

Low balances help increase your credit score. You're more likely to pay off your balance in full and on time.

Many factors determine your credit score, but a significant portion (30%) comes from credit utilization. In other words, this is the ratio of what you owe to your total credit limit. For instance, if you have a credit limit of $1,000 and charge $500 to your card, your credit utilization would be 50%.

Contrary to popular belief, interest isn't calculated based on the remaining balance after making a minimum payment. In reality, issuers calculate interest based on your average daily balance, calculated by taking your card's APR (Annual Percentage Rate) and dividing this number by 365.

For example, assume you have a statement balance of $1,000 and make a payment of $800 on the due date. You'll be charged interest on the remaining balance of $200 and lose your grace period. In the new billing cycle, any transactions will begin accruing interest immediately. The grace period where no interest is charged only applies if you pay your balance in full by the payment date.