FICO score

5 Things to Do Right Now to Boost Your 600 Credit Score

Dan Rafter — Thu, 07 Jun 2018 08:00:27 +0000

A 600 FICO score isn't awful. Since credit scores can run from 300 to 850, it's easy to see how much worse things could be. A score of 600 puts you about in the middle. You won't qualify for the best financing offers, but not the worst, either.

The truth, though, is that a 600 credit score will hurt you financially, even if things could be worse. Your credit score tells lenders how well you've managed your credit and paid your bills in the past. A score of 600 shows that you've had some financial missteps along the way — and because of this, you'll end up with higher interest rates and subpar credit card offers. Some lenders might even reject your application altogether.

Fortunately, you can improve a 600 credit score. It just takes time and commitment to developing better financial habits. (See also: 5 Ways to Improve Your Credit Score Fast)

1. Pay all your bills on time

The most common reason for a low credit score is missed payments. If you pay your credit card bill late by more than 30 days, your credit score could fall by 100 points or more. The same holds true for your car loan, mortgage, and student loan.

The lesson? Build a history of paying your bills on time. Just as missed or late payments hurt your credit score, on-time payments will boost it. Resolve to never pay a bill late again. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

2. Don't skip payments on "less important" bills

Some bills are more important than others when it comes to your credit score. The creditors behind your mortgage, auto loan, credit cards, student loans, and personal loans all report your payments to the national credit bureaus (Experian, Equifax, and TransUnion). Missed or late payments on these bills will quickly damage your score, while regular, on-time payments will continue to boost it.

Other payments aren't reported to the bureaus. This includes medical bills, cellphone payments, utility bills, rent, insurance payments, and cable bills. But this shouldn't be an excuse to pay these things late without fear of consequence. If you miss enough of these other payments, the provider may send your account into collections. That will show up in your credit reports and send your score tumbling. (See also: Here's What Happens to an Account in Collections — Even When You Pay Up)

3. Pay off your credit card debt

Paying down your credit card debt will also have a positive impact on your credit score.

Having large amounts of credit card debt brings high interest rates, which can overwhelm you and leave you at risk of making late payments. Your credit utilization ratio — the amount of available credit you're currently using — makes up about 30 percent of your credit score. If that ratio tips too high, your score will also tick downward. Lenders like to see you using less than 30 percent of your available credit, but the lower your credit utilization ratio, the better.

Make sure to always pay more than the minimum required monthly payment on your credit cards. Your goal should be to pay down that debt as quickly as possible. If you do, you'll see your FICO score gradually rise. (See also: The Fastest Method to Eliminate Credit Card Debt)

4. Keep paid-off credit card accounts open

If you do pay off a credit card, don't close the account. This could immediately send your credit score falling. This is once again due to your credit utilization ratio. Closing a credit card automatically increases that ratio, even without you making a single new charge.

Say you have $2,000 worth of credit card debt spread out over four cards with a total available credit limit of $10,000. If you close one card with a credit limit of $3,000, you are now using $2,000 of $7,000 of available credit. That's a higher credit utilization ratio than you'd have if you were still using $2,000 out of $10,000 of available credit. (See also: Stop! Don't Cut Up Your Credit Cards)

5. Order free copies of your credit reports

You can order a free copy of your three credit reports — one each from Experian, Equifax, and TransUnion — once a year through AnnualCreditReport.com. Once you do this, study your reports carefully for any errors.

Your credit reports list your personal information and how much you owe on credit cards and loans such as mortgages, auto loans, and student loans.

Errors on these reports could leave you with an artificially low credit score. Maybe your report states that you missed an auto payment three years ago. If you know this isn't true — and you have the documentation to back up your claim — contact the credit bureau listing the mistake. Fixing this error could provide an immediate jolt to your credit score. (See also: How to Read a Credit Report)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why You Shouldn't Panic If Your Credit Score Drops

Dan Rafter — Thu, 15 Dec 2016 10:00:09 +0000

Credit scores matter — in a big way. Mortgage lenders rely on these numbers to determine who qualifies for home loans and at what interest rates. You'll struggle to qualify for the best credit cards if your score is too low. And getting an auto loan? A low score will leave you again with higher interest rates, if you can find financing at all.

So what if your credit score takes a fall? First, don't panic. Second, it's time to take the steps necessary to boost your score.

How Scores Work

Before panicking over a credit score drop, it's important to learn how scores work.

The most important credit score is your FICO credit score. Generally, lenders consider a FICO score of 740 or more to be in the top range. But if your score is under 640, you'll struggle to qualify for mortgage or auto loans. And when you do qualify, you'll pay high interest rates because lenders view you as a risky borrower.

Your credit score is a quick representation of how well you've handled your credit in the past. If you have a history of mailing in credit card payments late, your score will fall. If you've missed payments on your auto loan in the recent past, your score will, again, take a tumble. A large amount of credit card debt could hurt your score, too. (See also: The Most Important Ratio That Determines Your Credit Score)

If you instead have a history of paying your bills on time and have a manageable amount of credit card debt, you should have a solid FICO credit score.

Checking Your Score

You can order one free copy of each of your three credit reports — maintained by the national credit bureaus of TransUnion, Experian, and Equifax — each year from AnnualCreditReport.com. This report will list your credit card, auto, mortgage, and other open accounts. It will also list any of your missed or late payments from the last seven years.

This is important information to have: It can tell you quickly why your credit score might be lower than you thought. A single missed or late payment can drop your credit score by more than 100 points.

But a credit report doesn't list your credit score. To get your score, you'll usually have to pay. You can spend about $15 to order your FICO credit score from Experian, Equifax, or TransUnion. Each of the scores from these credit bureaus might be slightly different, but they should all be fairly similar.

Your credit card provider might provide your credit score with each bill it sends you, too. A growing number of card providers are doing this. Be careful, though: This score might not be your official FICO score, but instead an alternative score. These alternative scores do generally sync up with what your actual FICO score might be, but it's best to order your FICO score if you want to see the same credit score that mortgage and auto lenders will see.

If Your Score Has Dropped

What if your score has taken a fall since the last time you reviewed it? What if it's much lower than you expected?

Again, this is not the time to panic. It's the time to act.

First, try to determine why your score might have fallen. Some reasons are obvious: If you forgot to pay your auto loan earlier this year or if you sent in a credit card payment more than 30 days late, your score could dip by 100 points or more. But smaller dips — ranging from 10 to 60 points or so — can be the result of less obvious financial missteps.

Did you close a credit card lately? You might think that's a smart financial move. After all, once you've paid off a credit card account, you don't want to run up its balance again. By closing it, that can't happen.

But closing a credit card can ruin something called your credit utilization ratio. This ratio measures how much of your available credit you are using at any one time. Using too much of your available credit can cause your FICO score to fall. Closing an open credit card account can immediately weaken this ratio. (See also: 5 Times It's Okay to Close a Credit Card)

Here's an example: Say you have three credit cards all with an available credit limit of $3,000. This gives you a total available credit of $9,000. Say you also have $3,000 worth of credit card debt. You are now using 33% of your available credit.

If you close one of those cards, you'll immediately lower the amount of credit available to you by $3,000, from $9,000 to $6,000. If you have the same $3,000 of credit card debt, you are now using 50% of your available credit, for a significantly higher credit utilization ratio.

Another reason for a sudden fall in your FICO credit score: Have you been applying for several new credit cards? If you are, your score can fall. Every time you apply for a new form of credit, something called an inquiry is filed on your credit report. Each inquiry can cause your credit score to fall by a small amount, maybe one to five points. If you make several inquiries for new credit at the same time, this can cause a bigger drop to your score.

The good news is that inquiries don't always hurt your score by much. Say you are ready to apply for a mortgage loan and you are shopping around with different mortgage lenders. Each of these lenders will run a credit check on you. Each of the inquiries that these lenders make, though, will be counted as just one total inquiry. That's because you are applying for one mortgage loan, not several new credit cards.

Fixing a Drop

Once you determine why your credit score has fallen, it's time to fix the problem.

Realize, though, that if your score has fallen significantly from a missed or late payment, it will take time to recover. Pay your bills on time and cut back on your credit card debt. Do this for a long enough period of time — several months, maybe a year or longer — and your FICO credit score will steadily improve. (See also: How to Improve Your Credit Score Quickly)

If your score has fallen by a smaller amount, say 10 to 50 points, your recovery period will be shorter. Often, these drops will fix themselves. Pay down a good chunk of your credit card debt — without closing any credit card accounts — and your score should improve. Keep paying your bills on time every month, and, again, your score will rise.

There are no quick fixes for drops in your credit score. But there are also no scores that can't be rebuilt. All it requires is patience, a willingness to pay down large amounts of credit card debt and a vow to pay all of your bills on time every month.

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Surprising Things Lenders Check Besides Your Credit Score

Dan Rafter — Mon, 29 Aug 2016 10:00:09 +0000

You know how important your FICO credit score is to mortgage lenders. They rely on this number to gauge how well you've handled credit and paid your bills in the past. A high credit score means that you'll qualify for a low mortgage interest rate. A low score? You might not qualify for a loan at all.

But mortgage lenders don't look only at your credit score when you apply for a home loan. They also consider several other key factors — everything from your job history to the size of your down payment.

Here is a look at four noncredit factors that lenders will be studying when you apply for a mortgage loan.

Debt

Outside of your credit score, your debt-to-income ratio is the most important number for mortgage lenders. This ratio measures the relationship between your monthly debt obligations and your gross monthly income.

As a general rule, lenders strongly prefer your total monthly debts — including your estimated new mortgage payment — equal no more than 43% of your gross monthly income (your income before taxes).

If your debt-to-income rises past this level, lenders won't be as willing to lend you mortgage money. They'll worry that you're already overburdened with debt, and the addition of a monthly mortgage payment will only make your financial situation worse.

Job History

Lenders prefer borrowers who have worked for the same employer, in the same position, for at least two years. Lenders believe that such workers are less likely to lose their jobs and, therefore, less likely to lose the income stream they need to pay their mortgage loan on time each month.

But there's a lot of flexibility with this rule. For instance, if you took on a new job with your same employer in the last two years, this probably won't hurt you. Even if you moved onto a new job with a different employer in your same industry, lenders probably won't worry.

But what if you've taken a new job in a new industry in the last two years? That might cause some concern. Lenders might worry that you'll be more likely to lose that new position. However, you can usually still qualify for a loan.

If you've been unemployed for a significant amount of time in the last two years, that can cause more problems. Be prepared to explain to lenders why you have a gap in your work history. As long as you have a solid income now, the odds are still good that you'll be able to qualify for a home loan.

Savings

To qualify for the lowest interest rates, make sure you have enough money in savings. You'll need money to pay for your down payment, closing costs, and a certain number of months' worth of property taxes, of course.

But lenders often require that you also have enough in savings to pay at least two months of your new mortgage payment, including whatever you're paying each month for property taxes and insurance. If your total monthly mortgage payment will be $2,000, you'll need at least $4,000 in savings in addition to whatever you'll be paying for closing costs and down payment.

Lenders want to see that you have savings in case you suffer a temporary reduction in your monthly income. This way, you'll be able to use your savings to pay for at least a couple months of mortgage payments.

Down Payment

The size of your down payment plays a big role in the size of your mortgage interest rate. In general, the bigger your down payment, the smaller your interest rate.

That's because lenders consider you less of a risk to default on your loan if you come up with a larger down payment. You've already invested more in your home, the theory goes, so you'll be less likely to walk away from it.

You can qualify for mortgage loans today with a down payment of as little as 3% of your home's final purchase price, in many cases. But if you want to qualify for the lowest interest rates? Putting down 20% of your home's final purchase price — admittedly not an easy task — will increase your chances of nabbing that ultralow rate.

If you're getting ready to buy a house, have you taken steps to improve these parts of your finances?

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Your Bad Credit Isn't the End of the World

Dan Rafter — Wed, 15 Jun 2016 10:00:12 +0000

Worried about your low FICO credit score? Does your credit card debt keep you awake at night?

You're not alone. Money worries plague millions of Americans. According to the Stress in America survey from the American Psychological Association, more than a quarter of U.S. adults say they feel stressed about money most or all of the time. Only 30% rated their financial security as high, while more than two-thirds said that having more money would make them happier.

But here's some good news: Yes, bad credit and high credit card debt does add stress to your life. But neither of these financial missteps are unfixable. As long as you face your financial problems and take some simple steps to correct them, you can build a new financially secure future. (See also: 5-Day Debt Reduction Plan)

Scary Numbers

Many Americans are struggling with their FICO credit score, that three-digit number that lenders use to determine who qualifies for loans and at what interest rate. According to a 2015 report from the Consumer Financial Protection Bureau, about 45 million U.S. adults had such a limited credit history, that they had no FICO scores.

A 2015 report from credit bureau Experian said that nearly a third of U.S. consumers had a credit score under 601. Experian was basing its study on its own credit score, the VantageScore, but consumers who have a bad VantageScore typically have a bad FICO score, too.

These numbers mean one thing: Plenty of us are struggling with bad credit and high credit card debt. If you are, too, it's important to realize that there are five easy steps you can take now to help improve your financial health.

Order Your Free Credit Reports

You can order one free copy of each of your credit reports — the credit bureaus of Experian, Equifax, and TransUnion each maintain a separate report on you — every year from AnnualCreditReport.com. These reports will list your credit cards and how much you owe on each. They will also list the money you owe on car loans, student loans, and mortgage loans.

Credit reports also list any missed or late payments during the last seven years, and will also include any negative judgments, such as bankruptcies or foreclosures, that are up to seven to 10 years old.

Be sure to order your reports and check them carefully. Make sure the information in your reports is accurate. If there are errors, such as a missed car payment that you are sure you paid on time, correct them. Doing this can quickly provide a boost to your score.

Pay All Your Bills on Time

Missed or late payments are the most common cause of a weak credit score. Resolve, then, to pay all of your bills on time. As you do this, you will gradually improve your credit score. Just don't expect immediate results. Depending on how low your score is today, it can take months or more than a year to raise it from the "bad" to the "fair" or "good" level.

Pay More Than the Minimum Each Month on Your Credit Cards

High amounts of credit card debt can also result in a bad credit score. Each month, pay off more than the required minimum payment on your cards. As you cut down on your credit card debt, you'll again slowly improve your credit score. You'll also get the bonus of cutting down on all that interest you pay each month. (See also: Fastest Way to Pay Off $10,000 in Credit Card Debt)

Keep Your Credit Cards Open

If you do pay off a credit card in full, don't close the account. Your credit score is higher when you are using less of your available credit. In general, you never want to be using more than 30% of your available credit. If you close a credit card, you're immediately reducing the amount of credit available to you. If you do have credit card debt, you will then also be immediately using more of it, which could hurt your score. (See also: This One Ratio Is the Key to A Good Credit Score)

Don't Be Afraid to Use Credit Cards

Using credit cards wisely can actually help boost your credit score. If you regularly charge items through the month and then pay them off in full when your credit card bill is due, you are showing that you can maturely handle credit. So don't be afraid to charge that flat-screen TV. Just make sure that you have the cash to pay off the entire purchase when your credit card's due date rolls around.

Are you struggling with poor credit and high credit card debt? What steps have you taken to correct it?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Ways to Improve Your Credit Score Fast

Dan Rafter — Mon, 11 Apr 2016 10:30:11 +0000

You need a strong FICO credit score today if you want to qualify for mortgage loans and credit cards at the lowest interest rates.

The challenge? Boosting a low credit score takes time. Even if you start a new history of paying all your bills on time and paying off your credit card debt, it could take you months — or longer — to build your credit score up to the 740 or higher level that most lenders regard as a top-quality score. (See also: Rebuild Your Credit in 8 Simple Steps)

Fortunately, there are some strategies that you can take to improve your credit score in less time. Just be careful: There are credit repair companies that promise to improve your score for a price. Don't fall for this. You don't need the help of an outside company to nab a quick boost to your FICO score. Do it yourself and save your money for better things — like debt reduction.

1. Order Your Credit Reports, and Fix Any Mistakes

You might not know that you have three FICO credit scores, one each from the national credit bureaus of TransUnion, Equifax, and Experian. Each of these bureaus also maintain a credit score on you, and the information on these reports determines your FICO credit score.

The reports list your open accounts and how much you owe on your credit cards and loans. They list any missed payments and include any negatives judgments filed against you, such as bankruptcies that are up to seven to 10 years old and foreclosures that are up to seven years.

You can order one free copy of each of your three credit reports every year from the website AnnualCreditReport.com. Once you have your reports, look them over carefully for any mistakes. If your Experian report, for instance, lists that you paid three car payments late during the last two years and you know you've made all of your auto-loan payments on time, you'll need to correct the error. Doing so can immediately boost your credit score.

If you find an error on your reports, send a message to the offending credit bureau. You can contact all of the bureaus through their email addresses.

2. Pay Down Your Credit Card Debt

Cutting down on your credit card debt will quickly improve your credit score. That's because lenders worry that consumers burdened with thousands of dollars of credit card debt are more likely to miss future mortgage, car loan, student loan, and credit card payments. The more of your credit card debt you can eliminate, the better for your credit score. (See also: How to Use a Balance Transfer to Pay Down Credit Card Debt)

To do this, you'll have to resolve to stop using your credit cards except in emergencies. Don't look at this as a burden, though. Paying down your credit card debt brings with it an added benefit: You'll reduce the amount of extra money you're paying in interest each month whenever you carry a large balance from month to month.

3. Keep Those Credit Card Accounts Open

Consumers often want to cancel their credit card accounts whenever they pay off a card. Don't do this. Canceling unused credit cards will only weaken what is known as your credit utilization ratio.

This ratio measures how much of your available credit you are using. If you are using too much of it, your credit score will drop.

Closing an unused credit card immediately hurts this ratio. Say you have three credit cards each with a maximum balance of $4,000 for a total amount of available credit of $12,000. Say you also have $4,000 of credit card debt. If you pay off one of your cards and then close it, you are removing $4,000 worth of available credit. That $4,000 of credit card debt looks worse when you now have just $8,000 worth of available credit.

Once you pay off a card, keep your account open. Your stronger credit utilization ratio will strengthen your credit score.

4. Don't Be Afraid to Borrow Money or Open Credit Card Accounts

If you don't take out installment loans and pay them back on time, or if you don't use any credit cards, your credit score will be a low one. That's because lenders have no idea if you can manage credit successfully.

If you have a credit score that's weak not because of missed payments, but because you lack a credit history, it's time to open a credit card account and use it wisely. Make purchases with your credit cards, making sure to pay them off in full and on time each month. Do this, and your credit score will steadily rise. (See also: How to use Credit Cards to Improve Your Credit Score)

And if you need a new car? Don't be afraid to take out an auto loan. Taking out a loan and paying it back will also help your credit score to rise. Of course, don't just take out a loan for this purpose.

5. Missed a Due Date? Send That Check!

Don't panic if you miss a due date. Creditors won't report your missed payment to the three credit bureaus until your payment is at least 30 days late. So if you notice that your mortgage payment was due last week, send off that check immediately. Doing so won't cause your FICO score to immediately rise. But it will prevent it from taking a tumble. A single missed payment can cause your FICO score to drop by 100 points. A missed payment also remains on your credit reports for seven years.

What steps are you taking to improve your credit score?

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The 5 Things With the Biggest Impact on Your Credit Score

Dan Rafter — Tue, 29 Mar 2016 10:00:13 +0000

You know that your FICO credit score is a key number. Mortgage lenders will use it to determine whether you qualify for a home loan. They'll also use it to determine how high of an interest rate you'll pay on that loan.

You should know, too, that lenders consider a FICO score of 740 or higher to be a strong one, and that scores under 640 are generally considered weak.

But do you know exactly what makes up your all-important FICO credit score?

It isn't surprising if you don't. Your credit score is made up of several factors, everything from how often you pay your bills on time to how much you owe on your credit cards.

1. Your Payment History

Nothing is more important to your FICO score than your payment history, and this is according to the team at Fair Isaac Corporation, the company that created the FICO score. According to the myFICO website, your payment history makes up 35% of your credit score.

Your FICO score will drop — often by 100 points or more — if you have late payments on your credit cards, retail accounts, car loans, and mortgage loans. Missed payments remain on your credit reports for seven years, but decrease in importance as time moves on.

Your payment history also includes any bankruptcies — which stay on your credit reports for seven to 10 years — and foreclosures, which remain on your reports for seven years.

If you have a good record of no missed payments on all or most of your credit accounts, your FICO score will tend to be higher, though other factors could negate your solid payment history.

2. The Amount You Owe

Owing a lot of money on credit cards and on loans can reduce your credit score. According to myFICO, the money you owe makes up 30% of your credit score.

But owing a lot doesn't necessarily cause your credit score to plummet. What is more important is how much of your available credit you are using. Say you have $10,000 worth of available credit on your credit cards. If you are using $8,000 worth of this credit, your score will be lower than if you are only using $2,000 of it. That's why financial experts recommend that you never close an open credit card account, even if you've paid it off and are not using it. (See also: This One Number Is the Key to Your Credit Score)

3. Length of Your Credit History

How long you've been using credit is another important factor in your credit score, making up 15% of it, according to myFICO. In general, the longer your credit history, the better it is for your credit score.

Your credit history includes the age of your oldest account, the age of your newest account, and the average age of all of your accounts. Your history also includes the length of time since you've used specific accounts.

4. Your Credit Mix

Your mix of credit cards, retail accounts, installment loans, and mortgage loans makes up 10% of your credit score. In general, it's better if you have a diverse mix of credit types. But, according to myFICO, your credit mix is rarely a key factor in calculating your credit score. This factor is most important for consumers who have more limited credit histories and less information on their credit reports.

5. New Credit

Your newest credit accounts — including credit cards, mortgage loans, and auto loans — make up 10% of your FICO score. The researchers at myFICO say that consumers who open several credit accounts in a short period of time are a greater risk to default on their loans or miss credit card payments. Because of this, the FICO scores of consumers who have opened too many new credit accounts could dip, especially if these consumers have a short credit history.

How do you keep your credit score in top condition?

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Should You Ever Pay Your Taxes With a Credit Card?

Dan Rafter — Fri, 11 Mar 2016 10:00:06 +0000

In a perfect world, you'd never owe the IRS a cent on tax day. But what if your world isn't perfect and you owe the IRS a lot of money on April 15? You might be tempted to simply pay your debt to the IRS with your credit card.

Resist that temptation. Paying your taxes with a credit card is almost always a bad financial move. You'll not only have to pay a convenience fee for using plastic, but you'll also face high interest rates on your debt. You might even hurt your credit score, depending on how much tax debt you place on your credit card.

"It just doesn't make sense to pay your taxes with your credit card," said Jim Torgerson, owner of Consolidated Financial Solutions in Palatine, Illinois. "You are defeating yourself when you do this."

Why You Shouldn't Pay Your Taxes With Your Credit Card

The problem with paying your taxes with your credit card? It's expensive.

First, the IRS will charge you a convenience fee for paying with plastic. Depending on your unpaid balance, that fee will range from 1.87% to 2.25% of what you owe.

Then there's the interest that your credit card provider charges. Credit cards come with interest rates of 18%, 20%, or more. If you put $5,000 of unpaid taxes on your credit cards, you'll face a big hit in interest payments if you aren't able to pay all that you owe on your cards' due dates.

"Say you put $4,000 on your tax bill and you have an interest rate of 20%. Just think of how much you will pay in interest if you can only pay the minimum required payment each month," Torgerson said. "It could take you years to pay that off, and you'll be paying interest all that time."

A Credit Score Hit

Putting your taxes on your credit card can also damage your FICO score. This is a problem today: Lenders rely on this score to determine who qualifies for loans and what interest rates they pay on the money they borrow.

Putting too much debt on your credit cards will immediately hurt your credit-utilization ratio, an important number for the health of your credit score. If you are using too much of your available credit, your credit score will drop. It will rise if you are using less of your available credit.

Better Options

Torgerson suggests that you search for better options than a credit card if you owe the IRS a large sum of money.

A Loan

The best choice might be to get a personal loan to pay off the IRS debt. You'll probably struggle to get one from a bank, but you might be able to convince a family member to loan you the money. Just make sure that you pay back the dollars according to your agreement. If you don't, you could seriously damage your relationship with whoever loaned you the money.

An Installment Plan

Your next best choice? You can sign up for an installment agreement with the IRS. Under such agreements, the IRS allows you to pay back what you owe in monthly installment payments. Yes, this method will cost you in fees and interest. But the IRS charges far lower interest rates than do the providers of credit cards. Even with the IRS fees, the odds are high that you'll pay less through an IRS installment fee than you would by putting your debt on your credit card.

If you do plan on setting up an installment plan, be sure to file your income taxes on time. By doing this, you won't have to pay the IRS' failure-to-file penalty. That penalty can be hefty; The IRS will charge you 5% of your outstanding balance every month in which you don't file your taxes.

Once you do set up an installment plan, you'll still have to pay a monthly penalty of 0.5% of your outstanding balance until you pay off all of your taxes. You'll also have to pay interest on your balance each month. This interest rate is set each quarter, and equals the federal short-term interest rate plus 3% — much lower than the 12% or higher interest rate on most credit cards.

You'll also have a setup fee to start an installment agreement. That fee is $120 unless you agree to have your installment payments made by a direct debit from your bank account. If you agree to the direct-debit option, your setup fee falls to $52.

To request an installment agreement, you have two options. If you owe more than $50,000, you will have to fill out IRS Form 9465 and attach it with your tax return. If you owe less than $50,000, you don't have to fill out this form. Instead, you can request an installment agreement online at the IRS' website.

If you owe less than $10,000, the IRS will automatically accept your request for an installment plan if you meet certain guidelines: If during the previous five tax years you filed all your income tax returns on time, paid the income taxes that you owed, and did not request a different installment agreement.

If the IRS does accept your request for an installment agreement, the agency will usually require monthly payments that allow you to pay back what you owe during a 10-year period. It makes financial sense, though, for you to pay as much as possible each month to cut down on late fees and interest.

"The IRS is not a bad person to owe," Torgerson said. "They want their money and they'll work with you to get it."

Have you ever paid your taxes with a credit card?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Here's Why Credit Scores and Reports Are Not the Same

Dan Rafter — Tue, 22 Sep 2015 13:00:30 +0000

Do you know the difference between your credit score and credit report? A surprisingly high number of consumers don't. They use the terms "credit score" and "credit report" interchangeably, not knowing that there's a big difference between the two.

"You can look at a credit report as your report card in school," said Jason van den Brand, chief executive officer of San Francisco-based Lenda, an online mortgage-refinance platform. "You have all this information on it, sort of like the grades you get from all your different teachers. Your credit score is more like your combined grade-point average from all that information."

Your credit report — you actually have three important ones — lists key financial information such as your open credit card accounts, how much you owe on your auto loan, and whether you've made any late payments or suffered any foreclosures. Your credit score, meanwhile, is the three-digit number that lenders use to determine how likely you are to pay back your debts on time.

Here's a look at the differences between credit reports and credit scores.

Understanding Your Credit Report

Three national credit bureaus each maintain their own reports on your financial activity: Equifax, Experian, and TransUnion. You can order one copy of each of your three reports every year for free. Do this at AnnualCreditReport.com. Do not order these reports from other sites that might try to charge you.

Once you get your reports, it's important to know how to read them. Each of your reports will start with the most basic of your personal information: your name, birthdate, address, past addresses, Social Security number, and employment information. Don't be surprised, though, if not all of your past jobs are listed. Not all employers report information on their employees to the credit bureaus.

Public Records

Ideally, the public records section of your credit report will be empty. This section lists the financial missteps such as foreclosures, bankruptcies, and court judgments that can cause your credit score to plummet.

If a foreclosure or bankruptcy is listed here, you'll also see information on when a creditor filed the judgment against you. TransUnion will also list a date on which each of your negative judgments will disappear from your report. These dates, of course, vary. Foreclosures remain on your credit report for seven years. Chapter 7 bankruptcy filings stay on them for 10 years, while Chapter 13 bankruptcy filings also fall off your report after seven years.

Accounts

Your credit reports have two sections devoted to your credit accounts. The bad one is labeled "Adverse Accounts." This section lists credit accounts — such as open credit cards — on which you have either missed a payment or been late. These financial blunders will stay on your credit report for seven years. This section will also list how much you owe on these accounts.

There is also the "Accounts in Good Standing" section. This part of your report lists open credit accounts that you have paid on time for a specific period, usually the past 53 months. Again, this part of the report will also list how much you owe on these accounts.

Credit History

The last major part of your credit report is devoted to "Credit History Requests." If a mortgage lender requested your credit reports — to make sure that you haven't paid your bills late — it will be listed here. You might see, too, that a potential landlord requested your credit reports. Many will do this before leasing their apartment units to renters.

What's most interesting about this part of your report is that every creditor that requests your reports is required to list a reason why. You'll see these reasons listed here, too.

Understanding Your Credit Score

Credit scores generally get more press than do credit reports. That's because lenders use these three-digit numbers when deciding who gets loans and at what interest rates.

The most important of your credit scores is the FICO score. Other companies offer credit scores — the VantageScore is a popular example — but none of them have the same impact on your ability to qualify for a loan.

FICO credit scores run from a low of 300 to a high of 850. The higher your score, the better. Lenders generally consider FICO scores of 740 or higher to be excellent ones. If your score is lower than 640, though, you might struggle to qualify for a conventional mortgage loan or other loans or forms of credit.

Your FICO credit score is only made up of the information contained in your credit reports. Not all bill payments, for instance, show up on your credit reports. You might pay your monthly utility and cell phone bills on time, but they don't show up on your credit reports and, therefore, don't have any positive impact on your FICO score.

According to FICO, your FICO score is made up of five parts. The most important, consisting of 35% of your score, is your payment history. If you make your credit card, auto loan, mortgage loan, and other payments on time, this part of your score will be strong.

An additional 30% of your score is made up of the amount you owe on credit card accounts and revolving loans. The length of your credit history makes up 15% of your score. In general, longer credit histories will provide a boost to your credit score. (See also: How to Use Credit Cards to Raise Your Credit Score)

An additional 10% of your score is determined by the type of credit you use. FICO will look at your mix of credit cards, mortgage loans, and installment loans when determining whether your credit mix is a healthy one.

New credit influences the final 10% of your score. FICO says that consumers who open several new credit accounts in a short period of time represent a greater risk for lenders. Because of this, opening five new credit card accounts in two months could cause your credit score to drop.

Both your credit reports and score are key to managing and understanding your financial health. Keep tabs on both to stay in top financial health.

Do you track both your credit report and your credit score?

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: