The end of October is here, and the Consumer Financial Protection Bureau’s latest rulemaking agenda would signal that its release of the debt collection rule is imminent. ACA International is ready for the release of the final rule, which will … Continue reading →
Read more: creditandcollectionnews.com
A business credit card is a valuable tool for just about any business. It does not matter the size, the age, or the business model—a credit card can provide much needed convenience and efficiency when used properly. If you are in the midst of launching a new business, or if your business is already established but does not yet have a business credit card, it is important that you understand a few key concepts. Here are six things you must know before opening your first business credit card.
Your personal credit score and history are important
The first thing you should know before opening a business card has nothing to do with your business or your creditor, and has everything to do with YOU. You should review your credit report and score, and make sure you know what range your credit score falls into (good, very good, excellent, etc.).
This is important because your personal credit history likely will be used in determining whether your credit card application is approved. Therefore, you will need to know your credit score to have a good idea of which cards you should consider. If you have excellent credit, then you can probably target any business card (including the “best” cards with favorable rewards). If your score is not as high don’t panic. You will just want to research which cards typically grant approvals to someone with your score and be strategic about which card to pursue.
You will be personally liable
Not only will your personal credit determine your ability to get a business card, but you will almost certainly be personally liable for your business card debt. That is because business cards typically require you to make a personal guarantee on the account. This is why your personal credit matters—the creditor will want to know how you handle debt personally because you will be ultimately responsible for the business credit card debt. And, this is why the creditor will require your social security number when you apply, even if you also provide an Employer Identification Number (EIN).
You will want to keep all of this in mind as you determine your business’ credit card policy and make decisions such as whether other employees will have company credit cards.
You should only use the card for business expenses
You have probably already been warned against “commingling” funds, which means you should keep your business finances and personal finances separate. This is true within your credit card accounts too. Most business credit cardholder agreements stipulate that they are “for commercial purposes only” (or they use very similar language to that effect). This means that when you open the card, you are promising not to use it for personal expenses. Now, a creditor will not nitpick every single transaction on your card to ensure that each is a business expense. But, if you develop a pattern of using the business card for personal expenses, that would technically be a violation of your agreement and theoretically could lead to the creditor cancelling your account.
You can get a business credit score
Your credit card can contribute to your business credit score (yes, there is such a thing!). This can be very helpful as your business grows. A good business credit score will help you access future business credit, including loans, with good terms. Also, having a good business score will allow for further separation between your business and personal credit.
While you can get business credit as a sole proprietor, and without an EIN, you may want to consider other options. Business types other than sole proprietorships are required to take additional steps that can be helpful in building business credit. That does not mean you should necessarily choose a different entity type; after all there are many successful sole proprietorships. But, this is something to keep in mind, particularly as your business expands and your need for business credit may increase.
Formalizing your business through proper registration with the state and incorporating it can help build your business credit by making it clear that you have an entity separate from yourself. Getting an EIN has a similar effect, and your business credit score will be tracked by your EIN. Many business types are required to have an EIN, but sole proprietors are not required to have one. A sole proprietor may apply for an EIN, though, and this could be helpful building a business credit profile.
Rewards are not taxable income but may affect your tax deductions
One of the biggest perks of a business card is that it can earn rewards. These can be used as discounts against your balance or on redemptions for other costs, like travel. The good news is that these rewards are not taxable income. However, they can affect how much you deduct as business expenses on your taxes.
Bankrate has a great summary about the implications of business credit card rewards. The most important point to remember is that if you use rewards for a business purchase, you cannot deduct the amount of the purchase that was paid for with rewards.
You should manage business credit like personal credit
Business credit is different than personal credit. And as we have discussed, you will want to keep the two separated at all times. Your business can scale and grow over time, and it might make sense to take risks with your business when opportunities arise. These are risks that you might not take with your personal finances. But, remember that you are liable at the end of the day.
So, the same rules of personal credit apply to your business credit. Your goal should be to manage it wisely. This means trying to pay off the balance in full every month to avoid interest charges. If used wisely, your business credit card can be a tool of convenience and it can earn you valuable rewards. Those features are much better than accruing interest. If you need to longer term financing, you will probably get better terms on a business loan.
Bottom Line
Business credit can be incredibly helpful for a business. The goal should be for your business to take advantage of the perks of having a credit card by using it wisely. If you do that, you will enjoy increased convenience, accrue rewards, and build your business credit score for future borrowing.
Keep these important concepts in mind as you move forward. The most important takeaway is that you are inevitably liable for the debt on your business credit card, so manage it carefully!
The post What to Know before Opening Your First Business Credit Card appeared first on NFCC.
Read more: nfcc.org
The U.S. Court of Appeals for the Seventh Circuit recently held that factually accurate collection letters that did not make explicit or implicit suggestion about future outcomes did not violate the federal Fair Debt Collection Practices Act as they would … Continue reading →
Read more: creditandcollectionnews.com
Credit card issuers are ramping up efforts to attract new cardholders after fears of surging delinquencies failed to materialize when the pandemic disrupted many retail businesses this spring. Capital One Financial (NYSE:COF) and American Express (NYSE:AXP) both embarked on marketing … Continue reading →
Read more: creditandcollectionnews.com
One of the keys to financial success is keeping a balanced and predictable budget. The most important categories in that budget are those that are critical to your health and safety. Most utilities fit into this category. You’ll want to ensure that you know what to expect for these costs each month. And, you will want to actively seek ways to lower your utility bills if they take up too much of your monthly budget.
How much should you pay for utilities each month? It may be better to think in terms of a percentage of your income rather than a flat dollar amount.
Budgeting by Percentages and Defining “Utilities”
Conventional wisdom has been to budget according to percentages for each major spending category. Many experts have recommended for decades that consumers should spend less than 30 percent of their gross monthly income on housing, though some give a range like 25 to 35 percent. This may go back to a government standard introduced in the 1960s. Is this still relevant today? Maybe. It certainly can be a helpful guideline, though it is far from perfect.
An example percentage-based budget. Source: Michigan State University Extension.
A popular new budgeting approach is to use the 50/20/30 budget. In this model, housing is folded into your “basic needs,” which should be 50 percent of your income or less. This model may better reflect different costs of living in different locations.
Source: NerdWallet
However, neither of these methods account for utilities specifically. The “30 percent rule” really misses the mark here. Many experts have taken the 30 percent rule and added other categories like groceries, transportation, and insurance. All the categories are assigned a percentage, and together all the percentages add up to 100 percent. But often, no percentage is assigned to utilities. So, utilities fall under “housing.” This can be a problem because many people consider them to be two different expenses and may not account for utilities when calculating how much of a mortgage or rent payment they can afford. The 50/20/30 is better at accounting for utilities because it leaves a lot of wiggle room. However, it does not set a specific range for utility costs.
If you would like a specific rule to follow, then keep your utilities under 10 percent of your gross income. Though a good rule of thumb, ten percent is still pretty high, so think of it as a ceiling and keep the costs as low as you reasonably can. You should review the average monthly costs for common utilities in your area and budget for those amounts or more. Importantly, you must remember that your specific location and the square footage of your living space will determine how much you pay. But, knowing the average can be very useful to ensure that what you are paying is reasonable.
If you use the traditional budget percentages, remember that your 10 percent utilities budget is part of your housing budget. If you use 10 percent on utilities, that would leave only around 20 percent for your other housing costs. If you use the 50/20/30 budget, then the 10 percent is part of your 50 percent “needs” budget.
It might sound easy to keep utility costs under 10 percent of your income, but it is not easy for everyone. The less income you have, the higher the percentage of your budget you will devote to energy. The Natural Resources Defense Council reported in 2016 that low-income consumers were at risk of facing burdensome energy costs. That group had a “median energy burden” of 7.2 percent, meaning that a median of 7.2 percent of their monthly budget went toward energy costs.
This study only looked at “energy” expenses. It excluded water and secondary utilities like trash pickup and cable services. Therefore, once you add these additional expenses, it is easy to see how the costs could exceed 10 percent. Careful planning is important to limit your utility spending, especially when accounting for all utilities.
Budgeting for Your Total Utility Cost
To get an idea of what you should be paying for utilities, review your monthly bills, and cross reference them with these findings. You can also check with your local utility providers for more specific information, or consult with a realtor, neighbor, or anyone else who knows the specifics of your neighborhood.
Electricity
According to the most recent data from the U.S. Energy Information Administration, the average U.S. electric bill is $115.49. You can review all the data and look up the average for your state.
Water and Wastewater
A leading water-focused research group published a study last year, finding that the average bill in the U.S. for water and wastewater was $104 total.
Gas
Rocket Mortgage reported in 2017 that the average monthly gas bill was just above $55. It also reported state-by-state data that you can review.
Garbage Removal
The utilities listed so far are all necessities. Some homes may not use gas, but those that do rely on it for critical tasks like heat or cooking. There are other utilities that are very nice to have, but don’t quite rise to the level of being necessities.
One of those is garbage removal. You can probably expect to pay between $20 and $50 for garbage removal in most cases.
Phone, cable and Internet
Phone, cable and Internet costs are also not necessary and can vary widely. Unlike electricity, which costs more as you use more, typically these services charge a flat fee. The best way to save money is to pick the most affordable services upfront. These days, there are very low-cost cell phone plans, and many people choose to skip cable and opt for a cheaper streaming service instead. For Internet, you may be able to save money by opting for a slower speed, since oftentimes the upgraded plans do not make enough difference to warrant the cost.
For a family of two adults, a conservative budget for these expenses might be around $100 per month. However, these costs could easily creep to $200, $300 or more if you do not shop around, subscribe to many services, or opt for expensive options.
Making Changes
If you need to get your utility costs under control, the two best ways are to use less and to shop around. NerdWallet has put together 15 easy ways to lower your utility bills. Most of those focus on weatherproofing, stopping leaks, and so forth. Don’t forget about negotiating and checking prices with different companies. If it has been a while since you last shopped around for utilities, it may be worth doing so again to see if you can get better pricing than you are currently paying.
Another idea would be to get a roommate who could share the costs with you, though this will not be feasible for everyone.
Recap
Utilities can add up very quickly and take a big chunk of your budget. Unfortunately, many traditional budget models do not properly account for these costs. Try to spend no more than 10 percent of your monthly income on utilities, and take simple steps to lower these costs as low as you can.
If you are struggling to pay utility bills or other bills, contact a credit counselor who can work with you to figure out your best options moving forward and do a thorough review of your budget.
The post How Much Should You Plan to Spend on Utilities Each Month? appeared first on NFCC.
Read more: nfcc.org
New CRL Report: Debt Collectors in California May Have Seized $700M, Often Based on Scant Evidence & Other Questionable Practices A new report released this week by the Center for Responsible Lending (CRL) finds debt collectors in California may have … Continue reading →
Read more: creditandcollectionnews.com
Medical bills are never fun. In fact, they can be overwhelming. Whether you have a routine, planned procedure or have to receive emergency medical treatment, chances are that you will end up with a bill higher than you were hoping to receive. The best-case scenario is that you can pay the balance without any difficulty. The worst-case is that the bill is unmanageable and you cannot pay. Thankfully, there are some tips and strategies that can make your medical bills less expensive and help you pay them off effectively.
First Steps to Take
We are going to get into the nitty gritty of how you should pay your medical bill—as in which payment method you should use. However, there are some important steps you will want to take first to ensure that your medical bill is as low as possible.
Reviewing Your Bill and EOB
First, be sure that you review your bill after it goes through your insurance. Your insurer will send you an Explanation of Benefits (EOB) that details the portion of the bill that was covered by insurance. It should also list the remaining balance owed, which is what you are responsible for paying. If you receive a bill from your care provider with an approaching due date, and have not received an EOB, you should contact your provider and your insurer to see what is going on.
Also, be sure to get an itemized copy of your bill. A bill from your doctor that just shows a total due is not very helpful and leaves plenty of room for error. Make sure you receive a copy that details each individual charge. If your doctor does not provide this automatically, you should call and request such a copy.
Negotiating
Once you know how much you owe, consider negotiating. You can negotiate with the health care provider and with your insurance company. Sometimes, billing errors occur when a health care provider lists a treatment with a particular code that is not covered by your insurance company. Sometimes this is a misunderstanding, and a simple change of code will allow you to have coverage—and therefore owe less—for the given treatment.
Even if the coding is correct, you can try negotiating with the healthcare provider. You have a few tactics at your disposal if you face a high bill. You can review the Healthcare Bluebook and use its data as leverage. This tool tracks pricing for various procedures, tests, and services by location. You can research your local area and determine how your provider’s cost compares with the average in the area. This may give you evidence that you are being overcharged, which could sway a provider to lower your bill.
It never hurts to ask for a balance reduction, even if you cannot provide evidence that you have been “overcharged.” Explain your financial situation and why the bill is unaffordable, and ask to have the amount reduced. You might ask to pay the Medicare rate, which would represent a steep discount in some cases. You can also offer a lump sum settlement in which you make a large payment, short of the full balance, and the provider accepts it as a full payment.
Lastly, consider financial assistance. Ask the provider if they have a formal financial aid program. Many large providers have a formal program. Typically, you will have to fill out a detailed application, including your employment, income, and other personal information. If you qualify, this may lead to significantly lower costs or a favorable repayment arrangement. Even if you do not qualify, you can try negotiating the repayment process rather than the actual balance. Try to get on a repayment plan that is affordable and, ideally, interest free.
Which Payment Method Should You Use?
If you are able to pay, whether you make a one-time payment to eliminate the balance or a monthly payment on a plan, you should probably pay in cash, check, or debit card. Why not pay with a credit card? Well, you can pay with a credit card if you have the funds available and will immediately pay off the credit card balance. But you do not want to pay on a credit card if you cannot pay it off in full right away.
Why? Because putting the medical debt onto a credit card is almost always going to be less favorable. Many providers are willing to provide a zero-interest or low-interest repayment plan. By moving the debt to a credit card instead, you are giving up that fantastic benefit and moving the account to a credit card instead. This means that the debt can pile up interest and fees much more quickly.
One potential exception might be if you qualified for a credit card with excellent terms, such as a zero-percent balance transfer card. There may be some cases where this would be a smart move and save you money versus a repayment plan with your provider—particularly in a case where you were not given a repayment plan option. However, this will probably only make sense for someone with an excellent credit score who can get the best credit card terms.
A similar exception may exist if you qualify for a medical credit card (which can be used only for qualifying medical expenses). These also typically offer a promotional interest free period, but are typically available to borrowers who do not have excellent credit. These may look like an attractive option. However, the interest rates on these cards typically explode after the promotional period, so you have to be very careful. Again, an interest-free arrangement directly with your provider would be much better than a credit card.
Paying Overdue Medical Bills
So far, we have been discussing how you should handle the repayment of a medical expense soon after you are charged. But what about medical bills from the past that are overdue? When a medical bill is past due, it could hurt your credit. Your health care provider could report the delinquency, and could send the account to collections.
Providers usually wait anywhere from 60 to 180 days to send an unpaid balance to collections. Thankfully, the credit bureaus give you a 180-day grace period before allowing a medical debt to appear on your credit report. Additionally, changes to the FICO scoring model have limited the impact of medical debt. Medical debt is not weighted as heavily in the FICO 9 scoring model as it had been previously. Also, collection accounts that you pay off or settle are disregarded in your credit score for FICO 9 and the new FICO 10. However, while FICO continues to release these new scoring models, lenders are very slow to adopt them. Therefore, you may not be able to fully realize the benefits of the way FICO now treats medical debts; it will depend on the lenders that you use down the road.
Regardless of the scoring model in question, there are some things to keep in mind. First, remember that you can negotiate with collectors. You may be able to offer a lump sum payment for less than the full balance. This would have a positive impact on your credit score in the FICO 9 system. Second, you should avoid paying with a credit card and should use cash, debit card, or a check instead. A medical debt in collections has already done some damage to your credit. Yes, under FICO 9 and 10 you can essentially undo this damage. But that benefit is not worth the risk of putting the account onto a credit card if you cannot pay it in full immediately. Putting the account on a credit card opens up the possibility that the new credit card debt could become too much to handle and lead to another round of derogatory marks on your credit report. Skip that risk altogether.
Bottom Line
If you are facing a medical bill, remember that you have numerous options at your disposal. You should proactively communicate with your healthcare provider to make sure you are billed accurately and to explain your financial situation. When it comes time to pay, your best bet is to use cash, a check, or a debit card. You may not be able to pay in full, which is why getting on a payment plan is so helpful. Just remember that you want to avoid taking on new debt, especially credit card debt which has fewer safeguards than medical debt.
For more help navigating your medical debt or credit card debt, consider working with a credit counselor.
The post Handling Medical Bills: What is the best way to pay? appeared first on NFCC.
Read more: nfcc.org
Heading into third-quarter earnings season, analysts were expecting relatively upbeat results for the largest U.S. banks. Credit costs were expected to decline from the previous quarter, and they did, to a greater extent than expected. Among the 10 largest U.S. … Continue reading →
Read more: creditandcollectionnews.com
The Congressional Research Service (CRS) released a new report this month, “The Debt Collection Market and Selected Policy Issues,” providing an overview of legislative and regulatory activity in the last year as well as the Consumer Financial Protection Bureau’s pending … Continue reading →
Read more: creditandcollectionnews.com
All five major metropolitan statistical areas (MSAs) surveyed posted lower default rates in September, according to data from S&P Dow Jones Indices and Experian. The S&P/Experian Consumer Credit Default Indices, which is a comprehensive measure of changes in consumer credit … Continue reading →
Read more: creditandcollectionnews.com
