Monday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: Why you should ditch your debit card. Also in the news: Knowing when it’s okay to co-sign for a loan, how much credit card debt is too much, and 3 common mistakes when choosing an insurance plan.

5 Expert Reasons to Ditch Your Debit Card
Why some believe credit is better than debit.

How to Know When It’s OK to Co-Sign a Loan
Do a little soul-searching first.

Do You Have Too Much Credit Card Debt?
How much is too much?

Choosing an insurance plan: 3 common mistakes
Looking beyond the deductibles.

Thursday’s need-to-know money news

Child and cashWhat to do when your adult kids ask for money, the bad side of credit card cash advances, and how the debt ceiling debacle could hit your wallet.

How to Handle Loan Request From Adult Kids
Carefully maneuvering a potential minefield.

4 Dangers of Credit Card Cash Advances
The fees alone should make you think twice.

Here’s How You’ll Make and Save Money in the Future
Are Bitcoins and crowdfunding the wave of the future?

You Can Raise Secure Kids Even in This Financially Insecure Time
Preparing your kids for what lies ahead.

4 Ways a Debt Ceiling Crisis Could Affect You
How the debate in Washington could have a serious affect on your personal finances.

Will loan payoff help or hurt credit scores?

Dear Liz: Two years ago, my husband was denied a revolving $12,000 line of credit. The credit reporting agency indicated that denial was based on “little revolving usage, insufficient or no bank lines, and insufficient open accounts with zero balances.” Nine months ago, however, he was approved for a car loan and received a FICO Auto V2 Score of 808 from the same credit reporting agency. Another credit reporting agency gave him a FICO Auto 04 Score 836. We had wanted to pay cash for this car but thought it would be wise for my husband to improve his credit, so he got an interest-free loan. My husband was recently approved for and obtained a credit card with a $20,000 revolving credit limit. He previously had a card with a $2,000 limit. He will pay off the balances each month. Our question: How long should he wait to pay off the car loan so that the payoff helps his credit and doesn’t hurt it? We don’t like having outstanding debt and have no other loan obligations.

Answer: Occasionally there’s a conflict between doing what’s best for your finances and doing what’s best for your credit scores.

Paying off an installment loan early, for example, normally is good for your wallet since you’re saving money on interest. But this payoff may come with a cost. While the closed account can remain on your credit report for years, contributing positively to your scores, you’ll get somewhat more of a positive impact if you don’t rush to pay it off. The open account will do more good for your scores than a closed account.

In your case, however, there is no conflict. This is an interest-free loan, so you’re paying absolutely nothing for the option of keeping the account open as long as possible. If your primary concern is supporting your husband’s excellent credit scores, consider getting over your aversion to debt and enjoy the free use of the lender’s money.

(OK, it may not be totally free. Buyers who get zero-interest loans often pay more for their cars than those who get market interest rates, according to Edmunds.com. But we’ll assume you thrifty folks bargained hard and really did get free money.)

If your husband can’t tolerate having any debt, he can keep good scores simply by using those credit cards lightly but regularly. The less he uses of his credit limit on the cards each month, the better: 30% or less is good, 20% or less is better, 10% or less is best. Paying the balances in full will ensure he doesn’t have to pay a dime in interest to keep his scores in good standing.