HOW DOES CARRYING A CREDIT CARD BALANCE AFFECT MY CREDIT? THE ANSWER. Relying on credit cards can work as a financial bridge when money is tight, but paying at least the minimums on time is critical to protecting your credit standing. “Your credit score is like your report card,” says Lauren Anastasio, a certified financial planner at SoFi, an online financial services company. “Every month that goes by is an opportunity for you to have a positive data point.” WHAT YOU CAN DO Because late payments hurt your score the most, pay at least the minimum by the due date. If possible, pay more than minimums so you can bring balances down over time. The second- biggest influence on your score is how much of your credit limits you’re using, so rising balances may ding your score. But that damage quickly fades as you pay them down again. Do pay off cards completely if you can, because carrying a balance isn’t necessary for good credit. “It blows me away the number of people who say they don’t pay off their credit card because they believe it will help their credit,” says Anastasio.
SHOULD YOU TAKE MONEY FROM YOUR 401(K)? THE ANSWER.
Taking money from your 401(k) will stunt your retirement savings because that money is no longer earning compounded returns. “Any loan you take from a 401(k), those are funds that are going to be uninvested while you’re paying yourself back,” Anastasio says. “Even though you’re borrowing against assets you’ve accumulated, these are funds that are designed to be appreciated over time, so there is that opportunity cost.” And if you can’t pay back a 401(k) loan on time, taxes and penalties kick in if you’re under age 59 1/2.
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