Splitit has many benefits for you, the consumer. You can break up larger payments into smaller, more manageable monthly payments. You don’t have to worry about additional interest charges or monthly fees. Plus, Splitit uses your existing credit card line, which means you enjoy no applications and a seamless checkout process.
But did you know Splitit is a tool for better money management? How so? There are actually two areas where Splitit provides more value, both with your monthly budget and credit utilization.
Let’s take a closer look.
Splitit as a “reverse savings account”
Many of us have experienced the process of saving up for some larger purchase — maybe it was saving up for a toy when you were a child, your first car or that new TV. Most of us know what it’s like to set a little aside each month, perhaps in a savings account or tucking cash away in an envelope. We earmark this money for something we’re saving for, such as a larger purchase or special item.
Saving each month and setting aside a specific amount requires an exercise in patience and the resistance of temptation to spend the money. These are undoubtedly great lessons to learn, but it’s easier said than done.
This is where a monthly installment plan, such as Splitit, helps you get the best of both worlds.
With Splitit, you get your purchase right away. You don’t have to wait to enjoy the item you’re saving for because you’re able to get it upfront. Start enjoying your purchase right away, and then focus on making monthly payments.
Manage your monthly budget
But there’s a second beneficial part to this strategy as well. Similarly, you would save regularly for your purchases in the past. You start paying a designated monthly amount. Splitit gives you the ability to pay each month towards your purchase, with an equal, smaller amount that makes it super easy to budget.
When you choose a Splitit monthly payment plan, you know right away how many months you have to pay for your purchase, plus the monthly payment amount. No surprises are waiting for you – and we all know it’s those “surprises” with finances that lead to budget busters.
Think of a monthly installment plan as a way to have what you want upfront, but a smart, manageable process for paying (or saving) towards it each month. So you get to enjoy your purchase while knowing exactly what to expect for a payment each month — talk about a win-win!
Using Splitit and the impact on credit
Splitit can offer a payment strategy without any additional interest or application fees because of the unique setup. Splitit works with your existing credit card and authorizes the monthly payments against your current credit line. Because you’ve already established a relationship with the credit card company, you don’t have to worry about a lengthy application process or a slowdown in your checkout experiences.
Splitit does rely on credit authorization, to ensure you do have enough of a credit line available to make the monthly installment payments.
But this credit authorization process can get a little confusing sometimes since it’s not something most of us are familiar with using on a daily basis.
How credit authorization works
We can’t have a discussion about the impact of credit and monthly installment payment plans without discussing credit authorization. What is it and what should you know about how it impacts your finances?
A number of merchants use a credit authorization, or hold on your credit card, as a way to request a charge in the future. For example, this is common practice among hotels, where you give them a credit card number when you book a room. The card is not actually charged until you spend the night or use the hotel facilities.
You’re also likely familiar with this concept if you’ve ever rented a vehicle. Rental car companies have used this practice for years where they request authorization before you rent, and then charge it once you’ve returned the vehicle.
Retailers can also use a credit authorization and are generally practiced with purchases where there is a high rate of return, such as skincare or eyeglasses.
Basically, it’s a way for companies to know there is enough credit available to complete a purchase available. If you can’t present a credit card with enough of a credit line, then the purchase can’t be completed.
The amount of the hold can end up being greater than the actual purchase. In the case of a hotel, most run a credit authorization for incidental purchases. Whether it’s $50 or $100 or anywhere in between. If you don’t use the entire amount, your card is credited with the amount you didn’t use.
Splitit and credit authorizations
It’s important to understand credit authorizations because Splitit uses your existing credit card and it must also obtain a credit authorization to process your purchase. Splitit works with Visa and Mastercard to follow each credit card company’s regulations and ensure authorization is obtained in the correct manner.
Splitit maintains a hold on a consumer’s credit card for the entire amount of purchase but charges only the current installment that is due each month. It temporarily decreases your available credit limit by blocking the total amount of the purchase, until the transaction is complete.
As you keep paying each installment on a monthly basis, the amount originally held on your credit card gradually decreases, until the purchase is completely paid off.
Fortunately, this does not impact your credit score since Splitit is utilizing your existing credit line. And another bonus is Splitit doesn’t run your credit report, which can also ding your score if it’s checked too often with multiple inquiries.
Tips for overall better credit management
Knowing the difference between credit authorization and what really impacts your credit score is essential for feeling comfortable with how Splitit works. And while Splitit is another tool in your financial arsenal, it’s not the only one. You can also use it in combination with a number of other smart practices for better finances.
Splitit does not impact your credit score, since you’re using a credit line that has already been established and reflected in your credit file. But there are plenty of other activities that do impact your credit, both in a positive and negative way. Here’s what you can do to keep your credit score on the right track.
- Understand your credit utilization: Credit utilization, which is simply the percentage of revolving credit you use versus the amount you have available to you, is a big factor in determining your credit score. It’s actually about a third of what makes up your credit score. It’s also important to note this is only for your revolving credit cards, where your balance carries over to the next month if you don’t pay it off.
- Aim for a 30% or less credit utilization. For instance, if you have $9,000 of available revolving credit to use, then use $3,000 or less to stay within an ideal range. The less you use, the more positive impact to your score.
- Don’t open too many new credit cards: This may contradict the credit utilization formula, after all, if you have multiple credit lines from multiple cards, then you can keep your credit usage relatively low. However, this strategy doesn’t work because too many credit openings and cards hurt your score.
- On the other hand, this doesn’t mean you need to close the credit cards you never use either. Keeping your credit line open and maintaining a long credit history are both positive ways to impact your credit score.
- Pay your bills on time: Another critical step in improving credit is to pay your bills on time each month. Your report is updated every 30 days, and each lender or creditor you pay each month reports your payment history to the credit bureaus. By simply paying within the payment period, your score is positively impacted.
- Get current: If you have missed a payment, getting caught up on what you owe will improve your overall score. Make this a priority as you’re improving your finances, and the reward is an improved score.
- Check your report regularly: This may sound simple, but checking your report for errors on a regular basis not only keeps you informed, but it helps you spot errors right away. There are millions of entries for data on credit reports, so it’s quite possible for mistakes to take place. By checking your credit report or signing up for a credit monitoring service, you can deal with errors as soon as they occur.
Using your credit wisely, and using a monthly installment plan such as Splitit, are great ways to manage your finances. The more control you take with your credit and financial metrics, the better off your overall financial plan will be.
And with Splitit, you have the ability to control how much you’re spending each month on items you can start using now. You no longer have to wait for months or years to afford an item that brings extra value to your life.