12 Tips for a Bad Credit Makeover (Part 1)

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Even if you think your credit score is beyond repair—there are steps you can take to better your financial future!

If you watch any teen movie, there’s always that sequence where somebody undergoes a life-changing makeover. You know that montage of trying on new outfits, getting a drastic haircut and adding (or removing) bangs, and finally a scene where our main character removes their glasses and realizes that yes, they are in fact super hot?

Well, if you have a bad credit—which means a FICO score below 630—then your creditworthiness could probably use a makeover too. That’s why we’re here! We’ve got some fantastic, detailed tips for how you can turn your bad credit from zero to hero. (Is that how teens talk these days. Is that appropriately fleeked?)

This post is only Part I of the list. It includes tips one through six. Keep an eye out for Part II dropping later this week!

1. Stay away from hard credit check loan and credit card applications.

When you apply for a new loan or credit card from a traditional lender, the lender performs a “hard check” on your credit. This means that they pull up a full copy of your credit report to assess your creditworthiness, and that inquiry or check gets noted on your credit history.

“Recent Credit Inquiries” comprise 10 percent of your overall FICO score. Searching for new credit can be a sign to lenders that you might be mismanaging the credit you already have. That’s why these checks can ding your credit score for up to two years after they appear on your report.

So unless a credit application is 100 percent necessary, you should stay away from applying for new loans and credit cards while your credit is already bad. If you’re really in a bind, you should look to get a loan from a “soft” credit-check lender. These checks won’t hurt your credit score, and soft credit check lenders are more likely to lend to folks with not-so-great credit.

2. Find a better credit utilization ratio.

Natasha Rachel Smith, personal finance expert for TopCashBack.com (@TopCashBackUSA) says, “Credit scores are largely affected by your credit utilization ratio (that is, how much of the total credit that’s available to you is in use) and payment history.

Since credit cards have become such a major part of modern personal finance, credit utilization is an incredibly important factor in determining a person’s creditworthiness. Unlike traditional loans, credit card borrowers are given a maximum amount of money—called a “credit limit”—that they can borrow up to with their card. Borrowing far below your credit limit is a good sign to lenders that you are using your credit cards responsibly.

“A good credit utilization ratio is less than 30 percent. Under ten percent is ideal,” says Smith. Once you exceed 30 percent, you may be seen as a risk to a lender and could potentially be denied a loan or credit card.”

“A great, speedy way to raise your credit score is to make sure you are spending within your comfortable means so you don’t slip over a 30 percent credit utilization ratio.”

3. Get rid of your debt with one of these methods.

If you have a bad credit score, then you probably have too much debt. Your “Amounts Borrowed” make up a 30 percent of your FICO score, which means that too much debt is going to have a much bigger effect on your score than most other factors.

So if you’re serious about fixing your bad credit, you’re going to need to pay down some of that debt. Easier said than done right? That’s why you should look at two of the most popular debt repayment methods: the Debt Snowball and the Debt Avalanche.

Both methods involve saving up a chunk of money beyond your monthly minimum payments and then focusing all that extra cash on one loan or credit card. One that debt is paid off, you then take that cash plus the monthly minimum for the now-retired debt, and putting all that money towards your next debt. With each debt that you pay off, you get more money to put towards your other debts.

The difference between Snowball and Avalanche methods come with how you decide to order your debts. With the Snowball method, you pay off your debt with the lowest balance first and then work your way to the debt with the highest balance. With the Avalanche method, you start with the debt that has the highest APR, and then work your way towards the debt with the lowest APR.

Both methods have their benefits and their drawbacks. To learn more about them, check out these OppLoans blog posts:

4. Cut back on your spending by starting a budget.

At its heart, having a bad credit score means that you have had trouble with managing your money. That’s how you’ve ended up with too much debt, or failing to make your bill payments on time. That’s why a lot of the advice we’ve doled out already is really just advice for how to better manage your finances.

So if you are trying to fix your bad credit, one of the best things that you can do is take control of your financial situation through starting a budget. Budgeting will allow you to plan for how your money gets spent; it will let you see areas where you can cut your spending back; it will help you pay your bills on time, and it will help you put money aside to start tackling your debt.

“Sit down and take a hard, deliberate look at your finances and plan your month’s expenses,” says Smith. “Budgeting will allow you to pay down debt while saving smartly.”

She recommends, “Minimize your spending habits by budgeting your costs in three categories that are the most important: bills, savings and living expenses such as rent and food. Cut your spending by not buying things you simply want; focus on the things you need.”

If you want to start a budget but aren’t sure where to begin, then Smith has a good strategy. It’s called the 50/20/30 rule:

“You should spend only up to 50 percent of your after-tax income on essentials, such as housing and food; 20 percent on financial priorities, such as debt repayments and savings; and 30 percent on lifestyle choices, such as vacations. Don’t splurge in other categories as costs can add up quickly!”

Stephanie Stewart, Digital Marketing Strategist for Best Company (@BestCompanyUSA) also has a great piece of budgeting advice:

“A great budgeting tip I have found is to take out all your grocery money for the month in cash, when the cash is gone you have to get a bit creative in the kitchen. This helps with overspending on food every month. This money could then be applied towards paying off your debts to help improve your credit score as well.”

You can also learn more about setting and meeting your budgeting goals in OppU, our online finance course.

5. Check your credit report for blemishes.

If you want to fix your credit score, then you pretty much have to get a copy of your credit report. After all, all the stuff that’s dragging down your score is stuff in that report. You can’t fix your score without knowing what factors are dragging it down in the first place!

However, there’s another reason why it’s good to request a copy of your credit report, and that’s because it might have errors on it that are unnecessarily lowering your score. Credit reports are compiled by the three major credit bureaus—Experian, TransUnion, and Equifax—a process that involves getting information from thousands of different businesses on hundreds of millions of different borrowers nationwide.

So yeah. There are going to be some mistakes.

Don’t worry though! Here’s the good news: you can access your credit report for free and dispute any errors that you find directly with the bureau. Under federal law, the three major bureaus have to provide you with one free copy of your credit report per year upon request. Just visit AnnualCreditReport.com to request a free copy of your report.

If you find an error on your report, you can check out this online resource from the Federal Trade Commission (FTC) for a guide on how to dispute it:

FTC Facts for Consumers – How to Dispute Credit Report Errors

And even if you don’t find any errors, checking your credit report is something that you will want do regularly from now on. That way, you can stay on top of your financial reputation.

Lastly, here’s a credit-monitoring pro tip from attorney and best-selling author of The Plastic Effect, Stephen Lesavich, PHD (@SLesavich):

“Since you are entitled to one free credit report from each credit reporting bureau, consider ordering one of your credit reports from one of the credit reporting bureaus in each four-month period during a calendar year. This way, you can monitor your credit for free throughout the year.”

6. Run from predatory payday loans!

The road to fixing your bad credit can be a pretty narrow one. Walking it successfully means taking a lot of positive steps, but it also means avoiding a lot of negative ones. One wrong move and you can find yourself right back where you started.

Taking out a payday loan could definitely undo all the hard-won progress you’ve made.

These are short-term loans, often meant to be repaid with a single payment only two weeks after they are issued. As these loans are primarily aimed at people with bad credit, the interest rates are high.

How high? Try an APR of 400 percent!

Beyond those ridiculous annual interest rates, payday loans have another problem, too, and that’s their lump sum repayment structure. Instead of paying the loan off in a series of small, manageable payments, payday loans require you to pay the loan off all at once.

Add lump sum repayment up with short terms and high interest rates and it’s no wonder that so many payday loan customers have trouble paying their loans off on time. Instead, they are forced to roll the loan over, receiving another repayment period at the cost of an additional interest charge (read more in our article The High Cost of Payday Loans).

It’s all too easy for payday loan borrowers to end up getting stuck in what’s called a “Cycle of Debt.” This means that they keep extending their payday loan or they pay the loan off and then taking out a new loan immediately after to help cover their costs. They never get close to paying their debt off, they simply pay more and more interest every time the loan comes due. It’s like the loan is slowly bleeding their money dry.

And guess what? Being stuck in a payday debt cycle is not going to help your credit! Either it’s going to be sucking away money that you could put towards better things, or you could default on your debt entirely and get sent to collections! That collections agency would then likely report your unpaid account to the credit bureaus, and they might even take you to court to have your wages garnished, another action that would get recorded on your credit report.

If you have bad credit though and need a loan for emergency expenses, consider looking for a more reputable bad credit lender, like OppLoans, that will offer you lower rates, more manageable payment terms, and better customer service than your typical payday lender.

That’s it for Part I! Keep a look out for Part II dropping later this week to help make your credit makeover complete! In the meantime,  follow us on Twitter at @OppLoans.

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Have Bad Credit? Check Your Credit Report!

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Your credit score is a snapshot of your creditworthiness. But it isn’t the full picture.

Do you have a “bad” credit score? And if so, what does that really mean? While definitions of a bad FICO score vary, it’s generally true that any score below 630 is going to get you either a) turned down for a loan or b) charged much higher interest rates in order to borrow money.

It doesn’t quite seem fair that one little three digit number should have so much power over your finances, but these scores aren’t just plucked out of thin air. They’re actually based on the information in your credit report.

Here’s a simple way to think about it: Your credit report is like a test and a credit score is like the grade that you receive on that test. So if you’re wondering why your credit score isn’t so hot, then it’s best to look back at the information that’s contained in your report.

And if you’ve never even heard of a credit report before, don’t worry: we’ve got you covered too.

What is a credit report?

“A credit report is a record of your credit activities created by a consumer/credit reporting agency (CRA),” says attorney and best-selling author of The Plastic Effect, Stephen Lesavich, PHD (@SLesavich).

“The most common type of CRA is a credit reporting bureau. The three major credit reporting bureaus in the United States are Equifax, Experian and TransUnion. The credit reporting bureaus routinely collect and record information from lenders who have loaned you money, credit card issuers, and other financial institutions who have extended credit to you.”

Lesavich says, “Your credit report lists all accounts for which money has been lent to you and credit extended to you.”

Think of your credit report like a summary of how much money you’ve borrowed and how reliably you’ve paid that money back. For a potential lender, it’s an indicator of how likely you are to pay them back.

How does a credit report work?

“Your credit report includes financial information (e.g., your mortgage, loan, and credit card account balances), and your payment history (including on-time and late payments),” says Lesavich. “Also included is a list of any legal actions you have taken (e.g., declaring bankruptcy, having debt canceled, etc.).”

He adds that “Legal actions that have been taken against you (e.g., collections actions initiated against you, a repossession action initiated against you, or a legal judgment or tax lien recorded against you, etc.) are also listed in your credit report”

“Consumers should be aware the data contained in each report may vary, this is because lenders are only required to report to one bureau (not all three),” says personal finance expert Angel Radcliffe, CEO of CAS Consultants (@Cas_Dallas).

“One question clients ask is ‘why does my credit card show up on Experian but not Equifax or Transunion?’ And it’s because said credit card company is not required to report to all three; therefore you may see a variance in scores due to more accounts being reported on one bureau versus the other.”

According to Radcliffe, information on your credit report falls into several sections:

  • Personal Information (Name, Address, Phone, Employer)—This information is updated by any applications the consumer fills out.
  • Judgments/Liens—Any tax liens or judgments from lawsuits, bankruptcy.
  • Collections —Any accounts in collections.
  • Satisfactory Accounts—Any accounts which are in good standing.
  • Revolving Accounts—Typically revolving lines of credit & credit cards.
  • Inquiries—Requests made for your credit report. Includes soft & hard pulls. Inquiries remain on your report for two years.

How long does information stay on your report?

“While there are many sections which make up your credit report,” says Radcliffe, “it is important to understand how the information is updated and how long negative information can remain. Negative information is allowed to remain up to seven years, ten years for bankruptcy filings.

Lesavich says that “In general, negative but accurate information (e.g., late payments, missed payments, etc.), stays on a credit report from seven years to ten years from the date of the last negative activity. Some remain on indefinitely.”

Lesavich provides a quick guide to how long different kinds of information stays on your report:

  • Chapter 7 or 11 bankruptcies: Seven years.
  • Chapter 13: Ten years.
  • Collection Accounts: Seven years
  • Public Records (legal judgments, paid tax liens, etc.): Seven years
  • Unpaid tax liens: Indefinitely
  • Credit Accounts (credit cards, loans, etc.): Ten years from the date of last activity.
  • New Credit Inquiries: One to two years depending on the type of inquiry.

How to dispute errors on your report.

Believe it or not, sometimes wrong information will appear on your credit report. If that happens, it could be negatively impacting your credit score. You’ll want to get that fixed pronto.

The first step is to check your credit report to make sure all the information on it is correct. Remember, information will vary between your reports from the three bureaus. So something that might be correct on one report might be incorrect on another.

Here’s the good news: you can get a copy of all three reports for free!

By law, each of the credit bureaus needs to provide you with one free copy of your credit report per year if you request one. So all you need to do is ask! Just visit AnnualCreditReport.com or call (877) 322-8228.

Lesavich suggests that “Since you are entitled to one free credit report from each credit reporting bureau, consider ordering one of your credit reports from one of the credit reporting bureaus in each four-month period during a calendar year. This way, you can monitor your credit for free throughout the year.”

“Review the information on each of your credit reports and take action to correct any errors you find,” says Lesavich. “If you find any errors in your credit report, you can dispute the errors electronically directly from your free credit report. The three credit reporting bureaus each provide you with a method to initiate a dispute directly from the display of your free credit report. You can also dispute any errors you find in writing.”

For more in-depth instructions, Lesavich points towards a document on the FTC website titled FTC Facts for Consumers – How to Dispute Credit Report Errors

In general, at least two steps are required for every incorrect entry you find on your credit report,” says Lesavich. “You must write to both the credit reporting bureau that reported the error, and the appropriate creditor. In these letters, you must indicate which entry you want to dispute as inaccurate, and explain in detail why you think the entry is inaccurate and provide supporting documentation to prove your assertions.”

The information on your credit report determines your credit score. Errors on your report could mean the difference between buying that dream home and missing out entirely. Get a copy of your report and make sure everything is accurate. Your financial future could depend on it!

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Contributors
Stephen Lesavich, PhD, JD, (@SLesavich) is an attorney, credit card expert, award-winning and best-selling author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards”.
Angel Radcliffe, (@Cas_Dallas) MBA is a Public Speaker, Author, Motivator & Entrepreneur.  She is the owner of CAS Consultants, a boutique consulting firm in Dallas, TX focusing on ‘Empowering Entrepreneurs Through Financial Management’. Ms. Radcliffe is a recipient of the National Financial Educators Award & is dedicated to educating the community on Financial Literacy – Credit & Budget Management for Consumers & Small Businesses.

6 Common Credit Myths Debunked!

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Rod Griffin, the Director of Public Education for Experian, sets the record straight about what does—and what definitely does not—affect your credit score.

Ever heard that getting 10,000 followers on Twitter can raise your credit score by 50 points? Or that your income determines your credit score?

There’s a lot of so-called “information” about credit scores, credit reports, and loans that you can find online. And—shocker—a lot of it isn’t true.

We asked expert Rod Griffin (@Rod_Griffin), Director of Public Education for the credit bureau Experian to sit down with us and debunk some of the most common myths because, when it comes to your credit, it pays to separate the fake and the factual.

MYTH #1: If You Pay a Bad Debt, It Will Be Deleted from Your Credit Report.

Rod says: “That’s not true. If you have a collection account and you pay it off, it will be updated on your credit report to show that it’s been paid, but it’s going to be on that credit report for seven years from what we call the “original delinquency date” of the debt.

The original delinquency date is simply the date that the account first became late, and it’s the most important date in the credit report because it determines when negative information is deleted. So if you have an account that becomes late, and you never catch up on it, it will get charged off as a loss, and you get sent to collections. Under federal law, the collection agency must report the original delinquency date, so it comes off at the right time.”

MYTH #2: You Should Only Pay 95% of Your Credit Card Balance Each Month.

Rod says: “The myth here is that you need to keep a balance on your credit card in order to help your credit score—and that’s just not true.

The ideal thing to do is pay your balances in full each month if you can. When you pay a balance in full each month it keeps that credit utilization rate [how much of your credit limit you’re using] at essentially zero, which is a low as you can keep it. And you don’t have to pay interest on your remaining balances, so it saves you money.”

MYTH #3: A Divorce Decree Separates Joint Accounts and Removes You from Responsibility for That Debt.

Rod says: “It does not. A divorce decree does not break the contract with the lender. A divorce decree just says that “I am taking responsibility for paying this debt” and “my ex-spouse is taking responsibility for that debt.” And it’s an agreement between you and the court. It doesn’t change the contract with the lender.

So if your ex doesn’t pay a debt that they’re supposed to pay, but it’s joint account, it can still hurt your credit history. In order to change a contract with a lender when you’re going through a divorce, you must go to the lender, and they must agree to change that contract. They won’t necessarily do that. They’re not bound to change it.

So for example: If you have a mortgage, and it’s joint with the spouse that you’re divorcing, you might have to essentially get a new mortgage to pay for that home to separate your spouse from that account. A lender might not agree to do that if you don’t qualify. This myth can really get people into a lot of trouble. Since it’s an angry bitter time, quite often, one spouse or the other will decide they’re going to hurt the spouse they’re divorcing and run up their credit card bill. Then they find out that they’ve hurt themselves as badly as they’ve hurt the other person.”

MYTH #4: You Can Pay Someone to Remove Accurate Negative Information from Your Credit Report.

Rod says: “You cannot. If someone says that they can remove accurate information if you pay them, they’re actually violating federal law. So be very cautious about some who says, ‘If you pay me, I can fix your credit.'”

MYTH #5: Disputing Information on Your Credit Report Will Hurt Your Credit Scores.

Rod says: “That too is false. And a relatively common myth. If there is something in your credit report that you believe is inaccurate, you should dispute it. It’s free. Go to www.Experian.com/dispute and follow the instructions. If you have a personal copy of your credit report, you can enter your number for that report and it will pop up and you can go through it. If you don’t have a report, you can give us some information and we will provide you with a free report right there on the spot. It’s very easy and free and does not affect scores or credit decision in any way.”

MYTH #6: Employers Get Credit Scores and Use Them to Decide Whether You Get a Job.

Rod says: “Absolutely false. Employers never get credit scores. They get what we call an ’employment insight report’ which is a truncated version of a credit report, but they never get a credit score. That’s a very common myth. The employment insight report doesn’t include account numbers because they don’t need that kind of information. They use the information on that report to verify the information you provide in your app. They use it as an identity verification tool.

They will also use the information on that report, for example, if you are applying for a job that involves handling the company’s money. If you’re going through financial difficulties and you’re going to be handling a company’s money, it might be an indicator that they should look further into your background so that they can understand that you wouldn’t be tempted to commit fraud, for example. The other reason that businesses use credit reports is that they can verify your identity for security purposes. So, important and valid reasons to use a report. But employers never get a credit score.”

If you want to know more about how the information on your credit report affects your credit score, check out Rod’s answers in our blog post, “Let’s Get Creducated!”

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About the Contributor: 

Rod Griffin is Director of Public Education for Experian. He leads Experian’s national consumer education programs and supports the company’s community involvement and corporate responsibility efforts. Rod oversees the company’s financial literacy grant program, which awarded more than $850,000 in 2015 to non-profit programs that help people achieve financial success. He works with consumer advocates, financial educators and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft.

Rod says, “My goal is to help people use a credit report to be a financial tool instead of a mysterious thing that lenders look at and take into a back room and tell you you’re approved or you’re not. I work to help any consumer be better prepared to get the credit they need, at the time they need it, and at rates and terms that are favorable to them.”

Let’s Get “Creducated”!

Learning the Basics of Credit with Rod Griffin, the Director of Public Education for Experian.

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What’s your level of credit education? Do you know your credit utilization ratio at any given moment, or are you more of an “I just maxed out my $1,000 credit card on lottery tickets—that’s investing, right?” kind of person?

No matter what your financial status, being educated about credit and its uses is important. Having good credit can save you money and protect you from payday loan debt traps. If you aren’t happy with your credit score, it can be improved—you just need to know how to start.

We spoke with Rod Griffin (@Rod_Griffin), Director of Public Education for Experian, one of the major credit bureaus, for a high-level refresher on the basics of credit and how you can best use it to improve your financial life. So whether you’re new to the world of personal finance and credit, or you want to revisit the fundamentals before taking on a major purchase (or taking out a loan), here’s a quick guide to the credit basics that can impact your life.

Lesson 1: Your Credit Score Matters

What is a credit score?

Rod says, “A credit score is a tool that lenders use to analyze the information on a credit report and determine lending risk. It’s kind of like a grade on a school paper—the school paper is a report that represents your credit history. The grade on the paper is your credit score. It’s what represents that information in that credit report. And a credit score is used by lenders to determine the risk of lending to a person.”

Why are credit scores so important?

“The better your credit scores are, the lower the risk of lending to you—meaning you’ll repay that loan as agreed. This means that you will qualify for lower interest rates in most cases, which will save you money and help you get the credit you need. So a credit score is important because it shows lenders that you are a good credit risk based on the information in your credit report.”

Lesson 2: The Key to Your Credit Score is Your Credit Report

Are credit reports and credit scores the same thing?

“It’s important to distinguish between a credit report and a credit score, because they’re not the same thing. And a credit score is not part of a credit report—that’s a very common myth. A credit report is the information about how you pay your debts. So it has info about your credit cards, installment loans, and so on, and whether you paid them on time or not. When a lender asks for a credit report, they can also ask that a credit score be calculated, or they can calculate it themselves, using that information from the credit report. The score is a representation of that information at that moment in time.

When you get your credit score you should also get a credit score report, a document or explanation of what that score means in terms of risk. This will show you if you are a good credit risk, a bad credit risk or a marginal credit risk. And it should include the risk factors that go with that score from your credit report, so you can go back to that credit report and identify those issues.”

Lesson 3: Checking Your Credit Report is Easier (and Cheaper) Than You Might Think

Should I check my credit report? Will it cost me anything?

“I would say, first and foremost, get your credit report. It’s free once every twelve months at AnnualCreditReport.com. And the credit report is what’s really important because that’s the information that you can own and manage and control. Get that credit report free once every 12 months. When you do that you can purchase a credit score, that’s one way. At Experian, you get the free report, and get the score, an explanation of what’s on that score in terms of risk, the scale that is used, and the risk factors in your credit report that most affected that score. You can purchase scores in other places, typically between $15-$20.”

I’ve heard checking my credit report will actually hurt my credit score. Is this true?

“That’s absolutely false. You can check your own credit report as often you like and it will never affect your credit scores or your creditworthiness, or your ability to qualify for credit. When you check your own credit report—and when I say check your own, I mean go to Experian.com, AnnualCreditReport.com, FreeCreditReport.com, those kinds of sites. Not from a lender. If you apply for credit or go to a lender who has to meet the Fair Credit Reporting Act for permissible reporting purposes, or if they have to enter it as if you were applying—then it would result in a hard inquiry, and that would affect scores, minimally. But if you get your own report, that will not affect scores in any way. That will result in a soft inquiry. That soft inquiry is simply a record that you looked at your report. Never be afraid to check your own report.”

Lesson 4: Your Credit Score Can be Repaired

What can I do to help my credit score?

“For most people, particularly in the subprime category, (if their credit scores or poor or won’t qualify them for the best rates), what we typically see are two common issues for their credit scores:

  1. Delinquency Making Payments. With poor credit scores the delinquencies are worse. It’s all related to payment history. For most people, catching up on late payments is the first thing they need to do. Bring those accounts current.
  2.  High Credit Card Balances. If you have high credit card balances and you’re maxing them out, that’s going to hurt your credit score significantly.

In most cases, if people can do those two things, their credit scores are going to start to improve.”

What are some of the other factors that can hurt my credit score?

“Other things might hurt a credit score would be:

  • Applying for a lot of credit all at once. If you have a number of inquiries in a short time, that might drag your score down a bit. Although it typically rebounds pretty quickly.
  • The length of your credit history. This is just a matter of patience in some cases. If you have a very short credit history, you may have to wait six months or a year or maybe two depending on how you’re using credit. In order to build that score if you’re doing everything else well.

That’s why the risk factors on your credit report are so important. They’ll tell you exactly what the risk factors are that you need to address.”

Rod_Griffin

 

 

 

 

 

 

About the Contributor: 

Rod Griffin is Director of Public Education for Experian. He leads Experian’s national consumer education programs and supports the company’s community involvement and corporate responsibility efforts. Rod oversees the company’s financial literacy grant program, which awarded more than $850,000 in 2015 to non-profit programs that help people achieve financial success. He works with consumer advocates, financial educators and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft.

Rod says, “My goal is to help people use a credit report to be a financial tool instead of a mysterious thing that lenders look at and take into a back room and tell you you’re approved or you’re not. I work to help any consumer be better prepared to get the credit they need, at the time they need it, and at rates and terms that are favorable to them.”

Is Checking your Credit Score Bad?

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Short answer? No.

Slightly longer answer? It depends.

For the complete answer, keep reading…

There are two types of Credit Inquiries: Hard Inquiries and Soft Inquiries

And when it comes to how they affect your credit score, they’re pretty much night and day.

Hard Inquiries

Hard inquiries happen whenever you are applying for new credit, like a mortgage, credit card, or personal loan. They usually require that your authorization before the lender can pull your credit history.

Hard Inquiries are recorded on your credit report and will stay on that report for two years. Since a hard credit inquiry is an indication that you are looking for a loan, the inquiry can have a negative effect on your credit score for up to a year.

Why is that? Well, according to experts at FICO, a borrower with six or more hard credit inquiries on their report is up to eight times more likely to file for bankruptcy than someone with no inquiries.[1] Those same experts also say that a typical hard inquiry can knock up to five points off your credit score.[2]

There is an exception, however, and it’s when you have several inquiries within the same 45-day period. Since it is typical (and a good idea!) for people to “rate shop” when applying for a mortgage, auto, or student loan, the credit bureaus will bundle all these separate inquiries together. You’ll still get dinged for the hard inquiry, but you’ll only get dinged once.

A typical hard inquiry can knock up to five points off your credit score.

Soft Inquiries

There are several different situations under which a soft credit inquiry might occur. Some of the most common include looking for a new apartment, getting hired for a new job, and checking your own credit score.

Basically, soft inquiries are when anyone other than a lender is looking at your credit score. Many credit card companies will run a soft inquiry before sending you a “pre-approved” credit card offer.[3]

The great thing about soft inquiries is that they do not affect your credit score. While soft inquiries are indeed recorded on your credit report, they are only visible to you. If a lender pulls a copy of your credit report, they will only be able to view your hard inquiries. So while soft inquiries do end up on your report, it’s basically as a technicality.

If you have bad credit and are worried that applying for a loan that could hurt your credit score, there are certain kinds of lenders (including OppLoans) that will only run a soft credit check while reviewing your application. Even if you apply and get turned down, it won’t affect your credit.

P.S. Did you know that you can request a free copy of your credit report?

It’s true! We swear!

In fact, it’s the law. Under the Fair Credit Reporting Act (FCRA), every person is legally entitled to receive one free copy of their credit report per year from each of the three major credit bureaus — TransUnion, Experian, and Equifax.[4] For those keeping score, that’s three free credit reports per year.

But first you have to ask. To get a free copy of your credit report, just visit www.annualcreditreport.com. If you find an error on your report, just follow this helpful guide from the Federal Trade Commission (FTC).

References:

  1. “The Difference Between Hard and Soft Credit Inquiries” TransUnion.com. Accessed November 11, 2016 from http://blog.transunion.com/the-difference-between-hard-and-soft-credit-inquiries/
  2. “What are inquiries and how do they affect my FICO score?” MyFico.com. Accessed November 11, 2016 from http://www.myfico.com/crediteducation/questions/inquiry-credit-score.aspx
  3. “Hard Inquiries and Soft Inquiries.” Credit Karma. Retrieved November 10, 2016 from https://www.creditkarma.com/article/hard_inquiries_and_soft_inquiries
  4. “Free Credit Reports.” Federal Trade Commission. Accessed November 19, 2016 from https://www.consumer.ftc.gov/articles/0155-free-credit-reports

What Does a “No Credit Check” Loan Really Mean?

What Does a No Credit Check Loan Really Mean?

If you have bad credit, getting a safe, responsible loan can feel impossible. After all, any legit lender is going to run a credit check. And once they see your score, they’ll just turn you down flat, right?

Wrong.

There are lenders out there who run credit checks but still lend to people with bad credit.

(We know, because we’re one of them.)

To explain how this works, we’ve gotta get some stuff out of the way first. Namely, we need to talk about the difference between hard credit checks and soft credit checks.

Hard credit checks

A hard credit check means pulling a full copy of your credit history.

Most often, a hard credit check occurs when a person is applying for new credit. Many lenders see too many hard checks as a sign that a person is desperate for credit, which makes the lenders less likely to lend to them. In fact, running a hard credit check can actually lower your credit score by up to five points!

According to the experts at FICO, a person with six hard credit checks within a one-year span is eight times as likely to file for bankruptcy than someone with no hard checks.[1]

Soft credit checks

A soft credit check returns much less data than a hard check. Instead of a person’s full credit report, it gives them a brief overview.

While hard credit checks have to be authorized, soft credit checks don’t. You know those pre-approved credit card offers you get in the mail? Those lenders likely ran a soft check on you before sending you the offer.

The great thing about soft credit checks is that they don’t show up on your credit report. Or rather, they don’t show up when other people look at your credit report. If you request a copy of your report, you’ll be able to see your history of soft credit checks, but other parties who look at your credit will not.

For all intents and purposes, soft credit checks do not show up on your credit history—and they definitely do not affect your credit score.

Okeedoke. Now that we’ve got that out of the way…

What are no credit check lenders?

Next time you see an ad for a “no credit check lender” just go ahead and replace the words “no credit check” with “payday” because they are usually one and the same.

The reason that payday lenders don’t check their customers’ credit is because they don’t care if their customers can’t pay their loans back.

Actually, you know what? Scratch that. They are actively counting on their customers not being able to pay their loans back on time. The more customers that can’t afford their loans, the more loans the payday lender gets to rollover.

What’s loan rollover?

It’s the worst. Really.

Loan rollover is a process in which payday lenders offer their customer an extension on the due date of their loan. It sounds nice at first, but it’s really just a chance for the lender to charge the borrower additional interest for borrowing the same amount of money.

Here’s an example:

You take out a $300 payday loan that costs $15 per $100 borrowed. The loan is due in 14 days, and you will owe $345 (The $300 that you borrowed + $45 in interest).

But when that 14 days is up, you find that you don’t have $345 to spare. So you roll the loan over. You only pay the $45 that’s due in interest, and you get another 14 days to pay back the $345 you still owe.

See what happened there? You pay the lender the $45 in interest, and then they charge you an additional $45 for the two-week extension. A loan that cost you $15 per $100 borrowed now costs you $30 per $100.

Measured as an annual percentage rate (APR), the true cost of this loan is pretty staggering: 390 percent. If you had that loan outstanding over a full year, you would pay almost four times what you borrowed in interest alone.

The real problem with no credit check loans

Now, a 390 percent APR might not seem to matter so much for a loan that’s only two weeks long, but that’s precisely why rollover is so sneaky and awful: the more you roll the loan over, the more expensive your loan becomes (read more in The Truth About No Credit Check Loans).

That’s why payday lenders don’t run a credit check on their potential customers. Whereas most lenders are concerned about whether their customers can afford to repay their loans, payday lenders are the exact opposite: They are hoping their customers can’t repay.

Don’t believe us? Well how about this:

According to the Consumer Financial Protection Bureau (CFPB), over 80 percent of payday loans are the result of rollover or reborrowing.[2] Basically, if payday loan customers could actually afford to pay their loans on time, the industry would go kaput.

Not. Great.

What about soft credit check loans?

Both “no credit check” and “soft credit check” lenders lend to people with bad credit, the kinds of folks who most traditional lenders would turn down. The big difference between the two is that “soft credit check” lenders genuinely care about whether or not you can repay the loan they’re offering.

That’s why soft credit check lenders check your credit before extending you an offer. They want to make sure it’s a loan you can actually afford. Unlike no credit check lenders, they don’t plan on rolling over your loan again and again and again. They intend to give you a loan that you can pay off the first time.

But that’s not the only difference. While payday lenders offer you short-term loans that you have to repay all at once (something that few borrowers can actually afford to do), soft credit check lenders usually offer long-term installment loans. These loans are designed to be paid off a little bit at a time, with equally sized, regularly scheduled payments.

And many times these loans are amortizing, which means that (long story short) you can save money by paying the loan off early, something you can’t do with payday loans.

You deserve better than a payday loan

At OppLoans, we run soft credit checks on all our applications because we care about our customers’ ability to repay the loans we’re offering. Plus, our loans are up to 125 percent cheaper than your typical payday loan. Applying for a loan won’t cause your credit score to go down, and you’ll be in much better, more responsible hands than you would with a payday lender.

References:

  1. “What are inquiries and how do they affect my FICO score?” MyFico.com. Accessed November 14, 2016 from http://www.myfico.com/crediteducation/questions/inquiry-credit-score.aspx.
  2. Burke, K., Lanning, J., Leary, J., Wang, J. “CFPB Data Point: Payday Lending.” Consumer Financial Protection Bureau. Accessed November 14, 2016 from http://files.consumerfinance.gov/f/201403_cfpb_report_payday-lending.pdf.

5 Must-Know’s Before Applying for a “No Credit Check” Loan

5 Must-Know’s Before Applying for a No Credit Check Loan

Picture this: You’re standing in front of your car, staring down at your bumper – or at least the place where your bumper used to be. Your actual bumper is lying in the road 50 feet away. Stupid deer.

You can’t drive a car without a bumper, so you’ll need to get it repaired. That’s going to cost money—money that you do not have on hand. You used to have a $1,000 emergency fund, but that got eaten up when your boiler decided to die in the middle of January.

You’re going to need to take out a loan to pay for the repairs. There’s no way around it.

Oh, and here’s the kicker: Your credit score is only 590.

That means a traditional bank loan is out, as are most personal loans offered by online lenders. Those lenders will check your credit and could give you the boot pretty much immediately.

It looks like you’re going to need a no credit check loan.

But before you sign that loan agreement, here are five things you need to know …

1. Stay away from payday and title loans

For real. If you have bad credit and need a fast cash loan, taking out a payday or title loan is pretty much the last thing you should do.

Both payday and title loans are short-term loans that come with interest rates around 15 to 25 percent. But those rates can be seriously misleading. When measured as an annual percentage rate (APR), payday loans have an average rate around 390 percent, while title loans have an APR of 300 percent.

What that means is they’re really, really expensive.

In addition to those high rates, these predatory loans are designed to be paid off in a single lump sum, which can be hard to do for many borrowers, which is why they will usually roll the loan over. Every time they do that, they increase the cost of their loan. That’s how a 15 percent interest rate can turn into a 390 percent APR! You can learn more in the article The High Cost of Payday Loans.

Sometimes, a no credit check loan is necessary—but steering clear of payday and title loans is always a must.

2. Make sure the lender checks your ability to repay.

This is something that a lot of payday and title lenders don’t do. That’s one of the reasons those loans are so dangerous.

With a traditional unsecured personal loan, the lender will lose money if you can’t pay your loan back. That’s why they always check to make sure that you can afford your loan.

But did you know that many no credit check lenders actually count on their customers not paying their loans back on time?

With predatory payday and title loans, borrowers who can’t afford their loans are more likely to roll the loan over and incur additional interest. Every time the loan rolls over, it becomes more and more profitable for the lender. Combine loan rollover with interest rates north of 300 percent, and you have a recipe for financial disaster.

Lenders that don’t confirm your ability to repay the loan are probably taking you for a ride. Do yourself a favor and just steer clear of them.

3. If possible, find a lender that does soft credit inquires

Just because a lender checks your credit score, that doesn’t mean they’re going to turn you down. And if they’re only running a soft inquiry on your credit, then applying for the loan won’t show up on your credit report.

There are two kinds of credit inquires: hard inquiries and soft inquiries. Hard inquiries return a lot more detailed information to the requester, but they also get recorded on your credit report. Too many recent inquiries can hurt your credit score, as it looks like you are desperate for a loan.[1]

Soft inquiries, on the other hand, only return a more general overview and are not recorded on your credit report. So even if you think your credit score is so low that no lender could possibly approve you for a loan, you should still consider lenders that run a soft inquiry while processing your application.

For one thing, running a soft inquiry means that the lender is considering your ability to repay. That’s a good sign they’re on the up and up.

4. Don’t forget: Defaulting on a no credit check loan could still hurt your credit.

Even if a lender isn’t checking your credit score, failing to pay that loan back could (and probably will) negatively affect your credit.

Some no credit check lenders might report your late or non-payments directly to the the three major credit bureaus (Experian, TransUnion, and Equifax). If you default on your loan, the bureaus will know, and the info will go on your credit report.

And even a lender that doesn’t report info to the bureaus could still sell your unpaid debt to a collections agency. Once it’s been sold to them, that collections agency will likely report the unpaid debt to the credit bureaus.

Likewise, a lender or a collections agency could take you to court in order to reclaim the money that you owe them. These usually result in your wages being garnished until the debt is fully repaid. A court decision against you will also go on your credit report.

Lastly, there are other specialty reporting agencies beyond the big three. Some no credit check lenders will report payment information to these businesses. That info could be used to deny you a bad credit or no credit check loan in the future.[2]

5. Do shop around

Remember, a loan is basically a product. So when you’re looking to buy one, you shouldn’t treat the process any different than shopping for a pair of jeans or a new carburetor.

Shop around! Different lenders are going to be offering different loan products with different terms and different rates. Even if it’s tempting, or you’re running short on time, don’t just take the first offer you receive.

One of the great things about online lending is that you have way more options than you would have just 10 or 15 years ago. There are lot of personal lenders that will let you apply for a loan online and will deposit the funds into your account once you’re approved.

Take a spin on Lendingtree to see what kind of loans are available to you, and make sure to check out the customer reviews to see what kinds of experience other people have had. Odds are, the right no credit check loan for you is out there somewhere. You can read more in Bad Credit Helper: How To Shop for a Credit Counselor.

It’s up to you to find it.

If you have bad credit and need a loan, a personal installment loan from OppLoans is always a safe, reliable choice. You can apply online by filling out a simple application, and you will receive a decision within minutes. We only run soft credit inquiries, which means that applying will not hurt your credit score, and we always verify our customers’ ability to repay.

Personal installment loans from OppLoans come with larger principals ($1,000-$5,000), longer terms (6-36 months), and lower rates (up to 125 percent less) than your typical payday or title loan. Our loans are designed to be repaid in a series of regular, manageable payments that won’t bust your budget. We don’t charge any prepayment penalties either, so paying your loan off early will save you money!

At OppLoans, we think you deserve better than a payday loan. To learn more, or to apply for a loan today, just visit our homepage, www.OppLoans.com.

References:

  1. “Hard Inquiries and Soft Inquiries.” Credit Karma. Retrieved November 10, 2016 from https://www.creditkarma.com/article/hard_inquiries_and_soft_inquiries.
  2. “If I take out a payday loan, could it hurt my credit? Consumer Financial Protection Bureau. Retrieved November 10, 2016 from http://www.consumerfinance.gov/askcfpb/1635/if-i-take-out-payday-loan-could-it-hurt-my-credit.html.

PRO TIPS: Answers From Real Personal Finance Experts

real-personal-finance

Let’s say you have a question about your personal finances. Maybe it’s about how to find a copy of your credit report—is that something you have pay for? Or maybe you want to learn more about building a great monthly budget, like how much room should you leave for unexpected expenses?

With your question firmly in mind, you sit down at your computer, open up Google and type it in. Google responds by delivering you page after page of tips, tricks and … cute panda videos? How do you know that these random web pages delivered to your digital doorstep contain the best advice? Are you really going to put your future into the hands of an algorithm?

Well, we’ve reached out to real life financial professionals from all across the country and asked them what kinds of questions they most commonly received, and what answers they give to them!

Think of it as your “personal finance crib sheet.” Enjoy!

  1. Mark Kantrowitz, Publisher and VP of Strategy, Cappex.com, @cappex
  2. The most common questions I hear about how to pay for college, especially questions about student loan debt. For example, how much student loan debt is reasonable and affordable?

    I find that people want short answers, and are more likely to follow the advice if it is encoded as simple rules of thumb. In this case, I usually say that the student loan debt should be kept in sync with income. Total student loan debt at graduation should be less than the annual starting salary, and, ideally, a lot less. If total debt is less than annual income, the borrower should be able to repay their student loans in ten years or less.

  3. Angel Radcliffe, MBA – CEO, CAS Consultants, @Cas_Dallas
  4. Some of the common questions I receive are:

    Why do I have three credit reports & scores? Equifax, Transunion & Experian are the largest credit reporting agencies in the US. Years ago, the bureau's only reported by region, they now all report country-wide. A creditor is only required to report to 1 credit bureau, although some creditors may report to all 3, hence why data on your report may vary. (Example: Credit Card A with a 2 year payment history is reporting to Equifax & Experian. You apply for a new card 'Credit Card B' which checks your Transunion report. Transunion is showing no payment history for any account (assuming credit card A is your only credit account) Credit Card B denies you)

    How do you budget? When budgeting you want to look at your NET income. Many make the mistake of budgeting from their gross, NET is what you actually bring home AFTER taxes. I teach my clients the 50/30/20 rule, no more than 50% of net income should be spent on needs, no more than 30% on wants, and save at minimum 20% of net income.

    What should I look for when applying for credit? When applying for credit, always look for the lowest interest rate. If you are applying for a credit card, look to see if you will be charged any type of annual/program fee, what the interest rate is and if the card has any perks such as cash back or mileage offers. If you are applying for a loan or line of credit, shop around for the best interest rate, be cognizant of the loan terms/length.

    How much of a balance should I carry? If you ever have to carry a balance, be sure it's below 30%. 30% is a magic number when it comes to your available credit ratio. Staying below this number will help keep your credit score up, if you should ever carry a balance greater than 30% , you will see your credit scores slump at the drop of a dime. Creditors see you as a risk when you carry high balances and you may be denied credit or your credit limits may be reduced if you carry a high balance for long periods of time.

  5. Kelvin Jiang, CFA – Buysidefocus.com, @buysidefocus
  6. How to balance one’s long-term debt to asset ratio is the most common question I get.

    Just like corporations that take on loans to fund their growth, people can take out 1-3 years loans to fund personal projects such as home improvement, large purchases, and starting a personal business. Especially given the low-interest rate environment we are in, personal loans has never been as affordable. The question is, what is the right amount of loans for you?

    My advice is, create a personal budget to assess what amount of principal and interest payment you can afford each month. Use the interest you could afford and work backward to calculate the total amount of loans you can take out. If your project produces income in the future, the cost of the loan would be more than covered by your future cash flows.

  7. Katie Ross, Education and Development Manager, American Consumer Credit Counseling, @TalkCentsBlog
  8. Many of the questions we frequently get from clients are related to common financial myths or where to access certain information. When it comes to credit and personal finance, there is a lot of misinformation floating around. Here are the three most common questions we get:

    1) Can I close a credit card account if there is still a balance on the card? Yes, you can! It is a commonly held belief that an account with an outstanding balance cannot be closed until the balance is paid. The money does have to be paid back, of course, but borrowers can close their accounts at any time. While closing an account is not always beneficial to a credit score, it is often necessary to discourage unwise spending habits and preventing deeper debt problems.

    2) How can I access my credit report/score? Many consumers want to know what creditors see when they assess creditworthiness. Any consumer can receive one free copy of their credit report each year from each of the three major credit reporting agencies (Transunion, Equifax, and Experian). To access their free credit reports, consumers should go towww.AnnualCreditReport.com. Each credit report is requested separately, so it is recommended to spread out the three free requests throughout the year in order to monitor for identity theft or fraud. Credit scores are a little trickier. Many banks and credit card companies are beginning to include credit scores on monthly statements. If this service is not offered by a consumer’s account holders, they can buy their score directly from www.MyFICO.com. It is possible to get access a credit score for free, but many sites will only package the “free” score with a credit monitoring subscription service, so consumers should read all conditions before accessing their score.

    What’s the difference between debt consolidation and debt settlement? If a consumer is looking for help with their debt, there are a lot of “debt relief” services available that offer different methods of solving debt problems. Debt Settlement or Debt Resolution services are generally considered riskier because they require consumers to allow their debt to go into default so that creditors will accept a lump sum payment to settle the debt. This has severe credit implications as well as tax liabilities. Debt Consolidation or Debt Management on the other hand usually allows those with debt to safely pay down their debt gradually by reducing interest rates and structuring a repayment plan that is designed to fit the consumer’s budget.

    To learn more about the ins and outs of personal finance, you can follow these experts on Twitter. And check back next week when we’ll have even more expert advice on the OppLoans Blog.

OppLoans Word of the Week: Credit Score

credit-score-image

Remember when you were in high school and you got that D on a chemistry test (stupid valent bonds) and you thought to yourself, “Is this bad grade really going to affect my life?” Fast forward to the present day and you’ll see that, actually, that one bad grade maybe didn’t have a huge impact.

Well, there is one grade that matters more; in fact, it matters a lot more. This grade follows you around wherever you go. It follows you to the bank when you’re applying for a loan, it follows you to that new apartment you’re hoping to rent, it even follows you when you’re interviewing for a job! That grade is your credit score, and it might just be the most important grade you’ll ever get.

What is a Credit Score?

A credit score is a number that’s based on the information in your credit report, a document that tracks your history of credit use. Your credit report records data like how much credit you use, what kind of credit sources you’ve employed, whether you pay your bills on time, and whether you’ve ever been sent to collections or declared bankruptcy. Credit reports are created and maintained by the three major credit bureaus: TransUnion, Experian, and Equifax.

Your credit score takes all the information in your credit report and turns it into a single number; this number can then be used by lenders, landlords, and even prospective employers, to decide whether or not they want to do business with you. The higher your credit score, the better your credit.

What about FICO scores?

A FICO score is a type of credit score, but it also just so happens to be the score that’s most widely used. Most of the time, if somebody is talking about your “credit score”, they mean your “FICO score”. The FICO score was created by Fair, Isaac and Company in 1989. (The company has since changed its name to FICO.)

The FICO score is measured on scale from 300 to 850 (850 is a “perfect” score, and also not very realistic for anyone). Your FICO score weights different areas of your credit history more heavily than others. For instance, your payment history takes up 35 percent of your score and your total amounts owed takes up 30 percent. If your FICO score is below 630, you might have trouble getting a loan from a traditional lender. If that’s the case, you might consider taking out a safe, manageable, personal loan from OppLoans. OppLoans reports your on-time payments to the credit bureaus so you get the cash you need now and you can improve your credit score over time.

Read more about credit scores in our Financial Terms Glossary.

Last week’s entry: Cash Advance

Previous entries:

Repossession

Rollover

Annual Percentage Rate