Did Your Bad Credit Score Just Go Up? Here’s Why.

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New rules from the three major credit bureaus mean rising scores for millions of US consumers.

If you’ve got bad credit, then you know perfectly well how powerful a credit score can be.

Credit scores determines what kinds of loans, credit cards, and interest rates you qualify for, and they can affect where you live and work, as some landlords and employers check your credit before offering you a job or apartment.

Having bad credit means that you are shut out from financial opportunity, from affordable loans and interest rates, from credit card rewards and from owning your own home. It feels like no matter what you do, your score is never going to get any better.

Well, guess what? There’s a good chance that your credit score is going up.

Recent changes announced by the three major credit bureaus—Experian, TransUnion, and Equifax—will lead to millions of debts and liens dropping off people’s credit reports–causing their scores to rise.

According to Howard Dvorkin (@HowardDvorkin), CPA and Chairman of Debt.com (@debtcom), “These changes are some of the best financial news for average Americans in quite some time.”

“Everyone likes talking about the unemployment rate and the stock market, but the sad truth is: If you don’t have a job, the unemployment rate is 100 percent. And you definitely aren’t playing the markets.”

“This is the best news that most folks don’t really understand,” says Dvorkin. “The Big Three credit bureaus—Equifax, Experian, and TransUnion—have a big say over your life. They create credit reports on you that affect your mortgages, auto loan, and maybe even your rent.”

Got that? Okay. Here’s what you need to know.

What’s changing?

One of the major changes that’s occurring is to how the credit bureaus enforce their rules regarding public records—a major source of financial information.

According to nationally recognized credit expert Jeanne Kelly, (@creditscoop), “The credit bureaus have to verify four points of consumer data in order to use a tax lien or judgment as part of a consumer’s credit score. If 3 of the 4 points don’t match up, they cannot use the negative item as part of your credit scoring.”

“They are now required to correctly have: 1. Name; 2. Address; 3. Social Security Number; 4. Birthdate. If they can not verify it will be removed from your report and you will see a score increase.”

Kelly adds, “If the item was entered years ago you won’t get as much of an increase as if it was recent… If it is still due, you want to still resolve.”

“Starting this month, if you have civil judgments or tax liens, they’ll be removed from your credit report,” says Dvorkin. “Moving forward, those two things will need to be updated every 90 days, which means if you settle those, they’ll get updated much faster.”

And those aren’t the only changes.

“Starting in mid-September, the credit bureaus will wait 180 days before including medical debt on their reports,” says Dvorkin. “This is a big deal because, in six months, you might be able to pay off or negotiate payment for expensive medical procedures, as well as dispute those charges with your insurance company.”

“Even better,” he adds, “those credit bureaus will delete medical debt from your reports when your insurer pays it off. So it’ll be like it never existed. The government says 15 million Americans have only one black mark on their credit report, and it’s medical debt. This will definitely help them.”

“The credit bureau changes are fantastic news for all consumers,” says attorney, author, and  advocate, Alexis Moore (@AlexisMooreLaw). “It’s one less piece of data that the credit bureaus can store and furnish which is great news, since the majority of Americans today experience inaccurate data on their credit report and never get it completely resolved even with litigation.”

“I know,” says Moore, “I was one of the persons victimized by inaccurate data. And even with litigation, there are still errors that remain and continue to be at issue for which I have to litigate again and again.”

Why are these changes happening?

These changes have been a long time coming. Consumer and government advocates have been pushing for years for the credit bureaus to be more accurate with the data they included on people’s reports.

Simply put: too many people were ending up with inaccurate information on their reports, needlessly damaging their credit.

“Inaccurate data being furnished became too common in this area, so the public officials finally got busy and said no more,” says Moore, adding that this is “exactly what needs to happen in other areas of the data that they store – way too many pieces of information are inaccurately stored and furnished by these agencies, jeopardizing consumers financially—which in turn wreaks havoc on their lives in all ways from employment, housing, insurance, credit lines you name it.”

“The credit bureaus control it and we need them to store and furnish less data.”

How will your score be affected?

It depends. Your score might not be affected at all if you don’t have any tax liens, civil judgements, or medical debt on your report.

But if you do…

According to Dvorkin, “All this can mean you might gain 10 to 20 points on your credit score.”

“That may not sound like a lot when those scores go up to 850,” he says, pointing out that, “in fact, it won’t make the difference between getting a low mortgage interest rate or a steep one.”

“But any move upward is the right direction,” he adds, “and depending on how it all shakes out, millions of Americans might benefit.”

Moore says that some of the clients she works with have seen even larger bumps:

“My clients have experienced 24-35 points since this change, getting better car loans and mortgages because of it—a win-win for consumers!

And consumers aren’t the only ones who will be seeing benefits. A rise in credit scores means a rise in qualified applicants for lenders nationwide.

“The lenders are loving it,” says Moore. “They can offer mortgages to clients that they perhaps couldn’t—so another way for them to cash in, especially in northern California where my office is located. There is a housing shortage here and lenders are more than happy to lend more money and be able to help more consumers than they otherwise would not have been.”

What that means for you is simple: be careful. There are lots of sketchy lenders out there who would be happy to sign you up for a mortgage, car, or personal loan that you actually can’t afford!

After all, your credit score just went up. The last thing you need is for a bad credit loan from a predatory lender to send it back down again.

Is your score going to be affected by these changes? If so, we’d love to hear about it! You can shoot us an email at by clicking here or find us on Twitter at @OppLoans.


 Contributors
Howard S. Dvorkin (@HowardDvorkin) is a two-time author, personal finance expert, community service champion and Chairman of Debt.com. As one of the most highly regarded debt and credit expert in the United States and has played an instrumental role in drafting both State and Federal Legislation. Howard’s latest book “Power Up: Taking Charge of Your Financial Destiny” provides consumers with the detailed tools that they need to live debt free and regain their financial freedom. Howard has appeared as a finance expert on CBS Nightly News, ABC World News Tonight, The Early Show, Fox News, and CNN.
Jeanne Kelly (@creditscoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out her site to get the credit help you need!
Alexis Moore (@AlexisMooreLaw) is an Attorney, Author and Advocate in El Dorado Hills, CA.  Part of her law practice is devoted to providing clients legal advocacy who have inaccurate data on their credit reports or that are experiencing debt collector abuse.  She also serves as a Risk Management Consultant worldwide for clients who are experiencing cyberabuse and stalking. Her upcoming book;  Surviving a Cyberstalker: How to Prevent and Survive Cyberabuse and Stalking is due out September 1, 2017.

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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The Journey to Turn Your Credit Around

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Improving your credit score is like building Rome. It isn’t going to happen overnight and you probably don’t want to do it alone. That’s why you have to see improving your credit as a journey, and why you should get help from friends, family, and your buddies over here at the OppLoans Financial Sense Blog.

In order to give you a sense of the steps you’ll take on your credit score voyage, we spoke to Courtney Sanders (@thinkngrowchick), an entrepreneur and speaker who overcame her own bad credit problems, and friend of the blog Jeanne Kelly (@creditscoop), one of our favorite nationally recognized credit experts.

Lace up your shoes, because your credit journey is about to begin.

Start paying off your bills on time.

This can be the simplest, and sometimes, the most difficult step. But according to Sanders, it’s an important first step: “Pay your bills on time every month, even if you have to call the credit card company and negotiate a lower minimum payment. The important thing is that you establish regular, on-time payment history.”

Your payment history is 35 percent of your credit report, making it the single largest factor in determining your credit score. That’s why it’s the first place to start fixing things up. It can take real sacrifice and dedication to get your bills in order, especially if you’re far behind. You shouldn’t hesitate to ask friends and family for help if you need it. Having a better credit score might mean you’ll be in a better position to help them out if they ever need it.

Look back at old loans.

Just because you’ve forgotten about old loans, that doesn’t mean those loans have forgotten about you. Those old loans can impact your credit score now. You should review your entire financial history early on your journey to fix your credit. According to Kelly, one of the big examples of past loans deserving of review are student loans:

“Review all your student loans after graduation. You might have old emails or old home address, as your parents possibly moved after you graduated high school. If you do not get notices once payments are due, that will drop your credit score if they are not paid on time. It’s very important to check on what loans you have outstanding and when payments are due. Often students do not realize that each semester the loan was taken out is another account on your credit report. So, if you happen to go to college for eight semesters and needed loans for each, that would show up as eight separate loans on your credit report. Miss one payment and that is eight loans in the negative section of your report showing that missed payment. You might want to look into consolidating the student loans into one loan after graduation.”

Start managing your credit card properly.

It isn’t enough to just pay your bills on time. The next step of your credit score journey is using your credit card in a smarter way. That’s why Sanders recommends you: “Manage your credit card utilization ratio. Don’t carry a balance higher than 30 percent of your available credit at any one time.”

Your credit mix might only be 10 percent of your credit score, but you want all the help you can get. Even if you’re paying all your bills, having too much racked up on your card doesn’t look good to the credit bureaus who calculate your credit score.

Don’t close other cards.

Although having too high a balance on your credit card is bad, that doesn’t mean that no balance is better. It might seem counterintuitive, but closing old credit cards can actually make your credit situation worse. Here’s how Sanders explained it:

“Keep credit lines open. I know when people are trying to get out of debt they think they should pay everything off, close all of those credit card accounts, and that will improve their credit score. While paying things down is definitely great for that credit card utilization ratio, if you close the account it could actually hurt your credit score because you want to establish credit history. So the longer that you have credit lines open and you can demonstrate that you have a good track record in paying your bills every month, the better it is for your credit score.”

The length of your credit history is 15 percent of your credit score, so again, not the biggest part, but not nothing either!

The promised land of better loan rates.

It won’t be an easy journey, but the destination makes it worth it. You can learn more in our recent blog post “How Fixing Your Credit Can Fix Your Future.” Whether it’s getting better rates on a loan, a car, or even a job you might get turned away from if your credit was worse, it’ll all pay off in the end.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN | Google+


Contributors
Jeanne Kelly (@creditscoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out her site to get the credit help you need!
Courtney Sanders (@thinkngrowchick) is an entrepreneur, speaker, and rising authority on women’s empowerment. Through her training and development company, Think & Grow Chick, LLC, Courtney provides online & in-person education, mentorship, and community for millennial women. After educating herself on the “ins and outs” of personal development, money management, and entrepreneurship, Courtney climbed her way out of debt in a few short years and went on to successfully launch Think & Grow Chick.

In 2015 she authored the book, Get What You Want: The Ultimate Guide to Figuring Out + Getting What You Want in Life which has since served as a catalyst for several related trainings and programs.

7 Things You Didn’t Know Could Impact Your Credit

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Credit scores are sort of mysterious, aren’t they? It’s tough to be sure what gives you good credit, what gives you bad credit, and what exactly the difference is.

First of all, let’s establish what it means to have good credit: it’s any FICO credit score above 680. Bad credit is any credit score below 550. The worse your credit, the worse rates you’ll be looking at for any kind of loan, and the fewer lenders will be willing to offer you a loan at all.

You probably know that failing to pay your bill on time is a big no-no when it comes to keeping a good credit score, but there are multiple factors you might have not even considered. Here are some of those factors!


Cosigning on a loan.

You’re a responsible person and a good friend. Someone you know is having trouble qualifying for a loan and needs you to sign on with them. It’s just a signature, right?

Wrong! You’re leaving your credit future in their hands. As nationally recognized credit expert Jeanne Kelly (@creditscoop) told us:

“Many people do not understand that the loan they just cosigned is just as much their responsibility as the other person they signed for. The loan and payment history goes on both of their credit reports. If the other person pays late, it will get reported on both their reports. If the other person lets the loan go into default, the cosigner is responsible for the balance. I wish lenders stopped using the word ‘cosign,’ as for some reason people do not realize the full impact. I wish they would just call it a joint loan.”

Closing old credit cards.

You know acting irresponsibly with your credit cards will mess up your credit score. But some behavior that seems responsible may actually hurt your credit.

Per certified financial educator Maggie Germano (@MaggieGermano): “There are many things that can negatively impact your credit score, and some of them aren’t what you’d expect. For example, closing your old credit cards can hurt your credit score, because it shortens your credit history. So if you have old cards that you don’t really use anymore, keep them open. Another thing that can hurt your credit score is if something is sent to collections. Is there an old electric bill you never paid? Perhaps a medical bill that you couldn’t afford? Track those bills down! Pay them off before they go to collections and get reported on your credit report.”

A hard credit check.

Most legitimate lenders will want to perform a credit check before determining if they’ll lend to you. That’s because your credit score is seen as an indication of your likelihood to pay back the loan you take out. But not every credit check is equal! There are both soft and hard credit checks.

Trent Hamm of The Simple Dollar (@thesimpledollar) wrote an article explaining the difference. As Hamm says, hard credit checks are “ones where you’ve granted permission, they indicate that you’re actively seeking credit, they show up on your credit report for everyone to see, and they tend to have a slight negative impact on your credit score.”

“A soft credit check, on the other hand, doesn’t require your permission, doesn’t indicate anything about your interest in seeking credit, only shows up on the credit report you see, and has no impact on your credit score,” Hamm explains.

If you need a “bad credit loan” from a lender who will consider you even if you have less than ideal credit, it’s better to apply to lenders who perform a soft credit check, so that your credit score isn’t harmed further. And it’s much better to consider a lender who performs a soft credit check than no credit check at all, as that can be a red flag that they don’t expect you to be able to pay back the loan and might be trying to trap you into a cycle of debt.

Receiving a “charge-off.”

You know missing payments is bad, but you may not have realized how bad it can get. Miss too many credit card payments and the credit card company will decide you aren’t likely to ever make those payments. That’s when they hit you with a charge-off.

How does that work? According to LaToya Irby (@latoyairby) in an article she wrote for The Balance (@thebalance): “Once your account is charged-off, you will no longer be able to make purchases with the account. However, you still owe the charged-off balance.

“The creditor will report a charged-off account status to the credit bureaus. This status will remain on your credit report for seven years from the date you first went delinquent. In the future, when creditors and lenders pull your credit report, they’ll see you once were late enough to have a charge-off.”

Irby goes on to explain how this impacts your score: “Your credit score will drop after a charge-off. Payment history weighs heavily in the calculation of your credit score. An unpaid charge-off will affect your credit score more when it first happens. As time passes, your credit score can improve if no additional negative entries are placed in your credit report.”

Missing a payment is bad for your credit score, but missing multiple payments should be avoided at (nearly) all costs.

Having a high credit balance.

Last time we wrote about managing your credit score, we asked author and debt expert Gerri Detweiler (@gerridetweiler) for advice. She told us about the importance of having a good credit balance.

It’s not enough to just pay your credit card bill each month. According to Detweiler, you want to make sure you keep your balance at around 20-25% of your credit limit.

She also warned that most issuers report balances before your payment is received, so even if you’re paying your bill back in full, you’ll still want to keep that balance from getting too high or risk negatively impacting your credit score.

Not having a credit balance at all.

Alright, so if racking up too many charges on your credit card can hurt your score, wouldn’t it be better not to have a credit card at all?

Nope! That’s also bad for your credit. In a Forbes (@Forbes) article presented by Rent.com (@RentDotCom), the authors caution against having too few kinds of credit: “having just a single type of credit can decrease your score. That means even if you’re building credit by paying student loans or in some other way, a credit card can still help you make your credit history more diverse.”

If you don’t think you’ll be able to qualify for a credit card, you can consider a secured credit card. A secured credit card requires you to put down some money as collateral, but it will allow you to start building up your credit score so you can qualify for a regular credit card one day, should you choose to do so.

Paying for a rental car with a debit card.

That same Forbes article offers another quirky way you can hurt your credit score. Apparently “For some car rental companies, when customers use a debit card it causes them to order a hard inquiry on their credit.” That’s why they advise you “Pay with a credit card or check the rental application to keep this from happening.”

It’s hard enough just paying your bills on time without worrying about the sneaky ways you can hurt your credit score without even realizing it. Hopefully, we’ve helped you to remain ever vigilant and get that score moving in the right direction. Up!

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Contributors
Maggie Germano (@MaggieGermano) is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit maggiegermano.com.
Jeanne Kelly (@creditscoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out her site to get the credit help you need!

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.

How Bankruptcy Leads to Bad Credit

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Filing for bankruptcy doesn’t always lead to bad credit, but only if your credit is very bad to begin with.

There are many, many different ways that you can lower your credit score. You can take out too much debt, especially high-interest credit card debt. You can also pay bills late or not pay them at all. And the more frequently that happens, the worse your score gets.

A lot of these behaviors can also lead you to file for bankruptcy. This is a legal process wherein a person (or business) admits that they can’t pay all of their debts. The process allows them to settle those debts with their creditors (aka, the parties to whom they owe money), oftentimes for less than what they actually owe.

However, filing for bankruptcy isn’t all sunshine and debt-free kitty cats. It can mean losing your house, car, or other valuable property. It can also mean having a portion of your income earmarked for debt repayment.

And then there’s what it does to your credit score…

In short, it’s not great.

The only way bankruptcy wouldn’t hurt your score is if high debt load and late payments have hurt it badly already.

Think about it like this: If the kinds of financial problems that cause bad credit are a train ride, then bankruptcy is the final stop on the line.

How bankruptcy affects your score

“Bankruptcy does negatively affect a credit score at first, but less so as time increases from the filing date, says Randall R. Saxton (@SaxtonLaw), founder of Saxton Law, PLLC. “However, for individuals who already have negative items on their credit report, the initial drop is not as much as it would be for someone with excellent credit that files a bankruptcy petition, which could range from 160–220 points.”

A drop of 160–220 points could be enough to take you from a great score to a downright bad one.

According to Tracy Becker (@tracybecker), President and CEO of North Shore Advisory, Inc, a leading credit restoration, education and monitoring company, the fact that bankruptcy could so drastically lower a high score, “is one reason it is so important for an individual to be aware of their credit scores, so they can make an educated decision before moving forward with a bankruptcy.”

On the other hand, someone whose score is already quite low would have little to lose, credit-wise from filing for bankruptcy.

“Many individuals do not realize that by having many late payments, collections, and defaults, their score may be almost as low as they would be if a bankruptcy occurred,” says Becker.

“Once they find out their credit is already poor they can move forward with the bankruptcy process with an understanding that their scores will not see a tremendous impact.”

When it comes to bankruptcy affecting a person’s score, one overlooked factor is the number of accounts that are included in the filing.

According to Saxo, “An individual who has fewer accounts with amounts owed will have less of a drop than someone with many accounts.”

The different kinds of bankruptcy

Before we moving on, we should talk about the different kinds of bankruptcy.

Chapter 7: This is the simplest and least expensive form of bankruptcy, but that simplicity comes with a price. Under Chapter 7, a person can quickly discharge their debts by surrendering their assets: aka, their car, their house, and other valuables. Those assets are then used to compensate creditors.

Chapter 13: Under this form of bankruptcy, a person repays all or part of their debts according to a repayment plan—a plan that cannot last longer than five years. The bankruptcy court must approve the repayment plan before it begins, and the debtor actually makes their payments directly to the court, who then pays the creditors in return. In order to qualify for Chapter 13, a debtor must meet certain income and debt-load requirements.

Chapter 11: This is a form of bankruptcy that’s most commonly used by corporations and businesses. However, it can be used by individuals as well. Chapter 11 involves a restructuring and reorganization of a person’s debt and assets. It is much more complicated—and thus much more expensive—than either Chapter 7 or Chapter 13. It can allow for a debtor to repay their creditors over time according to a court-approved repayment plan and can be a good option for someone who does not qualify for Chapter 13.

When it comes to your credit score, the main difference between these Chapters 11, 7 and 13 comes down to how long they will affect your score.

How long does a bankruptcy hurt your score?

“All personal bankruptcy types have a major impact on scores (unless they are already poor).  Some bankruptcies remain on credit for seven years while others remain for ten,” says Becker.

All the accounts that are included in the bankruptcy are marked as such on a credit report.  They do not disappear once the bankruptcy is finalized and they can remain for seven years.  Every year from the date of the original delinquency (bankruptcy) scores will improve but not dramatically.

“Usually after the first 5–6 years from the bankruptcy, credit scores are impacted minimally,” she says.

But when it comes to just how long a bankruptcy can affect your credit, the type of bankruptcy filing does make a difference.

According to Becker, “Chapters 7 and 11 remain on a person’s credit report for ten years, regardless of whether it was discharged or dismissed.” She also says that Chapter 13 bankruptcies “can remain on file for ten years from the date filed but, if discharged, will remain on file for seven years from the date filed.”

“Debts remain active during a Chapter 13 bankruptcy plan, which lasts between three and five years,” says Saxton.

“Thus, the removal of discharged debts from the credit report which occurs after seven years can take three to five years longer for a Chapter 13 bankruptcy than a Chapter 7 bankruptcy.”

However, while the effect on your score might become minimal, the bankruptcy filing itself still remains on your credit report.

After seven years, items such as debts, judgments, and foreclosures that were discharged by the bankruptcy are removed. However, the record that a bankruptcy was filed remains on the credit report for ten years,” says Saxton.

This means that a lender who pulls your credit report during a loan application might still be wary of lending to you—or might insist on raising your interest rates—even if your credit score has recovered.

How can you improve your score post-bankruptcy?

“To improve your credit after a bankruptcy a person can apply for specific cards that gear towards those with poor or no credit,” says Becker. “These cards are “secured credit cards”.  It’s important to make sure the credit issuer reports the history to the credit bureaus.”

“Once they gain approval they need to use the card responsibly. After using the card for a year they can check their scores and see how they have increased. At that point, they may have access to approvals on better non-secured cards. They can build upon their responsible use of the new credit and time passing.  At the third year seeking out a highly qualified credit expert for advice on credit improvement can also help boost the scores prior to the five or six year wait,” she says.

“If consumers file for bankruptcy due to mismanagement of finances they should learn from the mistakes they made that led to the problems and set up a budget/financial plan that will help them to rebuild their financial standing.”

Do you have a story about how you recovered from bankruptcy? We’d love to hear about it! Let us know on Twitter at @OppLoans.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN | Google+


Contributors
Tracy Becker is the President and CEO of North Shore Advisory, Inc., a leading Credit Restoration, Education and Monitoring Company specializing in Business & Personal Credit Services. Tracy is a FICO Certified Professional & Expert Credit Witness, she has been improving both consumer and business credit as well as educating professionals and individuals for almost thirty years. North Shore Advisory has helped thousands of businesses and individuals to have the most opportunity and savings great credit can offer.
Randall R. Saxton (@SaxtonLaw) is the founder of Saxton Law, PLLC, and practices in the areas of bankruptcy, tax, business formation, and estate planning. Randall also serves as the JAG for the Mississippi State Guard, President of the State Guard Association, as a Director of the Madison Chamber of Commerce, and is the author of the fictional thriller, Red Sky Warning. He does volunteer work as a Mediator for the Jackson Municipal Court and as an Emergency Response Team member.

How Does Checking Your Credit Affect Your Score?

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Uh-oh. Your car got rear-ended by some college kid who was driving and Snapgramming (or Tindrbooking or something). You’ve taken the car in for repairs but the kid didn’t have insurance and the bill is pretty steep. And it’s not like you can go without your car—how else are you going to get your kids to school and yourself to work?!

You’re thinking about taking out a loan to pay for the repairs, but you’re not sure about your credit score. In fact, you’re pretty sure you might have bad credit. It would make sense to check your credit score, but … that will hurt your credit, right?

What’s the deal with that anyway? What’s the point of having a credit score if every time you check it your score goes down?!

Whoa. That’s a lot of questions. Let’s get this all sorted out, shall we?


Hard Checks

To start off, there isn’t only one kind of credit check. There are two: “hard” credit checks and “soft” credit checks. (You’ll also hear them referred to as credit “pulls.”)

Hard credit checks return more information than soft checks. This is because a hard check (or a hard pull) actually involves pulling up a copy of your full credit report. Hard checks are the ones that will affect your credit score. Don’t worry though, the effect is usually minimal.

According to Nerdwallet (@NerdWallet) personal finance expert Liz Weston (@lizweston), “Most applications for credit trigger hard pulls, which means they ding your scores a bit—typically 5 points or less, and even that minimal damage starts to fade pretty quickly and is gone within a year.”

How long before the effect of that hard pull goes away? Weston says that “Inquiries can stay on your credit reports for two years but it’s a factor in the FICO formula, which is the leading one, for only one year.”

“Hard inquiries are defined as credit checks performed by a financial institution, such as a mortgage lender or credit card issuer, to review your report when making a lending decision,” says Natasha Rachel Smith, personal finance expert at TopCashback (@TopCashBackUSA).

So why is it that hard credit pulls negatively affect your credit?

“Hard inquiries are used for major financial decisions,” says Smith. “Points are taken off your score through hard inquiries since too many in a short space of time can be interpreted as an indicator that you need financial help.”

Soft Checks

Soft credit checks, on the other hand, don’t usually return as much information as a hard check. They provide a broad overview of your credit history. This category of credit check includes checks made by non-financial institutions as well as those instances where you decide to check your own credit score or credit report.

“It is a common misconception that checking your personal credit score will hurt it,” says Smith. “When a person or non-financial company, such as an employer or landlord, checks your credit score it is considered a ‘soft inquiry.’ Soft inquiries allow you to monitor your score as often as you’d like and it will not be negatively impacted.”

So if you’ve ever wondered why checking your credit score would make your score go down, there’s your answer: it doesn’t.

“A soft pull doesn’t affect your credit,” says Weston. (Seriously, we can’t emphasize this enough.)

Weston also cautions that “If you ask your friend at the car dealership to pull your reports or scores, it likely will be coded as a hard pull.” On the other hand, “If you order your reports or scores from the bureaus or a site like NerdWallet, it will be a soft pull.”

“Some online lenders also promise soft pulls,” she continues, “so that you can see if you’re approved without damaging your score.”

“That’s helpful, because it’s smart to shop around when it comes to loans. One inquiry might not be much to worry about, but a bunch of inquiries can take their toll.”

How does credit check “bundling” work?

You might have heard of this phase, “bundling”, in regard to credit checks. What does it mean?

Don’t worry. It’s pretty simple.

When you’re shopping around for a loan, each lender is doing a separate hard check on your credit. To make sure that all those different hard checks don’t add up—and discourage people from shopping around for the best loan—all these inquiries get bundled together into a single inquiry on your credit report.

“You can shop for auto loans and mortgages without fear, as long as you do it within a relatively short period of time such as two weeks, although some credit scoring formulas give you longer,” says Weston.

“With FICO scores, all auto-related inquiries made within that window are aggregated together and counted as one. The same goes for mortgage-related inquiries. VantageScore, a FICO rival, offers similar treatment for hard inquiries made by utilities as well as those made for mortgage and auto loans.”

Understand, though, that these different types of inquiries aren’t all added together,” she warns. “In other words, if you apply for one credit card, two auto loans and five mortgages within a two-week period, the scores will count three hard inquiries.”

Checking your credit is very important.

Now that you know you can check your credit score and credit report without hurting your credit, you should go ahead and do it!

“It’s smart to check your credit reports at least annually, which you can do for free at the federally-mandated site AnnualCreditReports.com,” says Weston. “Make sure to enter the URL, www.annualcreditreports.com, directly into your browser, since clicking on links in search engines can send you to look- or sound-alike sites that aren’t the real deal.”

But she makes clear that “Your reports from the site don’t come with a free credit score. To get free scores, you’ll need to look elsewhere.”

Luckily, there are many ways for you to do that.

“You can access your own credit score free of charge,” says Smith. “Certain credit cards companies, such as Capital One and American Express, will provide their customers with their credit score at no charge, or you can use CreditKarma to access it.”

“CreditKarma is a great site to use, as it offers a free, ongoing ability to see your credit score with credit reports from TransUnion and Equifax, two of the major credit-reporting agencies.”

Weston says that “Many sites, including NerdWallet, offer free VantageScores from one of the three bureaus. (Ours is from TransUnion.) You can get free FICO scores from Discover and from Experian’s FreeCreditScore.com. You may also get free scores from your bank or credit card issuers.”

“Here’s what you should keep in mind about free scores: they probably won’t be the exact ones lenders would use,” says Weston. “The FICO 8 is the most commonly used score and it’s the one offered by Discover and Experian. Some lenders may use older versions of the FICO, or versions modified specific industries. There are various generations of FICOs for credit cards, car loans and mortgages, for example. If you want to see a much wider range of your FICO scores, you would need to pay about $60 for FICOs from all three bureaus at MyFico.com.”

“If you just want to monitor your credit over time, though, free FICOs or VantageScores will help you do that,” she says.”

Do you have any other questions about credit scores, credit reports, or hard and soft checks? Let us know! We’d love to give you the answer. You can find us on Twitter at @OppLoans.


Contributors

Natasha Rachel Smith, Personal Finance Expert at TopCashback.com, is based in Montclair, NJ. Natasha’s background is in retail, banking, personal finance and consumer empowerment; ranging from sales to journalism, marketing, public relations and spokesperson work during a 17-year career period. She’s originally from London, UK, but moved to Montclair, New Jersey, USA, several years ago to launch and run the American arm of the British-owned TopCashback brand; a global consumer empowerment and money-saving portal company.

Liz Weston, is a NerdWallet Columnist and Certified Financial Planner® whose goal is to help you get smarter about money so you can get on with your life. She’s the author of five books including the best-selling “Your Credit Score” and has appeared on a bunch of TV shows, including CNBC’s Power Lunch, Mornings with Maria on Fox Business, NBC Nightly News, the Today Show—and Dr. Phil, where she advised a would-be ghost hunter to get real about his finances. She lives with her husband, daughter and co-dependent golden retriever in Los Angeles.

15 Tips for Improving Bad Credit

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If you have bad credit, or you know someone with bad credit. There’s no shame in it! The average American is given very little information about how their credit score works, so it isn’t surprising that many people have less than perfect credit. Unfortunately, that means your options for getting a loan will also be less than perfect, to put it mildly.
That’s why it’s important to build your credit rating and we’ve got not one, not two, not three through fourteen, but fifteen tips for building your credit!

1. Get a copy of your credit report.

As we said, keeping up your credit score can be tough. So you definitely don’t want to suffer because of mistakes that other people made. Federal law requires the three major credit agencies to create a copy of your credit report that you can review. You can get that report through AnnualCreditReport.com, the only official government approved site for receiving your credit report. Check it for errors and contact the credit agencies if you need to dispute something. Don’t become the victim of someone else’s goof up.

2. Make your payments on time!

Is this obvious? Sure. But it’s also the most important way to maintain your credit score, so we couldn’t just leave it out! Howard Dvorkin (@HowardDvorkin), CPA and chairman of Debt.com, put it frankly: “There’s no secret to really improving your credit score. Since 65 percent of your score is determined by payment history and credit utilization (in English, how much available credit you’ve maxed out) all other tips are only going to help you in tiny blips. The first and best way to bulk up your credit score is to start making your payments on time.”

And he’s not the only one who told us that! Greg Rable, CEO and founder of FactorTrust (@FactorTrust), says, “It’s basic, but it’s critical to make loan payments on time. It demonstrates both the ability and willingness to pay your debts. This helps consumers get the credit they deserve and improve their credit scores based on their performance.” He also offered CreditClimber.com as a resource to check out.

3. Consider a secured credit card.

Having bad credit can be a bit of a chicken and egg situation. A properly used credit card can be a good way to build your credit rating, but you need good credit to get approved for a credit card. A secured credit card might be the solution for you. You’ll have to put up some money as collateral, but it’s worth it to fix your credit. Once you have the card, you can buy all the chicken and eggs you can afford, as long as you make your payments on time.

4. Don’t put too much on that credit card. 

OK, you know how we just said you should use your secured credit card to buy all the chicken and eggs you can afford? Well, we spoke too soon. Only use it for SOME of your chicken and eggs (and whatever else you’re buying….ketchup maybe?). Author and debt law expert Gerri Detweiler (@GerriDetweiler) sets the record straight: “If someone has low credit scores, the first thing I would tell them to look at is their balances on their revolving accounts such as credit cards. High balances mean high ‘debt usage,’ and that can affect their credit scores. It’s not the amount of the balances that matters as much as the balance in comparison to the credit limit. It’s generally a good idea to keep your balances below 20-25% of your available credit on each card. Also, keep in mind that most issuers report balances at the end of the billing cycle (when the amount you owe is calculated)—not after your payment is received.”

5. Ask about credit reporting. 

Wouldn’t it be nice to be rewarded for just doing the stuff you should be doing anyway? Well, in one narrow sense, you can be! You can try to have different service providers you pay bills to report your payments to the credit bureaus.

It worked for Bradley Shaw (@ExpertBrad), a digital marketing expert at SEOExpertBrad.com. “Once I cleaned up my credit history, I started looking for ways to build it,” Shaw told us. “I did this by looking for credit lines that could have been included in my file, but weren’t. For example, I’ve had a cell phone in my name for 10 years, but those payments didn’t appear on my credit report. So I made a list of every company I paid monthly, contacted the companies, and asked them to report my payment history to the credit bureaus. Below are the types of companies that were willing to report on my behalf:

  • Cell phone provider
  • Cable and internet provider
  • Utility company”

Of course, this only works if you’re making your payments on time, so once again make those payments on time

6. Get a credit building installment loan.

Taking out a personal installment loan that you can afford to repay can actually improve your credit—if that lender reports to the credit bureaus.

These lenders will report your payments to the credit bureaus, so you can actually build your credit score and qualify for better rates the next time you need a loan. As long as you’re making your payments on time, that is. Have we been bringing that up too much? Maybe. But counterpoint: you have to make your payments on time.

7. Wait on larger purchases.

Nationally recognized credit expert Jeanne Kelly (@Creditscoop) told us: “Having bad credit is expensive. Many times you need to focus on building a better credit score before committing to a large loan. Do your math, see how much the interest rate on a loan is costing you with different scores. See if it makes sense to purchase that new car, new home now or if it is wiser to take some time to work on building better credit.”

8. Stay motivated!

Paying super high-interest rates for a loan is not particularly fun, even if the lender is helping you build your credit. That’s why Kelly recommends you try to take that frustration and use it as an incentive to press on harder in your quest to build up your credit: “We know that we usually are not thinking about our credit until we need it. So, sometimes we get stuck needing a new car loan with a lower score because we have no other option. If that is the case, then try to learn from that higher interest rate and work on focusing on your credit so you can maybe refinance that loan in a year. Don’t just take the higher rate and continue with poor credit habits, learn from it.” You can also learn more about setting and meeting financial goals in OppU.

9. Set up autopay and reminders. 

Remember how important we said it was for you to make your payments on time? Well, one good way to do that is to set a reminder on your phone or similar device (a well-trained parrot, perhaps) to noisily let you know your bills are due. Even better, find out if you can set up an autopay system to automatically pay your bills on time. Or you could just read this article every day. Because this article has a lot of reminders about paying your bills on time.

10. Pay off your debt!

Do you have debts? You’re going to want to pay those off as soon as you can. You probably know that. You’re a smart person. And if staying out of debt was easy, no one would be in it. But in the long run, you’ll be glad you got out of debt as soon as you could, and so will your credit report.

11. Don’t be afraid to ask for help!

Paying off your debts and keeping up with your necessary payments can be difficult. No one likes asking friends or family for monetary help. But if they can help you build up your credit score now, you’ll be in a better position to help them down the line, if they ever need it. You’re better off asking for help sooner, when you have a bad credit score and manageable debt, then later, if things take a turn for the financial worse. You can learn more about fixing your credit in our blog The Journey to Turn Your Credit Around.

12. Don’t get sent to collections. 

Look, we’ve already told you once or twice that it’s important to make your payments on time. But missing a payment entirely is even worse. That will lead to your balance being transferred to collections. And then things get bad. The collection agency will report your lack of payment to the credit bureaus and that will be a negative mark on your credit report. A negative mark that lasts for seven years. Yep. It’s like breaking a mirror over your credit report.

12. Go for the soft credit checks! 

Even applying for a loan can leave a negative impact on your credit score, if the lender performs what is known as a “hard credit check.” If you have to apply for a loan with bad credit, consider only applying to lenders who perform “soft credit checks.” These won’t impact your credit score, so you can find out if you qualify for the loan with less worries.

14. Avoid payday lenders! 

Theoretically, you can use payday lenders in a responsible way. If you take out the loan and pay it back in full with all fees and interest in the very short payment time you’re allotted. But that’s a very risky prospect and if you don’t make that payment, you’ll be forced to pay to extend the loan. That’s a great way to get yourself trapped in a cycle of debt, and a cycle of debt is not a good look for your credit report. 

15. Make your payments on time! 

We’re serious!

It’s the best and easiest way to stay ahead of debt and keep your credit score moving in the right direction.


Contributors

Gerri Detweiler’s passion is helping individuals cut through credit confusion. She’s written five books, including the free ebook Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and her latest, Finance Your Own Business. Her articles have been widely syndicated and she’s been interviewed in over 3000 news stories. She serves as Head of Market Education for Nav, the first and only site that shows small business owners their free business and personal credit scores and tools for building strong business credit.

Howard S. Dvorkin is a two-time author, personal finance expert, community service champion and Chairman of Debt.com. As one of the most highly regarded debt and credit expert in the United States and has played an instrumental role in drafting both State and Federal Legislation. Howard’s latest book “Power Up: Taking Charge of Your Financial Destiny” provides consumers with the detailed tools that they need to live debt free and regain their financial freedom. Howard has appeared as a finance expert on CBS Nightly News, ABC World News Tonight, The Early Show, Fox News, and CNN.

Jeanne Kelly is an author, speaker, and coach who educates people to help them achieve a higher credit score and understand credit reporting. #HealthyCredit is her motto. As the founder of The Kelly Group in 2000 and the author of The 90-Day Credit Challenge, Jeanne Kelly is a nationally recognized authority on credit consulting and credit score improvement.

Greg Rable brings more than 20 years of strategic development, management, and technology experience to FactorTrust, along with extensive experience in electronic payment, online commerce, and communications. Since founding FactorTrust, Greg has overseen rapid growth in the US and expansion of our services to both the UK and Canada.

Bradley Shaw is a Digital Marketing specialist for businesses that want to see their Google search rankings surge. Based in Dallas, TX he has more than 20 years experience in Online Marketing. Currently, he is the President of SEO Expert Brad Inc.

Credit Tier Breakdown, Part 4: Bad Credit

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Do you know your credit score? Many of your potential lenders (and even landlords) do!
So if you’ve been avoiding checking your score because you think it’s “bad”, let’s learn the truth.

A brief primer on credit score ranges

Credit scoring agencies have generally stuck with a system of Bad—Excellent,” say Ian Atkins, an analyst and staff writer for Fit Small Business (@FitSmallBiz).

credit score range

“That scale can be useful,” says Atkins. “But lenders tend to use a different kind of shorthand that takes into account not only credit history but also other factors, like income and net worth.”

Prime and super prime (or good and excellent) borrowers are those judged to have very low risk of default,” Atkins says. “That means low debt to income ratio, low debt to credit ratio, great payment history, long credit history, and good mix of credit types. These borrowers get better rates, better terms, better rewards and incentives, and lower fees on everything from credit cards to mortgages. In other words, it pays to be prime.”

On the other hand, having bad or poor credit—basically a score under 630—and landing in that subprime range doesn’t pay at all. In fact, it’s quite the opposite. Having a score in this range means that you will be the one paying more—through higher interest rates and larger down payments.

What Kind of Loans Can You Get?

With a score under 630, loans from a traditional lender are pretty much off the table. Banks will deem you too big a risk to lend to at the rates that they are able to offer. You might have better luck with a credit union, but even then, you’re probably going to come up empty-handed.

You will likely not qualify for a mortgage either, although a score of 600 or above might qualify you for a subprime mortgage. These mortgages come with much higher rates than normal mortgages, and some of them come with rates that are “adjustable.” More on those later.

One type of traditional loan that you can qualify for even with a score below 600 is a subprime auto loan. The story here is much the same as the one for subprime mortgages. You will pay much higher interest rates, and you will likely be asked to put down a larger down payment in order to secure the loan.

When it comes to credit cards, you will see the number of offers you receive in the mail go down if your score drops into this range. And the offers you do receive will come with much lower credit limits, high-interest rates, and might even be for “secured” cards that require collateral.

Basically, if you have bad credit and need to borrow money, your options are going to be limited and your rates are going to be high. If you have a score under 600, pretty much the only loans you’re going to qualify for are “bad credit” and/or “no credit check” loans.

What are Bad Credit and No Credit Check Loans?

When it comes to bad credit and no credit check loans, you’re going to want to be careful. While there are many legitimate lenders who lend to folks with bad credit, there are also lots of predatory lenders who are simply looking to take advantage of folks who don’t have many options.

Regardless, the principals for these loans could be smaller than traditional loans, and the interest rates could also be much higher.

The reason for this is simple: the lower a person’s credit score, the bigger risk they pose to a lender. A score below 630 indicates that you have a history of not making payments on time, taking on too much debt, and maybe even defaulting on loans entirely.

Bad credit lenders need to charge higher rates in order to guard against the higher rate at which their borrowers will default on their loans. If the lender didn’t do this, they would go out of business.

The two most common kinds of bad credit loans are payday loans and title loans. Both are short-term loans that come with average interest rates around 300 percent.

Payday loans are small-dollar loans that only average about 14 days, and they are often “secured” by a post-dated check that the borrower makes out the lender for the amount owed. On the due date, the lender deposits the check, and the loan is repaid.

The appeal of payday loans is that borrowers are able to pay the loans back quickly, but those short payment terms can also make a loan harder to repay. Since borrowers have to pay the loan back in full—instead of paying it back a little bit at a time like they would with an installment loan—the short turnaround can leave them without the necessary money.

In situations like this, the payday lender will then offer to roll the loan over, meaning that the borrower pays only the interest owed on the loan and then gets a new repayment term… complete with an additional interest payment. Rolling a loan over multiple times can drastically increase the cost of borrowing, all while leaving the borrower no closer to paying back the principal than they were when they first took it out!

With title loans, the borrower puts up their car, truck, or motorcycle as collateral. This allows someone to borrow a larger amount of money, but it also means that they will lose their vehicle if they can’t pay the loan back. The average term for a title loan is one month, and the average interest rate is 25 percent. With high rates and short terms, loan rollover can be a big problem for title loan customers as well.

There are also many lenders, like OppLoans, who offer installment loans to people with bad credit. These loans come with longer repayment terms than payday or title loans, usually somewhere between three and six months. Installment loans are paid off in a series of equal, regular installments, which can make paying the loan off a more manageable process.

The term “no credit check” loans describes loans in which the lender does not perform a credit check during the application process. A “hard credit check” can temporarily lower a person’s score, which makes no credit check loans appealing to folks who already have bad credit.

Some bad credit lenders do perform a “soft credit check” during the application process (OppLoans is one of them), which returns less information than a hard check, but does allow the lender to get a basic snapshot of the borrower’s ability to repay their loan.

In general, a lender who performs a “soft credit check” is preferable to one who performs no credit check at all. It shows that the lender is considering your ability to repay your loan the first time instead of hoping you roll it over again and again and again.

What kind of interest rates can you get?

According to the MyFico Loan Savings Calculator, a person with a 620 score who took out a $300,000, 30-year, fixed-rate mortgage would get an interest rate of 5.51 percent and would pay over $103,000 more in interest than a person with a score of 760.

However, some subprime mortgages have interest rates higher than that. In 2014, CNN Money reported that some subprime mortgages were being offered with rates from 8 to 10 percent. These mortgages also required a larger down payment, between 25 to 35 percent of the home’s total value.

The thing to really watch out for with subprime mortgages is rates that are “adjustable.” Oftentimes, these mortgages start with a low “teaser rate” that can make the mortgage seem much more affordable than it really is.  When the teaser rate expires, these adjustable rates will shoot up, taking your monthly payments with them. This can lead many borrowers to default. (Adjustable rate mortgages were a huge factor in the financial crisis in 2008.)

The MyFico Loan Savings Calculator also estimates that a person with a credit score of 550 would pay an interest rate of 15.159 percent for a 30,000, 60-month auto loan. They would end up paying over $10,000 in interest more than a person with a score of 720 and an interest rate of 3.519 percent.

When it comes to unsecured personal loans, people with bad credit will generally be looking at an above-36-percent APR lender. This means that the annual interest rate that you pay on your loan will be above 36 percent, or 3 percent per month. While there are above 36 percent that will give you fair terms, reasonable rates, and good customer service, there will also be lenders in this space that are looking to take advantage of you—so be careful!

With payday and title loans, the interest rates you’ll get will vary from lender to lender and (more importantly) from State Financial Resource Guides state to state. But even though the rates will vary, they are still going to be incredibly high.

A 14-day payday loan with an interest rate of $15 per $100 borrowed would carry an APR of almost 400 percent! Meanwhile, a title loan with an interest rate of 25 percent per month would have an APR of 300 percent.

Payday loans are generally the most expensive and risky ways for people with bad credit to borrow money. Do your research when shopping for a bad credit and no credit check loan to make sure that the lender you’re working with is going to give you the best possible rates and most reasonable terms.

What can I do to raise my credit score?

“I’d like to be optimistic about purchasing power of a person with a score below 550,” says Roslyn Lash AFC®, (@RosLash) Founder of Youth Smart Financial Education Services. But she adds that “their life in terms of credit will be poor.”

Here are four actions that Roslyn recommends people with poor scores can take to repair their credit:

  1. Prepare a Budget. This is the first step because it will tell you how much money you have left after reducing non-essentials. This extra money can be applied toward your bills.
  1. Pay all your bills on time. Make a schedule of when your bills are due and use e-bills and auto-pay to make sure that you pay the correct amount when it’s due.
  1. Eliminate debt! Check out the debt elimination plan outlined at PowerPay.org, and also look at strategies like the Debt Snowball and the Debt Avalanche. Whatever you decide to do, you need to make a plan, and then stick to it
  1. If you need assistance, seek financial coaching.

If you have additional questions about credit scores, personal finance, or getting a loan with bad credit, hop on over to our Resource Page and have a look around. If you don’t see what you’re looking for, then let us know by sending us a tweet at @OppLoans!


Contributors

Ian Atkins (@FitSmallBiz) is an analyst and staff writer for Fit Small Business. He covers small business finance with a focus on traditional and alternative small business lending. Ian has over 9 years working in personal and small business finance.

Roslyn Lash, (@RozLash) is an Accredited Financial Counselor and the founder of Youth Smart Financial Education Services.  She specializes in youth financial education, adult coaching and works virtually with adults helping them navigate through their personal finances i.e. budgeting, debt, and credit repair.  Her advice has been featured in national publications such as USA Today, TIME, Huffington Post, NASDAQ, Los Angeles Times, and a host of other media outlets.

Credit Tier Breakdown, Part 3: Fair Credit

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Welcome back to our ongoing series on credit scores—from the very best to those with the… um… most room to grow!
In our first entry, we covered Great Credit: scores from 720-850. In our second entry, we looked at Good Credit: scores from 680-719. In our third entry, we’ll be talking about scores from 630 to 679, which fall under “Fair Credit.”

What Kind of Loans Can You Get?

If you have a FICO credit score between 630 and 679 then lenders are going to see you as less-than-reliable. You’ll feel the negative effects of your score most severely when you apply for unsecured personal loans, especially ones from traditional lending institutions, like a bank.

Since unsecured loans don’t involve any collateral, decisions to lend money (or deny loan applications) are made based entirely on the borrower’s ability to repay the loan. (Or rather, they are made on the lender’s belief in the borrower’s ability.) As such, a borrower’s credit score is critical to receiving an unsecured loan from a traditional lender.

With a score in this range, you will likely be shut out from these traditional unsecured loans. However, you still might qualify for a personal loan from a non-traditional, internet-based lender. These lenders usually offer higher rates than traditional lenders, but those higher rates allow them to lend to borrowers with lower scores.

You will still probably qualify for secured loans, like auto loans and mortgages—though you’ll still be charged higher interest rates. If you’re not careful, those high rates could lead to you defaulting on the loan and having your car or house repossessed.

What Kind of Interest Rates Can You Get?

If you have a score in this range, it sends a signal to lenders: this person is not so great at paying back the money they owe. While some lenders won’t lend to you at all, the ones who do will be obligated to charge you more in interest.

According to the MyFico Loan Savings Calculator, a person with a score of 655 who takes out a $300,000, 30-year, fixed-rate mortgage would pay over $66,000 more than a person with a score of 760. That same calculator estimates that a person with a 655 credit score who takes out a $30,000, 60-month auto loan would be charged an annual precentage rate (APR) of 9.661 percent, almost three times the 3.517 percent rate that someone with a 760 score would be charged. That adds up to an additional $5,186 paid in interest.

Higher interest rates are not the only way that having fair credit will increase your costs. Roslyn Lash AFC®, (@RosLash) Founder of Youth Smart Financial Education Services, says that “If you’re buying a car, don’t expect to receive “a 0 percent interest rate, rebates, or incentive.” These perks are reserved for persons with good credit.”

But Lash is clear that people with scores in this range still have options, saying “If you put more money down, you’ll be able to buy the car,” but that “since your interest rate will be higher, your payment will also be higher.”

When it comes to getting a credit card, your options will also be limited and your APRs higher, but personal finance reporter J.R. Duren (@jr_duren) still has some good suggestions. Namely, he recommends that folks with fair credit look to Capital One’s QuicksilverOne card and Chase’s Southwest Rapid Rewards Plus card.

“The QuicksilverOne gives you 1.5 percent cash back on every purchase you make,” says Duren. “That doesn’t sound like a lot, but think about that number in relation to how much you’d spend over the course of one year. If you spend $2,000 a month on the card, you’ll earn $360 in rewards.”

According to Duren, the downsides of the card are “A $39 annual fee and a high APR of 24.99 percent.” But he also points out that “The APR will only kick in if you don’t pay your balance off in full every month.”

As for Chase’s Southwest Rapid Rewards Plus card, Duren says that this card “is a great option because you’ll get 50,000 Rapid Rewards points if you can make $2,000 in purchases within 90 days of being approved for the card.”

This card also has an annual fee ($69) and an APR of approximately 23.49 percent, but when your credit score is this low, those fees and rates are literally the price you pay to borrow money.

Just remember Duren’s advice that the APR only applies if you don’t pay your balance off every month. That’s pretty good advice, in general, which brings us to …

What Can I Do to Improve My Score?

If you have a score in this range, it is very likely that you are carrying high balances month to month on your credit card. If that’s true for you, then getting those balances down is a great way to start improving your score – even if you can’t get them all the way to zero.

Lash recommends that you “Keep your balance under 30 percent of your credit limit.  For example, if you have a card with a $1,000 limit, try to keep the balance at no more than $300.”

This 30 percent benchmark is something you’ll hear a lot, which is because it’s totally true! But there’s actually something you can do that’s even more impactful.

As Lash puts it, “The most important action to take is to pay your bills on time.  This simple act has the greatest impact on the credit score.”

Do whatever it takes. Set reminders on your phone, go into your bank account and set up auto-pay, write a sign to hang on your bathroom mirror that says “Remember To Pay Your Bills.” Whatever it takes, do it.

Your payment history makes up 35 percent of your credit score, while your amounts owed makes up an additional 30 percent. While there are no ways to instantly jack up your credit score (we would know), taking care of those two categories will go a long way towards netting you a better credit score, which in turn will net you better loans at lower rates.

About the Contributors:

Roslyn Lash, is an Accredited Financial Counselor and the founder of Youth Smart Financial Education Services.  She specializes in youth financial education, adult coaching and works virtually with adults helping them navigate through their personal finances i.e. budgeting, debt, and credit repair.  Her advice has been featured in national publications such as USA Today, TIME, Huffington Post, NASDAQ, Los Angeles Times, and a host of other media outlets.

J.R. Duren, is a personal finance reporter for highya.com. He covers credit cards, credit scores, student loans and other topics important to consumers’ financial life.