8 Good Habits to Get Your Finances—and Your Life—on Track

The better your money habits, the better equipped you are to achieve financial success (or at least financial stability) in the long-term.

More often than not, a healthy financial outlook is all about maintaining solid financial habits. It’s the little things you do on a daily, weekly, and monthly basis that add up over time and make a difference.

If your finances are currently in shambles, the best thing you can do is start practicing some of these habits right now. And while money isn’t everything, getting yourself on solid financial footing will have benefits throughout your life. Here are eight habits you can start practicing right now …


1. Making a budget.

If you’re trying to take control of your financial future, the odds are good that you need to start spending less and saving more. But in order to do that, you first have to know how you’re actually spending money. Once you know that, you can make a plan to get your spending and saving back on track.

In other words, you need to make a budget.

“The very first thing to do when wanting to change financial habits is to start with your budget,” said Budgets Made Easy (@budgetsmadeeasy) founder and Master Financial Coach Ashley Patrick. “Make a zero-based budget and write it down. Examine where your money has been going for the past couple of months.

“This is very eye-opening and most people say they feel like they got a raise. It also will help change your thinking about your money and what potential it has.”

2. Spending less money.

Once you’ve tracked your expenses and built a budget, you’ll be able to see how you’re actually spending money.  And the next step is pretty simple: You spend less of it!

“If you’re spending more than you’re earning or saving, you might need to make some lifestyle changes,” said Josh Zimmelman, owner of Westwood Tax and Consulting (@westwoodtax). “Look at where the bulk of your money is going and figure what adjustments or eliminations can be made.”

“Can you swap movie tickets and cable for Netflix or Hulu? Or make more home cooked meals instead of going out to dinner every night? Are you wasting money on overdraft charges? Keep your checkbook balanced and set up email or text alerts.”

If your finances are out of control, the odds are good that you’re spending more than you’re making and racking up expensive credit card debt. The ultimate goal of budgeting should be to live well below your means, which means you can build up your savings. But, in the meantime, spending only as much as you’re making is a good start.

“Spending beyond your limits can put you deep in debt,” said Zimmelman. “If your income isn’t covering your costs, it’s time to cut back.”

3. Maintaining an emergency fund.

Building your first budget is a short-term project, as is finding places to trim your spending. In order to make it a long-term financial fix, you first need to sit down and think about why you’re taking control of your finances.

“The next thing to do in order to stay motivated long-term,” said Patrick “is to decide why you want or need to change. What is your big motivating factor? It has to be a big reason in order to get through the tough times.”

While you’re considering those motivating factors, think about this: Most Americans don’t even have enough money in savings to cover a $500 emergency expense! That’s how they end up turning to short-term bad credit loans like payday loans and cash advances just to make ends meet.

If you’re looking for a place to stick all that extra money you’re saving on your new, slimmed-down budget, start an emergency fund and imagine the peace of mind it will grant you!

“If you’ve been putting off building your emergency fund because it seems like too daunting of a task, then just start small,” said Zimmelman. “Start by depositing as little as a dollar a week and then gradually increase that amount as time goes by.

“Every time you use a coupon or get a discount, take the money you saved and put it directly into your account.  At the minimum, you should have liquid cash for at least six months of expenses.”

Six months worth of expenses sounds like a lot of money. And it is! But don’t let that get you discouraged. For now, start with a slightly smaller goal like $1,000 and work your way up from there!

4. Getting out of debt—and staying there.

Building up your savings is important, for sure, but it’s not a financial silver bullet. There are other important steps you need to take, including paying down your consumer debt. This can include personal loans, but for most people it means their credit cards.

“The first step is to go through all your financial documents and credit reports to fully evaluate how bad the situation is,” said Zimmelman. “Find the largest debt with the highest interest rates and concentrate on paying off that one first.”

“Contact creditors and lenders to see if you can negotiate a reduced settlement or lower your interest rates and consider transferring your credit card balance to another card with a lower rate,” he added.

Finally, Zimmelan had some tips for those whose financial situations are truly out of control: “If your debt is truly unmanageable, there’s also the option of filing for personal bankruptcy and having your debts cleared.”

“However,” he added, “paying them off is usually better for your credit score.”

5. Avoid feeling overwhelmed.

Getting out of debt is important, but don’t let that importance overwhelm you. As business coach and best-selling author Amanda Abella (@amandaabella) pointed out, doing so can lead to procrastination, which only causes further problems down the line.

“When paying off debt, you might feel it’s impossible to achieve your goal but the amount of debt you have is relative,” said Abella. “You need to rewire your brain into believing you can pay off your debt. One of the best ways to do this is to flood yourself with successful debt repayment stories.

“You may also want to find support – there are groups on Facebook and many online financial challenges that are totally free. If you feel you need more than that, consider a support group in the form of a twelve-step program.”

6. Maintaining your credit score.

Creating a budget, building an emergency fund, and paying down your debt all have an immediate impact on your finances. When it comes to your credit score, however, it might be harder to discern what effect it’s having on your day-to-day life.

Well, unless you’re trying to take out a loan or a credit card, buy a home, rent an apartment, open a bank account, apply for car insurance, or even apply for a job. In situations like those, the effects of a bad credit score could very well become apparent super fast.

In order to get control of your finances, you need to improve your credit score. It will improve your access to better financial products and lower interest rates. Here are three tips for improving your credit, courtesy of Abella:

  • “Make sure you’re paying off all credit cards at the end of every month. Don’t spend more than you can pay off.”
  • ”Use your current credit cards more responsibly or go to a prepaid. Prepaid cards carry little risk because your “credit limit” is only what you’ve funded on the card. But it works like a credit card and you pay it off each month like one. Because of the way it works, it will help your credit score.”
  • “You should also pull your credit report—you can do this for free once a year—and close old, zero-balance accounts that you’re not using. Having too many lines of credit open can hurt your credit score.”

The most important aspects of your credit score are your payment history and your amounts owed. If you can keep your total debt loads low and pay all your bills on time, you’ll be well on your way to a healthier score.

7. Cutting out impulsive purchases.

Making good financial decisions is often about doing the right thing or picking the right product. But sometimes the best financial decision is to do … nothing at all.

“A great habit to develop in 2019 is waiting on purchases,” said personal finance blogger Marc Andre of VitalDollar.com (@vital_dollar). “Get in the habit of waiting at least a day or two on any purchase that isn’t a necessity.”

“If you wait, a lot of times you’ll decide that the purchase isn’t worth the money it will cost you. And if you still think it’s a good purchase after waiting, at least you can buy it with the confidence that you won’t have buyer’s remorse.

“Waiting on purchases teaches you to value the money that you have,” he added, “and to only part with it when the purchase is justified. I use this habit myself, and it’s saved me from many purchases that I would have regretted later.”

8. Investing more for retirement.

In this post, we’ve covered habits that will help you in both the short- and the long-term. With this last piece of advice, we’re covering the really long-term.

“Rebalance your investments portfolio for 2019,” said Zimmelman.” Take a look at the mix of stocks and bonds in your portfolio and make sure they’re still working for you and your goals. You might also want to shuffle some investments around into tax-advantaged accounts.”

And, of course, if you don’t have any money currently dedicated towards your retirement, then 2019 is literally the best possible time for you to start. Why? Because the sooner you start saving for retirement, the better.

To learn more about setting yourself up for financial success, check out these related posts and articles from OppLoans:

Do you have a financial question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Contributors

Featured in Forbes, The Huffington Post, Inc, and Business Insider, Amanda Abella (@amandaabella) has created an online community where millennials can learn how to make money online and actually enjoy their financial journeys. Amanda is a certified professional coach who has undergone several trainings including the IFC accredited International Coach Academy. In 2014, Amanda launched her Amazon bestselling book, Make Money Your Honey: A Spirited Entrepreneur’s Guide to Having a Love Affair with Work & Money which has been featured in Yahoo! Finance and Seventeen Magazine.
Marc Andre is a personal finance blogger at VitalDollar.com (@vital_dollar), where he writes about saving money, managing money, and ways to make more money. His goal with Vital Dollar is to help individuals and families get the most out of the money they have and to reach their full financial potential. He lives in Pennsylvania with his wife and their two kids (a son and a daughter).
Ashley Patrick is a Master Financial Coach and founder of Budgets Made Easy (@budgetsmadeeasy). She started helping people budget and pay off debt after paying off $45,000 in just 17 months while working as a police officer. She now stays at home with her three kids and tries to stay sane in the chaos.
A forward-thinking entrepreneur and passionate family man, Josh Zimmelman graduated from Yeshiva University in 2003 with a degree in accounting. After learning the ropes and excelling at several large firms, Josh took the leap to launch his own firm in 2010. In just a few years, Westwood Tax and Consulting (@westwoodtax) has become a booming full-service accounting firm that demystifies the perplexing world of taxes for individuals and small businesses.  It is his goal to make taxes not only bearable, but even a little bit fun for his clients.  Always excited to share his tax knowledge, Josh has been quoted in the Wall Street Journal, Newsday, USA Today, The Huffington Post, and US News & World Report.

Should You Refinance Your Installment Loan? 4 Factors to Consider

Whether or not refinancing is right for you will likely come down to your specific financial situation—but these questions can still help you sort things out!

We write a lot about borrowing here on the OppLoans Financial Sense Blog. We write about how folks with bad credit should avoid payday loans, about how people can go about borrowing money from friends and family members, and how one can responsibly maximize their credit cards rewards without racking up excess debt.

But there’s one aspect of borrowing that we don’t write about so much: refinancing. This post is an attempt to rectify that because refinancing is a really important part of borrowing! So if you have an installment loan—whether it’s a traditional unsecured personal loan, an auto loan, a bad credit loan, etc.—here are four factors you should keep in mind when considering whether or not to refinance.


1. Do you need it?

This might seem pretty basic, but it never hurts to go over the basic building blocks of responsible financial behavior.

When a person is refinancing their loan, they are usually doing one of two things: They are either borrowing more money or they are borrowing the same amount of money with new payment terms and a new interest rate. This factor generally applies to the former.

If you’re refinancing your installment loan in order to take out more money, you first need to sit down and have a very honest conversation with yourself about why you’re doing it. Is it to pay for something that’s more of a “want” purchase, or is this a very important “need” like an unexpected car repair?

If it’s for a “want” purchase, then you probably shouldn’t refinance. Instead, take a look at your budget and see where you can cut back in order to make the purchase without credit. And if you don’t have a budget, then you should definitely start one! For tips, check out our Beginner’s Guide to Budgeting.

Now, if you’re refinancing your loan in order to pay for a “need,” then you’re on much more solid ground. Still, it wouldn’t hurt to take a look at your finances and see if you can cover that bill without borrowing. Refinancing means more payments (which can have their benefits) and more interest (which doesn’t). Make sure it’s your best financial option before committing.

2. The size of your payments.

Now, if you are refinancing for the same loan amount, just at a longer term and/or with a better interest, you should take a look at what your new payments are going to look like.

Here’s the good news: They’re probably going to be smaller! The same amount of money stretched over a longer period of time will mean less money put towards each individual payment. That’s great!

Take this exercise a step further: What are you going to be doing with the extra room that you’re creating in your monthly budget? Is this money that you’re going to just be spending? Because that’s probably not the best use for it!

Look at what you can do with those extra funds. Consider using them to build an emergency fund or to bolster the emergency fund that you already have. You could also have them automatically deposited in a retirement account, where they will grow and earn interest.

And remember: Smaller payments are great, but more payments overall still mean paying extra money towards interest. Is that extra room in your budget worth those additional costs? Calculate the total amount you’ll be paying in interest to help you weigh the overall effect that refinancing would have on your financial wellbeing.

3. Interest rates.

The one thing you should never be doing is refinancing a loan at a higher interest rate than what you were paying previously. That just doesn’t make any sense. If you find yourself needing to refinance at a higher rate, it’s probably because you made a big financial misstep elsewhere that you are now scrambling to correct.

Now, if you are refinancing at a lower rate, congratulations! You’re clearly doing something right. Still, just because you’re being offered a lower rate doesn’t mean you should take it. Similar to what we discussed in the previous section, that longer payment term likely means paying more in interest charges overall—even if you’re getting a lower rate!

Our advice here is the same as it was up above: Do the math and weigh the benefits. If you end up paying less money in interest overall, that’s one thing. But paying interest for a longer period of time means that you need to weigh the benefits of those lower rates and smaller individual payments. Still, the more productive you can be with that extra money you’re saving, the better.

4. Your credit score.

This factor mostly applies if you have a bad credit installment loan. Unlike many bad credit lenders—the kind who are hocking short-term no credit check loans like payday loans, title loans, and cash advances—some installment lenders like OppLoans report their customers’ payments to the three major credit bureaus: TransUnion, Experian, and Equifax.

If your lender reports to the credit bureaus, then every payment that you make on your installment loan gets recorded on your credit report. That’s important, because your payment history is actually the single largest factor in determining your FICO score, making up 35 percent of the total. This means that any on-time payments you make on your bad credit installment loan are actually helping your score!

Now, this isn’t really a good enough reason on its own to refinance your loan. However, it’s not for nothing if each additional payment you make translates to another positive mark on your credit report. If your score improves enough, you could even graduate to more affordable loans and credit cards in the future! At the very least, it’s something to seriously consider.

In the end, whether or not you should refinance your installment loan is going to come down to your individual financial situation. The best you can do is take all these factors into account, triple-check all your math, and make the most informed decision possible.

Want to steer clear of bad credit loans? Well, you’re going to need good credit! To learn more about how you can fix your credit score, check out these related posts and articles from OppLoans:

Do you have a personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Unlike Payday Loans, a Bad Credit Installment Loan Could Actually Help Your Credit Score

Payday loans might seem like a good solution when you’re hard-up for cash, but a bad credit installment loan could set you on the path to a better credit score.

When people take out a payday loan, they’re not usually thinking about their credit score. And why would they? The whole reason they’re turning to a payday loan is that they have poor credit in the first place. When a financial emergency rears its ugly head, and they need to cover those extra expenses, a payday loan is their best bad option.

But is it? We won’t keep you in suspense: No. No, it is not. There are several reasons why a person should take out a bad credit installment loan instead of a short-term payday loan. Lower interest rates are one. More affordable payments is another. When considering the reasons to take out an installment loan over a payday loan, those two are the most important.

In this post, however, we’re going to focus on a third reason: The right bad credit installment loan could actually help improve your credit score. Here’s how.


Payment history is important to your score.

Your credit score is the single most important number in your financial life. It determines what kinds of personal loans you’ll be able to access and the rates that you’ll pay for them. The most common type of credit score, the FICO score, is scored on a scale from 300 to 850. The higher your score the better, with 680 being the rough divider between good and not-so-good credit.

Your FICO score is created using information from your credit report, which is a document that tracks your history as a credit consumer over the past seven years. (Some information, like bankruptcies, stays on your report for longer than that.) You have three different credit reports, actually, one from each of the three major credit bureaus: Experian, TransUnion, and Equifax.

While the formula that FICO uses to create their score is top-secret, there is one thing we do know, and that’s the five different weighted factors that are used to create them: Payment History, Amounts Owed, Length of Credit History, Credit Mix, and New Credit Inquiries.

Of those five factors, Payment History is the most important. It makes up 35 percent of your total score—with your Amounts Owed coming in a close second at 30 percent. Payment history takes into account whether or not you pay your bills in full and on-time.

This is why one late payment can do some serious damage to your score—and why building up a positive payment history is crucial to raising a score that’s down in the dumps.

Find a lender who reports your payments.

Traditional lenders like banks always report payment information to the credit bureaus. But when it comes to bad credit lenders, the practice is far less common. Places that offer no credit check loans like cash advances or payday and title loans don’t care about their customers’ credit scores, so why would they report their payment information?

Well, it turns out that doing so can really help their customers! Positive payment information that’s reported to the credit bureaus gets added to a person’s credit report, meaning that it then gets factored into their credit score. More positive payment information will eventually translate to a higher score!

Then again, short-term bad credit loans like payday and title loans are meant to be paid off in a single lump sum payment (one that many customers have trouble affording). Plus, they wouldn’t have that much payment information to report anyway … unless you include the large portion of their customers who have to roll over or reborrow their loans and get trapped into a predatory cycle of debt …

Lenders like OppLoans, on the other hand, offer bad credit installment loans that are designed to be paid off in a series of regular payments—and they report their customers’ payment information to the bureaus. This means that every on-time payment you make on your installment loan is a positive mark on your credit report.

Taking the financial long view.

When you have bad credit and no money in savings, it can be hard to think about anything other than the financial problem that’s sitting right in front of you. When you have to get your car repaired in order to get to work the next morning, why would you care about the impact a given loan would have on your credit score? You’ve got bigger fish to fry!

But if you’re always taking the short-term view, you’re never going to fix the real problem. Ignoring your credit score means getting stuck with high interest rates and loan payments that will eat up a sizeable chunk of your budget. Instead of putting money into savings in order to build an emergency fund, all those extra funds will go towards fees and interest.

Breaking the debt cycle isn’t easy, and it’s not something that a single loan is going to solve. But choosing a safe, affordable installment loan that will help build your credit over a predatory payday loan is a good first step to take. To learn more about putting your finances on a more solid footing, check out these related posts and articles from OppLoans:

Do you have a financial question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Credit Utilization Ratio: What It Is, Why It’s Important, and How to Master It

If you have credit cards, make sure you’re not putting too much money on them at any one time. Utilizing too much of your total credit limit can hurt your credit score.

Your credit score is very important. We’ve mentioned that before, but we’re going to mention it again. And then again after that. And then at least three more times.

And why do we keep saying it? Because it’s true! Your credit score is very important. It can determine whether you’re able to get a loan and at what rate. Given the importance of borrowing money in modern day life, this will affect whether you’re able to get a mortgage or credit card or car or apartment or sometimes even a job. Without a good score, the only loans you’ll be able to qualify for are bad credit loans—and the wrong bad credit loan could set you back big time.

Unfortunately, understanding your credit score isn’t always as easy as it should be. For example, how much money you currently owe makes up almost one-third of your total score. But the credit-scoring formula doesn’t just take into account how much you owe, it also accounts for what’s called your “credit utilization ratio.”

But what is your credit utilization ratio, and how do you keep it healthy? You probably aren’t sure, or else you wouldn’t be reading this article. Or maybe you have a pretty good sense of it but you were looking for some additional tips. Either way, read on!


So what is this “credit utilization ratio” anyway?

We spoke to the experts to find out how they would describe credit utilization ratios. Now we’re bringing those explanations to you, curious readers!

“Your credit utilization ratio is the relationship between your credit card limits and your account balances (as they appear on your credit reports),” explained Michelle Black (@MichelleLBlack), credit expert and founder of CreditWriter.com.

“It describes the percentage of your available credit which you are actually using. Revolving utilization is hugely influential over your credit scores. It’s nearly as important as your payment history. In fact, an impressive 30% of your FICO credit scores are largely based upon your revolving utilization ratios.”

Here’s an illustrative example from Leslie H. Tayne Esq. (@LeslieHTayneEsq), Founder and Head Attorney at Tayne Law Group (@taynelawgroup):

“Your credit utilization ratio is the percentage of your allotted credit that you owe. “It includes all of your lines of credit and all of your balances. For example, if you have two credit cards each with $6,000 lines of credit for a total of $12,000, and you are carrying a balance of $1,000 on one and $2,000 on the other, your credit utilization ratio is 25 percent.”

What kind of number should you aim for?

Now that you know what your credit utilization ratio is, what does a good credit utilization ratio look like?

“I suggest to my clients that they try to use only 30 percent of the available credit, and never max out a card, meaning do not use every dollar of the utilization,” Tayne told us. “I recommend keeping your credit utilization ratio under 30 percent to prevent it from negatively impacting your credit score.

“This should apply to both your individual cards and your cumulative total. Having a high credit utilization ratio tells creditors that you’re most likely spending a lot of your income on debt payments, meaning you may be a higher default risk. Having a high utilization rate can affect whether you qualify for loans or what your interest rate will be if you are approved. The best credit utilization ratio, of course, is zero or under 10 percent.”

Black echoed this sentiment:

“Ideally, you should aim to keep the revolving utilization ratios on your credit reports as low as possible. Best practices include paying off your credit card balances in full each month. Additionally, it is a good idea to pay off your full balance a few days before the statement closing date on your account. Doing so will ensure that your statement will show a $0 balance and that a $0 balance will be reported to the three credit bureaus for the upcoming month.”

Keeping it 30 (or lower).

So what steps can you take to improve your credit utilization? Well, one of the best ways is by paying off your balances in full and early, as Black mentioned.

Kelan Kline of The Savvy Couple (@TheSavvyCouple) offered a couple additional methods for keeping a healthy credit ratio:

Ask for a credit line increase. We do this every 6-12 months and it works out very well. This will allow you to spend more money on a certain credit card without having to worry about using too much of your credit limit.

Get another card. You can always have more than one card open which can help spread out spending during higher spending months like the holidays. It’s always important to remember that credit cards are NOT meant to hold a balance from month to month. Being responsible is even more important when you have more than one card.”

By keeping your credit utilization ratio low, you’ll be keeping your credit score in a better place. Follow all this advice, especially the parts about paying all of your bills off in full and on time, and a better credit future will be in your grasp.

When you’ve got a lousy credit score, an emergency expense might leave you stuck with predatory no credit check loans like payday loans and cash advances. This is one of the many reasons why maintaining your score is important! To learn more about how credit scores work—and how you can improve yours—check out these related posts and articles from OppLoans:

What else do you want to know about credit scores? Let us know! You can find us on Facebook and Twitter.

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Contributors

Michelle Black is a credit expert, freelance writer, and founder of CreditWriter.com. You can find her on Twitter @MichelleLBlack.
Kelan and Brittany Kline aka The Savvy Couple are two thriving millennials that are daring to live differently. They started their personal finance blog in September 2016 to help others get money $avvy so they can live a frugal and free lifestyle. Brittany is a full-time 4th-grade teacher and Kelan runs The Savvy Couple full-time and works as a digital marketer. You can follow them here: FacebookTwitterPinterest, and Instagram.
Leslie H. Tayne, Esq. (@LeslieHTayneEsq) has nearly 20 years’ experience in the practice area of consumer and business financial debt-related services. Leslie is the founder and head attorney at Tayne Law Group (@taynelawgroup), which specializes in debt relief.

Your Guide to Escaping a Debt Trap

Being deep in debt can feel like you’re sinking in quicksand. But hope is not lost! Here are some tips to help you plan your debt trap escape.

Life comes at you fast. It seems like only yesterday you received that great new credit card in the mail, and yet here you now sit, suffering the embarrassment of that very same card being declined because you maxed it out. How did this happen?

Well, it’s no coincidence that people talk about debt like it’s a trap. When you’re in debt up to your eyeballs, you might as well be sinking into quicksand in the middle of the jungle.

Still, that doesn’t mean that you should give up. Just like there’s always a way out of quicksand (probably like a sturdy vine? Or something?) there’s also a way to escape from your debt, no matter how firmly it has you in its grasp.

So grab your safari hats, keep your comically oversized butterfly nets at the ready, and check out these ten steps for escaping a dastardly debt trap.


Ask for help.

This is a good lesson for any situation, not just getting out of debt. Don’t convince yourself that you have to do this all on your own. Seek help from a local nonprofit or a credit counselor. Talk to your friends and family members who are good with money.

Heck, you can even to talk to them about helping you directly, either by lending you money or by cosigning for a low-interest loan or credit card.

Granted, you should only do this if you are confident you can hold up your end of the bargain. The last thing you want to do is end up with even more debt plus a ruined relationship.

Still, the first thing you should do when escaping a debt trap is to ask for help. Trust us.

Stop spending money you don’t have.

Asking for help might be step one, but it only beats out this step by a razor-thin margin. Before you can start getting out of debt, you first need to stop digging yourself even deeper.

Take a look at where you’ve spent money over the past couple months and figure out why you are spending beyond your means.

For some, this step will be easy, as the debt they’re carrying will have been from a one-time financial or medical emergency.

For others, this will mean making serious adjustments to their lifestyle. If you need to change your spending habits, then go ahead make them, pronto.

The sooner you do this, the earlier you’ll get out of debt.

Build (and stick to) a budget.

Good news, the actions you took in step two have already gotten you started on step three.

With a budget, you are going to stop letting your spending rule your life. Instead, you’ll make a plan for where your money is going to go.

Take your last three months of expenses and put it into an Excel document—or use one of these handy budgeting apps.

Separate your needs from your wants, or things like rent and car payments that you must pay versus things like movie tickets and late-night rideshares that you can cut out.

Prioritizing your needs over your wants is the key to a good budget, especially when you need to pay down excess debt. The more you can put towards savings and debt repayment, the better off you’ll be.

Make a debt repayment plan.

If you try and pay down your debt without a plan, you are dooming yourself to failure. So don’t do that.

Instead, make a plan that is both reasonable and that leaves you some wiggle room in case an unexpected bill emerges. (For more on that, see the next entry.)

No matter what kind of plan you make, it can’t rely on you paying only the minimum payments. Your budget needs to carve out room for extra funds.

The two best debt repayment plans out there are the Debt Snowball and the Debt Avalanche methods. With both of them, you put all your extra debt repayment funds towards one debt at a time.

People will swear by the Debt Avalanche method because it means paying off your highest interest debts first, but that can take a while.

The Debt Snowball, on the other hand, focuses on paying off your smallest debt first, which will give you early victories. For many folks, that’s encouragement they’ll sorely need.

Build an emergency fund.

Throwing all of your money towards debt repayment is all well and good, but it does come with a big downside: If you don’t have any money in savings, you’ll have to take on more debt any time a surprise expense comes your way.

The way to avoid that is to simultaneously build an emergency fund. While this might slow down your debt repayments somewhat, the financial security it’ll provide is well worth it.

When you make a budget, set aside money from each paycheck that goes right into a savings account. Heck, you can even get money in cash and put it in an envelope under your mattress.

These funds are for emergency expenses, so they need be easy to access, but you’ll also have to avoid using them for unnecessary purchases and splurges.

Your initial goal with an emergency fund should be $1,000. But really, the ideal size for an emergency fund is six months worth of living expenses.

Pay yourself first.

This is a simple but powerful financial lesson. Paying yourself first means putting your long-term financial needs before everything else.

In this case, you should figure out how much you want to put into savings and towards debt repayment every month. Once you have those numbers in mind, only then do you turn your attention towards building the rest of your budget.

It might sound a little silly, but you’d be surprised what can happen when you change up your financial priorities.

You might call this the financial equivalent of the baseball diamond from Field of Dreams: build these savings into your budget, and the money will come.

Be careful with debt consolidation.

One way to pay down your debt is to consolidate all your different debts into one single loan or credit card with a lower interest rate—or maybe with no interest at all.

But debt consolidation comes with dangers all its own, especially with credit cards. Using a zero percent APR offer on a credit card to consolidate your debt can make your debt payments go farther, but what about all those old cards?

Closing those cards could actually hurt your credit score, but leaving them open invites a lot of temptation. If you’re not careful, you could end up racking up even more debt. That’s the last thing you need!

You need to be very, very careful, and keep those old credit cards in a place where you can’t access them very easily.

Increase your income.

The faster you can get out of debt, the more money you’ll save in interest and the sooner you’ll be able to put that extra money towards stuff that’s way more fun or productive or both.

But unless you want to start hunting local pigeons for food, there’s only so much room that you can carve out of your budget.

The only other option, then, is to increase your income! You can do this by taking on a second job or a fruitful side hustle.

The one thing you’ll want to watch out for is overwork and burnout, as that can lead you to make emotional splurge purchases.

If you aren’t able to swing a side gig, you can look for a better, higher-paying job, or ask your boss for a promotion!

Avoid predatory loans.

For folks with bad credit, tight budgets and meager savings, emergency expenses often mean taking out a bad credit loan or no credit check loan to make ends meet.

This is something you do your best to avoid in general, but especially if you’re trying to pay down your debt.

Predatory lenders offering short-term payday loans, cash advances, and title loans with ridiculously high annual interest rates will likely drive you even deeper into the hole.

Beyond a simple debt trap, they could leave stuck in a vicious cycle of debt, where you keep making payments without ever getting closer to paying your loan off!

If you must take out a bad credit loan, look into a long-term installment loan, as their amortizing interest and more reasonable payments can help keep you on track.

Fix your credit score.

If you’ve spent years trapped in debt, the odds are good that your credit score is in the tank. (For reference: A credit score under 630 is considered “bad credit,” but even scores below 670 can seem too dodgy for traditional lenders.)

The amount of debt you owe makes up 30 percent of your FICO score, so getting out of debt should help your score immensely. But don’t get overconfident!

A better score will help you borrow money with better terms and at lower rates, so order a free copy of your credit report and see where exactly your score can be improved.

Here’s a tip: If your years in debt caused any late or missed payments, make sure you make all your payments on time moving forward. The only credit score component more vital than your amounts owed is your payment history.

You can also follow these tips to AVOID debt traps altogether.

Guess what? It turns out that spending beneath your means, maintaining a budget, and building your savings are all great ways to stay out of debt in the first place! Just follow the advice we’ve laid out in this article, and your financial future should be debt-trap free!

If you want to read more about managing your finances responsibly, check out these related posts from OppLoans:

What are your best strategies for getting out of debt? We want to hear from you! You can find us on Facebook and Twitter.

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What Are the Side Effects of Bad Credit?

A bad credit score can negatively affect your everyday life (and your personal financial outlook) in ways you wouldn’t expect.

Okay, so you have bad credit. Awesome.

Actually, no, wait. Not awesome. The opposite of awesome. Your credit score is one of the most important numbers in your life, and a poor credit score pretty much means entering a world of financial hurt.

And here’s the real kicker: You might think you know all the ways in which a bad credit score will screw with your finances. But in fact, the effects are way more widespread than that.

Here are five of the main side effects you’ll experience when you have lousy credit.


1. You’ll be stuck with much riskier loans. 

A bad credit score is going to shut you out from the kinds of personal loans offered by traditional lenders like banks. Heck, even a so-so credit score will oftentimes leave you high and dry. Instead, you’ll be stuck with bad credit loans and no credit check loans, which come with much higher interest rates than regular loans.

And when we say higher, we mean way higher. Your standard unsecured personal loan will have an Annual Percentage Rate (APR) anywhere from five to 36 percent. Your average payday loan, on the other hand, has an average APR of 391 percent. That’s over 10 times higher than the most expensive personal loan! The same goes for cash advances (which are basically payday loans using a different name) and title loans, which have an average APR of 300 percent.

Don’t get us wrong, the right bad credit loan can be a great financial solution when you’re dealing with surprise expenses. But many bad credit and no credit check loans also come with short terms and lump sum repayments that can make them incredibly difficult to pay back on time. That’s how borrowers end up getting stuck in a nasty cycle of debt. (If you want to skip that predatory debt cycle, consider taking out an amortizing bad credit installment loan.)

But having to resort to riskier and more expensive types of loans is one of the most obvious ways that a bad credit score can affect your finances. The next items on this list are a little more surprising.

2. You could have trouble renting an apartment. 

You might not know this, but potential lenders aren’t the only ones that look at your credit score or pull copies of your credit report. This practice is pretty much standard for potential landlords when they’re considering a person’s rental application.

After all, a history of things like delinquent accounts, repossessed cars, evictions, and late or missed rent payments all speak to whether or not you might be a good tenant and whether they’ll have to hound you every month to get your rent paid.

Apartment hunting with a lousy credit score will mean more rejections and requests for larger security deposits. If you’re in this situation, you should look for individual landlords over big rental companies, as they’ll be more likely to make exceptions.

Looking for less trendy neighborhoods, snagging yourself a co-signer, and offering to pay more than the requested amount up front are all ways to get an apartment despite your bad credit. And when in doubt, be honest and explain yourself, maybe even in an official letter of explanation. Potential landlords will respect that.

3. You could be stuck paying extra for utilities. 

Once you’ve paid double the normal deposit for that new apartment and you’ve got your move-in date set, it’ll be time to turn your attention to utilities like water, gas, electricity, internet, and (maybe) phone or cable. No problems here, right?

On the contrary, this is another area where your poor credit score will set you back. Utility contracts are a form of credit called “open accounts” where every month you have a certain amount of money that needs to be paid in full. And while these credit accounts don’t involve any interest, the utility company will still be interested in your credit score.

While a bank might simply turn you down based on your credit score, the utility company will probably just charge you higher rates. (Failure to pay, however, will indeed get your service shut off.) The utility company might even ask for a large up-front deposit—up to one-sixth the cost of your annual service—or a “letter of guarantee” before they’ll sign you up.

4. Your car insurance rates might go up. 

Here’s the funny thing about this bad credit side effect. While insurance companies won’t actually check your credit score when you apply with them, they will take the same information that appears on your credit reports and feed it through their own super-secret formula to create a “credit-based insurance score.”

The difference between this score and your regular credit score is that this score has a different goal in mind: It’s designed to determine how many claims you’ll file. The more claims you’ll file, the more money you are going to cost the insurance company. To offset that cost, they’ll then charge you higher rates.

The reason that insurance companies do this is fairly simple. According to a 2007 report from the Federal Trade Commission (FTC) titled Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, these scores work:

“Credit-based insurance scores are effective predictors of risk under automobile policies. They are predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums and lower-risk consumers will pay lower premiums.”

So while bad credit might not directly translate to higher rates for your car insurance, a poor credit score is still a likely indicator that you’ll be paying more.

5. Your job application could end up in the trash. 

This is the rarest side effect of bad credit, but it’s one you should still be aware of. Bad credit could be the thing that prevents you from getting hired for a job—and, in some circumstances, it could even mean getting fired.

Some employers run pre-employment credit checks when hiring. While they don’t check your credit score, they will still get a copy of your credit report, which will contain all the information that led to your poor score. These checks need to be run with your permission, but refusing to give your permission could very well knock you out of the running.

While these credit checks could be used as a tie-breaker between two equally impressive candidates, they are also very common in positions and industries where handling large amounts of money is part of the job. It makes sense: A person who isn’t good with their own money probably shouldn’t be in charge of other people’s money.

Similarly, employers in many states can run credit checks on their employees. While you are much more likely to run into a credit check when you’re being hired for a position, you can certainly encounter one at a company you already work for—especially if you’re up for a promotion.

Unless, of course, you live in one of the many states where these practices are restricted. To learn more about the laws regarding employer credit checks in your state, check out this report from the alternative credit reporting agency Microbilt: State Laws Limiting Use of Credit Information For Employment.

As this blog post has demonstrated, having lousy credit sucks—perhaps in more ways than you anticipated! If you want to read about some ways you can improve your credit, check out these related posts from OppLoans:

What else do want you know about living with bad credit? We want to hear from you! You can find us on Facebook and Twitter.

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Can Paying Off Your Student Loans Hurt Your Credit Score?

Sometimes, your credit score will react to certain financial behavior in unexpected ways. What happens when you pay off your students loans is a great example.

When that day comes and you finally pay off your student loans, it will be a serious cause for celebration. You can take all that extra money that you were putting towards your loans and throw an awesome party for you and your friends! Although, if your friends are still paying off their student loans, they might think you’re being kind of a jerk.

No matter. It’s your time to shine. It’s not like there are any downsides to paying off your student loans, right? Wrong. In fact, paying off a student loan can actually hurt your credit score. Now, this isn’t something that should prevent anyone from paying off their student debt—the benefits still far outweigh the drawbacks—but it is a slight annoyance you’ll have to deal with.

Here’s why paying off your student loans could actually cause your credit score to drop …


First, a brief refresher on credit scores.

Even if you know the difference between a great credit score (generally 720 and above) from a bad credit score (below 630), you still might not understand how a credit score actually works. Don’t worry! It’s really not that complicated.

Credit scores are like a grade on how well you’ve used credit over the past seven years. They are based on information from your credit reports, which are compiled by the three major credit bureaus—Experian, TransUnion, and Equifax. The most common type of credit score is the FICO score, which is graded on a scale from 300 to 850.

Your credit score reflects how much money you’ve borrowed, what types of credit you’ve used (like loans versus credit cards), whether you pay all your bills on time, how long you’ve been borrowing for, and whether or not you’ve applied for more credit recently. All that info is fed through a semi-secret formula to produce a single three-digit number that summarizes your creditworthiness for potential lenders, landlords, etc.

One thing we do know about that semi-secret formula are the different categories of credit info. First, there’s your payment history, which makes up 35 percent of your total score, followed by your amounts owed (30 percent). Next there’s the length of your credit history (15 percent), and finally, there’s your credit mix and your recent credit inquiries, which both make up 10 percent.

It’s all about the credit mix.

Normally, when we write about the factors that are important to your credit score, we focus on, well, the two most important factors to your score: your payment history and your amounts owed. But when it comes to student loans, it’s one of the other three factors that takes center stage: your credit mix. This category tracks the different kinds of credit that you use: Namely, how many revolving accounts you have versus how many installment accounts.

Revolving accounts are things like credit cards, where you borrow money against a set credit limit and then make payments on that amount. Installment accounts, on the other hand, are your standard type of loan, where you borrow a chunk of money and then pay it back in regular installments. This covers student loans, as well as personal loans, auto loans, mortgages, etc.

In order to have a healthy credit mix, you need to have, well, a healthy credit mix! If the only debt you have is credit cards, you’re going to get dinged for that. And if the only debt you have is all tied up in installment loans, you’ll get dinged for that too!

Bye-bye student loans, hello lower credit score.

When you pay off a loan or close a credit card, that account gets marked as closed on your credit report and your credit score gets updated. So when you pay off one of your student loans, your score then gets refreshed to reflect that you have one less installment account then you did previously.

And guess what? That’s probably going to make your score go down! This is especially true if you don’t have any other outstanding installment accounts. If you don’t have a personal loan, auto loan, or a mortgage, those student loans might have been the only installment account you had open. Plus, the odds are good that you do have a credit card—or five.

That’s not all! Has anyone told you that you shouldn’t close out an old card once you’re done using it? One of the reasons you shouldn’t is that older credit accounts also help your score. Your student loans are very likely the oldest credit account you have, so paying it off will lower the average age of your accounts, which can also cause your score to drop.

Even if your score drops, you should still celebrate.

So there it is. When you finally pay off your student loans, it could hurt your credit score. How much will it cause it to drop? Well, we actually don’t know. People’s credit scores can be pretty particular to their specific financial situations, so there’s no real way of telling.

But you know what? Even if your score does drop, it’ll be worth it. So long as you’re making all your payments on time and not taking out more debt than you can handle (pro tip: never let your outstanding credit card balances exceed 30 percent of your total credit limit), you’ll be just fine in the long run. Enjoy putting all that extra money towards more rewarding stuff.

To learn more about how credit scores work, check out these related posts from OppLoans:

What else do you want to know about credit scores? Let us know! You can find us on Facebook and Twitter.

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What’s the Quickest Way to Fix Bad Credit?

In order to find the best—or the fastest—way to fix your credit score, you’ll have to reckon with why your score is bad in the first place.

The annoying thing about your credit score (other than the immense power it wields over your financial life) is that it’s much easier to screw up than it is to fix. Heck, one late payment can partially undo years of good behavior. And the same goes for one unexpected bill or medical emergency, especially when you don’t have a well-stocked emergency fund to handle it.

Still, there are numerous ways to fix your credit score, some of which work faster than others. Fixing your score is about practicing good financial habits over time; it’s a marathon, not a sprint. Still, if you’re looking for the quickest way to fix your bad credit score, there’s one method that stands out.


But first, a quick refresher on credit scores.

In order to understand how to fix your credit score, you first need to understand how your score works, and how it got so low in the first place. To begin with, credit scores are based on information from your credit reports, which are compiled by the three major credit bureaus: Equifax, TransUnion, and Experian.

The most common type of credit score is the FICO score, which takes all the credit history info from your reports, feeds it through a semi-secret algorithm, and spits out a number on a scale from 300 to 850. The higher your score, the better your credit. Scores above 720 are generally considered great, while scores below 630 are bad. (With scores between 720 and 630, the quality of your credit can get a little murky.)

Your FICO score is made up of five primary components from your credit history. At 35 percent, your payment history is the most important part of your score, followed closely by your amounts owed, which makes up 30 percent. The length of your credit history comprises 15 percent of your score, while your credit mix and recent credit inquiries each make up 10 percent.

How was your credit score damaged?

Since your payment history and your amounts owed are the two most vital parts of your credit score, it’s likely that the source of your poor credit rating lies in one of these categories—or in both of them.

When it comes to your payment history, it doesn’t take much to lower your score. While late payments that are paid up within 30 days won’t generally hurt your score, payments that more than 30 days late or are missed altogether are going to be reported to the credit bureaus.

Once that happens, your score will take a hit. And the thinner your credit history, the more damage that late or missed payment will do.

With your amounts owed, it will depend more on the specifics of your situation. For instance, too much credit card debt or other consumer debt (like personal loans) is never a good sign, but hundreds of thousands of dollars in mortgage debt is generally seen as fine.

One thing that’s very important your amounts owed is your credit utilization ratio, which measures what percentage of your open credit card balances you’re actually using. So if you have a card with a $3,000 limit and you never spend more than $300 on it before paying it down, your credit utilization ratio will be 10 percent.

If you have bad credit, this ratio may very well have something to do with it. It’s recommended that you never use more than 30 percent of your available credit, so a bunch of maxed out cards will hurt your score, regardless of their credit limits.

And this is also why you shouldn’t close out old cards, even if you don’t plan on using them anymore—especially if you’re not using them! The higher your total available credit, the better your ratio! Not to mention that older credit accounts also help boost the length of your credit history.

The quickest way to fix your credit is …

If you have bad credit because you routinely pay your bills late, we have some bad news: There’s no quick fix to your credit. All you can do is make sure all that outstanding bills and collections accounts are paid up and start paying everything on time moving forward. It could a few years, but your score will eventually recover.

However, if your bad credit is more due to a large amount of consumer debt—and a large amount of a credit card debt in particular—then you’re in luck. There is a relatively speedy way to fix your credit and it’s … to pay off all that debt! Easier said than done, sure, but there are things you can do to speed up the process.

First things first, you’ll want to decrease your spending and increase your income. The former can be achieved by creating a tight budget and sticking to it. Similar to the principle of “pay yourself first,” you should start with the amount you want to put towards debt repayment and then build the rest of your budget from there. You’ll be surprised by how many expenses you can cut when you shift your financial priorities.

Second, increasing your income will mean picking up a side gig, getting a new job, or asking for a raise or promotion. A side hustle is probably the easiest one to achieve in the short-term, although the other two options are a bit more sustainable in the long run.

If you’re wondering what kind of hustle would suit you best, check out this list of 10 great side hustles. For advice on getting started, here are six expert tips to help you out.

Pay off your debt with a Debt Snowball.

Once you have a chunk of money set aside each month for paying down your debts, now it’s time to get serious. The more strategic you get, the more successful you’ll be. We recommend that you choose one of two popular debt repayment strategies: the Debt Snowball or the Debt Avalanche.

With the Debt Snowball method, you put your debts (including credit cards and installment loans) in order from the largest balance to the smallest. With all your larger debts, you continue to pay only the minimum balance and you put all your extra debt repayment funds towards the debt with the smallest balance.

You keep doing this until the debt is paid off. Once that’s done, you then take those extra debt repayment funds plus the money you were paying towards that debt’s minimum payment and you add them towards your next largest debt.

This is where the Snowball part of the name comes into play: Every time a debt is paid off, you roll its monthly minimum payment into the next largest debt. With every debt you pay down, you have more money to pay off your remaining debts.

Or you could try the Debt Avalanche.

The Debt Snowball method is designed to give you early victories, an important jolt of encouragement that many will need to keep going. The Debt Avalanche, on the other hand, sacrifices those early victories in the name of paying less money overall.

The method is almost exactly the same as the Debt Snowball, but with one key difference: Instead of paying off your debt with the smallest balance first, you pay off the debt with the highest interest rate first and then move on down the line, saving your lowest-rate debt for last.

In terms of your credit, there’s a simple tweak you can make to these strategies to maximize the effect on your score. First, focus on paying down your credit cards first. Next, don’t focus on fully paying off your cards entirely—at least at the beginning.

Instead, pay them down until their balances are under 30 percent of their total credit limits. Once your overall credit utilization ratio dips below 30 percent, you should see a jump in your score.

That doesn’t mean you should stop there, it’s just a way to frontload the positive effects for your credit. And while paying down a substantial amount of credit card and consumer debt isn’t exactly a “quick fix” solution, it’s still the fastest way to improve your score.

Short of winning the lottery, even the quickest solution to fix your bad credit will still require a good deal of dedication and perseverance. There’s simply no way around it.

Here on the OppLoans Financial Sense blog, we cover how people with bad credit can borrow better by avoiding predatory no credit check loans and bad credit loans like cash advances, payday loans, and title loans. Still, the best way to deal with a bad credit score is to fix it up. To learn more about how credit scores work, check out these other great posts and articles from OppLoans:

What other questions do you have about credit scores? We want to hear from you! You can find us on Facebook and Twitter.

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The 5 Ways a Personal Loan Can Affect Your Credit Score

Certain aspects of taking out a personal loan can help your score, while others can hurt it. In the end, just make sure you’re borrowing responsibly.

Maintaining your credit score is a pretty non-negotiable part of modern day life. While it certainly is possible to live a rich and full life without any credit score whatsoever, it involves quite a bit of extra hassle, and it’s certainly not for everyone. If you want access to credit, you’re going to need to maintain your credit score. It’s as simple as that.

The most common form of credit that people use is credit cards. And that makes sense. Their revolving balances allow people to use them for everyday purchases, all the while accruing points or miles that they can use for future purchases or travel. Like all forms of consumer credit, credit cards can hurt or help your credit score. It all depends on how you use them.

The same holds true for unsecured personal loans. In this post, we’ll give you a detailed overview of how a personal loan can both harm and help your credit score. But what it all comes down to is this: Using credit responsibly is good for your score, while using it irresponsibly is bad.


How your credit score works.

Your credit score is created using information from your credit reports, which track your history of using credit over the past seven years. (Some information, like bankruptcies, will stay on your report for longer.) Your credit reports are compiled by the three major credit bureaus: TransUnion, Experian, and Equifax.

Your credit reports contain a whole range of information, including how much credit you’ve used, what type of credit you have, your total open credit lines, whether you pay your bills on time, the age of your credit accounts, whether you’ve filed for bankruptcy or had liens placed against you, any debt collection actions taken against you, and whether you’ve had any recent hard credit inquiries.

All that information is then fed through a (mostly) secret formula to create your credit score. The most common type of score is your FICO score, which is scored on a scale from 300 to 850. The higher your score, the better. Any score above 720 is generally considered great, while any score below 630 is considered flat-out bad.

The two most important factors in your credit score are your payment history (35 percent) and your total amounts owed (30 percent). Together they make up well over half your score. The other major factors are the length of your credit history (15 percent), your credit mix (10 percent), and your recent credit inquiries (10 percent).

1. How a personal loan affects your payment history.

This is the one category where the effects of your personal loan will depend entirely on your behavior. Assuming that you take out a personal installment loan, which is broken up into a series of small, regular payments, paying your loan on time helps your score while missed or late payments hurts it.

Payment history is the single most important part of your credit score, and one late payment can dramatically lower your score. Meanwhile, it takes months and years of on-time payments to maintain a sterling payment history and to keep your score afloat. If you’re looking to repair your payment history, a personal installment loan (used responsibly) can be a great way to accomplish that.

2. How it affects your amounts owed.

When you take out a personal installment loan, you are adding money to your total amounts owed. This will probably have the effect of lowering your score in the short-term. Adding more debt means that you are increasing your overall debt load, which will likely cause your score to go down. Taking on more debt means an increased risk that you’ll take out too much.

However, if you have a thin credit history (which means you haven’t used much credit), taking out a personal loan will likely help your amounts owed in the long run. Showing that you can manage your debt load is great for your score and sends a signal to potential lenders and landlords that you’re a good bet.

This is one area where credit cards have a leg-up on personal loans. With a credit card, you can help maintain your credit score by never using more than 30 percent of your total credit limit. And when the opportunity arises to raise your credit limits, take it! Personal loans don’t come with a credit limit, so they don’t factor into your “credit utilization ratio.”

3 & 4. What about your length of history and credit mix?

While these factors are less important than your payment history and your amounts owed, they’re still areas where a personal loan can help or hurt your score. With your credit mix, for instance, it will depend on what other kinds of loans or cards you’ve taken out. Does this personal loan make your mix of loans and cards more or less diverse?

For instance, if you have two credit cards and car loan (all of which you are using responsibly), then taking out a personal loan will likely help your score because it means you’re using a new kind of credit. Whereas if you take out an online loan in addition to the two other personal loans you’ve used, your score will probably get dinged. The more diverse your credit mix, the more it will help your credit.

In regards to the length of your credit history, most traditional installment loans come with a multi-year repayment period. So the longer you’ve been paying off your loan, the older the average age of your credit accounts. Older credit accounts help your score because they show that you’ve been able to maintain long-term relationships with your lenders.

There is, however, a weird downside here. When you finally pay off your loan, it could actually cause your score to drop. What?! Well, closing out the account will lower the average age of your open accounts, which will hurt your overall score. This is also why you shouldn’t close old credit cards. The age of those accounts (plus the higher overall credit limit) helps your score!

5. A new personal loan means new credit inquiries.

When you apply for a regular personal loan, your lender will run a hard check on your credit. This means pulling a full copy of your credit report so that they can get a full accounting of your credit history. It’s standard procedure for personal loans, auto loans, and mortgages.

Here’s the downside: Recent credit inquiries will ding your score. Usually, no more than five points or so, and the effect will usually be gone within a year or so. Still, there’s no denying that this part of taking out a personal loan will slightly lower your score. With home and auto loans, multiple inquiries can be bundled together on your score, but this generally doesn’t happen with regular personal loans.

Stay away from no credit check loans.

There’s one exception to this rule, and it has to do with certain types of bad credit loans. Most lenders who serve people with poor credit will not run a hard check on your credit history, which means that your score won’t get dinged. However, many will still run a soft credit check, or pull in data from other alternative sources to get a good idea of your borrowing history before approving your application.

And yet there are no credit check loans out there that—you guessed it—don’t run any sort of credit check whatsoever. Common types of no credit check loans include payday loans, cash advances, and title loans. These types of loans often come with astronomical interest rates and lump-sum repayment terms that can make them incredibly difficult to pay back.

And what’s worse, these lenders typically don’t report payment information to the credit bureaus, so paying the loan off on time won’t help your score at all. But if you default on the loan and get sent to collections, they’ll report the account to the bureaus, which will lower your score. Basically, these loans can’t help your score at all, they can only hurt it.

The most important thing is to borrow responsibly.

As we said up top, the most important part about taking out a personal loan is to use it responsibly. Don’t take out more money than you need, make your payments on time, and make sure your payment amounts fit within your budget. You could even possibly use your personal loan to consolidate higher-interest credit card debt.

Do all that, and your personal loan will end up being a net positive for your credit score. To learn more about maintaining your credit score, check out these other great posts and articles from OppLoans:

What other questions do you have about credit scores and borrowing? We want to hear from you! You can find us on Facebook and Twitter.

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Does Your Credit Score Show up on a Background Check?

does-your-credit-score-show-up-on-background-checkBackground checks can return all sorts of information about your past (and present) that you’d rather keep secret. But will it return your credit score?

It’s the question everyone is asking: “does your credit score show up on a background check?”

Or maybe they’re asking “what is a credit score?” or “why would I have to have a background check?”

Well, those questions and more will soon be answered for you! Buckle in, because you’re about to go on a roller coaster. A roller coaster of knowledge!


What is a credit score anyway?

A credit score is a three-digit number created from information collected by the three major credit bureaus, Experian, Equifax, and TransUnion. That information is compiled into credit reports and is fed through a formula (most commonly supplied by the FICO corporation) to create your score. That score is a number that creditors use to determine if they’re going to lend to you and at what rate.

Your credit score is made of five parts.

The largest part, your payment history, makes up 35 percent of your overall score. This is, essentially, whether you pay your bills on time. Obviously, whether or not you’ll be paying the loan back is one of the biggest, if not the biggest, factor a lender takes into account when deciding to lend to you. So whether or not you’ve paid your previous loans and other bills on time is going to be a major consideration.

Amounts owed, at only five percent less, is the next largest part of your credit score. It is an accounting of the current debts you owe, as lenders will suspect you’ll be less able to handle additional obligations if you owe a lot already. The only kinds of loans that probably won’t show up are no credit check loans like payday loans, cash advances, and title loans.

Jumping down to 15 percent, is the length of your credit history. If you’ve been handling your finances well for 10 years, that tells a potential lender a lot more than if you’ve been handling them well for six months.

The last two parts of your credit score are worth 10 percent each. One is your credit mix, which concerns the specific kinds of debt you hold. Certain debts will reflect more positively on your credit score while having no debt at all can actually be a negative. Lenders would rather see you taking out personal loans or using a credit card and paying them off in full and on time than avoiding credit at all.

The last 10 percent comes from new credit inquiries. When a potential lender performs what’s known as a “hard credit check” it will temporarily show up on your credit report. Lenders feel uncomfortable if they know you’re trying to take out multiple loans all at once. (There are exceptions for inquiries made within a certain short-term period to encourage shopping around for the best rate.) Soft credit checks, on the other hand, do not show up on your credit report.

Put all that information together, and you get your credit score. A credit score higher than 720 and you’re in great shape. Lower than 630, and you’ll be really running into trouble.

When will you get a background check?

Anyone has the ability to run a background check on you with your consent. However, most commonly a person will be asked to undergo a background check if they’re trying to apply for an apartment or a job.

If your credit score is less than ideal, you may be worried it could show up on a background check. Will an employer, a landlord, or an extremely cautious potential new friend judge you differently if a poor score shows up on the background check?

Well, you may not have to worry about that very specific scenario.

Will it or won’t it include your score?

Okay, time to stop putting off the big question you’re here to have answered. Will your credit score appear on a background check?

“In a word, no,” answered Larry P. Smith (@LarryPSmithlaw), an attorney at ProtectingConsumerRights.com. “Credit scores typically do not show up on a background check. Most background checks for employment do not seek credit information, but rather, criminal history. They are typically looking for whether you are dangerous to employ.

“Some pre-employment screenings do go deeper and look at credit. This is usually when the job requires the employee to handle money- as many states are enacting laws to prevent credit checks for employment except for certain circumstances.

“In those instances, a score may be revealed, but again, typically not. Those reports are looking to see whether the person has judgments, has declared bankruptcy, or has a large amount of outstanding debt. Credit scores really do not get revealed in background checks.”

Private investigator Lisa Ribacoff (@iigpi) concurred: “Credit scores are NOT provided when we produce reports. We indicate to our clients that unless there is a signed authorization that we can gain access to their reports, then we are not able to even conduct the search. With our findings, we only provide the current and closed accounts as well as payment history and balances.”

So nothing at all to worry about, right? Well, just because a background check won’t turn up your actual credit score doesn’t mean the financial information that does turn up will be all smiles and sunshine.

“The credit score usually isn’t revealed on a background check,” explained Roslyn Lash (@RosLash), an Accredited Financial Counselor and the founder of Youth Smart Financial Education Services. “However, your credit history is more likely to show up. Even if the actual score isn’t given, a history is actually more revealing since it provides more details including dates, amounts owed, and delinquencies.”

Turning down a background check means you probably won’t get that job or apartment. So the best you can do is just work on your finances now so everything will look good when you do need to get a background check.

To learn more about your credit score, check out these related posts and articles from OppLoans:

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Contributors

Roslyn Lash (@RosLash) is an Accredited Financial Counselor and the Author of The 7 Fruits of Budgeting. She specializes in financial education, adult coaching, and works virtually with adults helping them to navigate through their personal finances i.e. budgeting, debt, and credit repair. Roslyn is a  Real Estate Broker and is also the founder of Youth Smart Financial Education Services which specializes in financial literacy. Her advice has been featured in national publications such as USA Today, Forbes, TIME, Huffington Post, Los Angeles Times, and a host of other media outlets.
Lisa Ribacoff is an Advanced Certified Polygraph Examiner and the Manager of International Investigative Group, Ltd. (@iigpi), Credibility Assessment Division. She is a member of the American College of Forensic Examiners, American Society for Testing and Materials (ASTM International). She has been featured on FUSE Media’s Web Series “Lie Detector” among many other Morning news programs and talk shows.
Larry P. Smith (@LarryPSmithlaw) is a consumer rights attorney, concentrating his practice in the areas of Fair Credit Reporting Act and Fair Debt Collections Practices violations, as well as consumer fraud claims and lemon law.  He is the Managing Partner at SmithMarco, P.C. in Chicago, Illinois.