How are Soft Credit Checks Different From Hard Checks?

soft-credit-checks-different-from-hard-checksThere are several differences between soft and hard credit checks, including when they can be run, how much info they return, and whether they affect your credit score.

You’ve probably heard before that applying for too many loans or credit cards can hurt your credit score. And that’s true! When you apply for a new loan or card, the lender will pull up a copy of your credit report to check your history as a borrower.

When lenders do that, it’s referred to as a hard credit check, and it gets recorded on your credit report. Too many recent credit inquiries can indeed lower your score. However, there’s another kind of credit check—a soft credit check that doesn’t doesn’t affect your score at all.

Credit inquiries let lenders vet potential borrowers.

When a lender or a business (like a landlord or a utility company) wants to make sure a customer is trustworthy, they pull a copy of their credit report. The information on those reports is also used to create your credit score.

Credit reports are maintained by the three major credit bureaus: Experian, TransUnion, and Equifax. They contain a comprehensive history of how you’ve used credit over the past seven years, including payments you’ve made (or not made), how much you owe, how long you’ve been using credit, whether you have any liens or bankruptcies, etc. Some info, like bankruptcies, stays on your report for longer than seven years.

Pulling a person’s credit report—also known as a “credit inquiry” or a “credit check”—allows a lender to verify how a customer has used credit in the past. Have they paid their bills? Do they have too many loans or cards already? Have they been sent to collections or had a lien placed on them?

Getting the answers to all these questions is important to lenders, as those answers help them decide who to lend to and at what rates. The better a person’s history of using credit, the larger the loan or credit card they can get and the lower the interest rate they can qualify for. And if you have a poor history, the reverse is true. If your credit score is low enough, you won’t be able to qualify for loans from any traditional lenders.

Hard credit inquiries and soft credit inquiries.

There are two types of credit inquiries: hard inquiries and soft inquiries. Even though they both involve getting a copy of your credit history, they differ in some key ways.

Hard credit checks involve pulling a complete copy of your credit report. These checks are done by lenders when they are considering a potential borrower’s application for more credit. A hard check can only be done with the borrower’s express permission, and they are themselves recorded on that person’s credit report.

Soft credit checks, on the other hand, do not return a person’s full credit report. Instead, they return a summary of the borrower’s credit history. Because soft checks return much less information, they do not need the borrower’s permission to be run. Soft credit checks are included in a person’s report but are not visible to outside parties viewing the report.

A soft credit check is usually performed in one of three situations. First, a soft check occurs when a person views their own credit report. Speaking of which, you can request one free copy of your credit report per year from each of the three bureaus. To do so, just visit www.AnnualCreditReport.com.

Second, a potential employer can run a soft credit check when you are applying for a job. When it comes to jobs in the financial industry—or jobs where you are going to be handling a lot of money for the company¯businesses like to make sure that you don’t have a ton of outstanding debts. In those situations, they could also go ahead and run a hard check, but only with your permission.

Third, soft credit inquiries often they occur when a lender or credit card company wants to “pre-approve” a potential customer. If you’ve ever received an email or a letter telling you that you’re pre-approved for a personal loan or credit card, then that company has run a soft check on your credit.

If you were to apply for the loan or card, they would then do a hard check, which would give them a lot more information. Depending on what they find during that hard pull on your credit report, they might decide to turn down your application, despite your being pre-approved.

Unlike hard checks, a soft check won’t hurt your score.

This is one of the most important ways in which a soft credit inquiry differs from a hard inquiry. Simply put, hard credit inquiries will lower your credit score, while soft inquiries will not. Both hard and soft credit inquiries stay on your report for two years, but only hard inquiries are taken into account when determining a person’s score.

Of the five categories of information that are used to create your credit score, one of the less important categories is “new credit inquiries,” which makes up 10 percent your score. This category tallies up all the times that you’ve applied for a new loan or credit card in the past two years. Too many hard credit inquiries within the past year will cause your score to go down.

The reason for this is simple. A bunch of hard credit checks can mean that person is desperate for new lines of credit, which is a sign that they haven’t been managing their current loans and credit cards responsibly. That’s something no lender likes to see.

The two exceptions to this rule come with auto and home loans. Shopping for these types of loans is almost always going to mean a lot of shopping around which, in turn, means a lot of hard credit inquiries. As such, any hard inquiries for these types of loans made within the same 45-day period are bundled together into a single inquiry.

Since soft inquiries can be run without the borrower’s permission, and do not represent an application for more credit, they are not taken into consideration with credit scoring.

Soft credit check loans are safer than no credit check loans.

Another situation in which a soft credit check might be run is during an application for a bad credit loan. This is done so that, like with hard credit checks, the lender can get an idea of whether or not the borrower can afford the loan they’re applying for.

This is a good thing because there are many bad credit lenders that don’t run any credit checks at all. The loans they offer are referred to as “no credit check loans” and they include most types of payday loans, title loans, and cash advance loans. Not running a credit check is a sign that the lender doesn’t actually care if the borrower can repay their loan on time.

In fact, not checking a customer’s ability to repay can be a sign of something more sinister; the lender might be hoping that the customer can’t afford their loan. These lenders stand to make much more money from the borrower rolling their loan over and paying additional interest to extend the due date.

There’s a term for when a person is constantly rolling over or reborrowing a loan, only ever paying the interest owed, never the principal. It’s called a “cycle of debt.” And it can ruin lives. Whether it’s a loan from a storefront or an online loan you find on a website, you’d do best to steer clear of no credit check loans.

If you have an emergency and need a bad credit installment loan for some quick cash, find a lender like OppLoans that runs soft credit checks on all their applicants. And if you get turned down, don’t worry. It’s only a soft check, so your credit score won’t be affected.

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

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

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Can Debt Consolidation Hurt Your Credit?

payday-loan-good-for-credit

Whether you take out a debt consolidation loan or opt for a debt management plan, making your payments on time will be key.

When you’re trying to get out of debt, it’s important to consider many different options. Unfortunately, much like with losing weight or starting a zoo, there isn’t some miraculous step to take that will instantly get you out of debt overnight. There is no magic diet, there is no mail-order zoo kit, and there is no company or product that will just instantly erase your debt.

But there are a lot of companies that offer ways to help fix your debt over longer periods of time. Obviously, anything that sounds too good to be true probably is, but some programs are worthy of consideration. One of those programs is debt consolidation. But how does it work, and what will it do to your credit?


A credit counselor can help consolidate your debt.

When considering debt consolidation, you have to consider whether you’re looking for a debt management plan or a debt consolidation loan.

“Our finances are typically referred to as ‘personal’ finances for a reason,” explained Carlos Perez, Director of Counseling Services at DebtWave Credit Counseling, Inc (@debtwave). “Our relationship with money, debt, credit cards, saving, etc. is largely a result of how we grew up, our values, education, and our experience with money.

“Just like there are many ways to spend money and get into debt, there are a few different options for those looking to pay off their debts. One of which is debt consolidation. At DebtWave Credit Counseling, Inc., we are a nonprofit credit counseling agency working to help our clients get out of debt in three to five years or less.

“To do this, we work with creditors to lower the interest rates and monthly payments for our clients. When an individual recognizes they are over their head in debt and give us a call, we share seven other options for getting out of debt. We do this because there is a chance that based on their lifestyle, needs, etc., they may not be an ideal candidate for enrolling in a debt management plan.

“One of the options for getting out of debt that we share with our clients is debt consolidation, or obtaining an unsecured personal loan.”

You could also take out a debt consolidation loan.

On a basic level, getting a debt consolidation loan means taking out a new personal loan to pay off your current debts. This leaves you with only one loan to pay off, hopefully with lower interest.

“Just like there are pros and cons to a debt management plan, there are pros and cons for obtaining a personal loan,” advised Perez. “For example, instead of having maybe three or four different credit card payments, someone who consolidated their debt via a personal loan may now have one monthly payment. There’s also a chance they were able to negotiate a lower APR or lower monthly payment.

“However there are also some serious cons with debt consolidation. For starters, to get a loan, one needs to have good credit. If you’re in credit card debt, you still may be able to qualify for a loan, but you’ll likely have to pay a higher interest rate and a higher monthly payment because your credit score is already lower due to the debt.”

So how will debt consolidation impact your credit?

It depends! As Perez pointed out, the terms of your debt consolidation loan can vary. And what those terms are can affect how well you’ll be able to keep up with payments and therefore how it might impact your credit.

“Debt consolidation can help or hurt a person’s credit,” attorney Marie Martin told us. “I think debt consolidation is a tool that can be effective if used wisely. The credit reporting agencies don’t give out a lot of information about how they calculate credit scores, and I think consumers make better financial decisions if they focus on how an additional debt will impact their overall quality of life rather than how or if it will change their credit score.

“I have found that many families that go through debt consolidation end up reusing the credit card balances they paid down to zero in the consolidation, so they end up with the consolidation loan and the credit card debt again as well. The amount that is consolidated seems to be the biggest factor in determining whether the process helps them get back on their feet or is the shovel that helps them dig a bigger financial hole for themselves. The larger the consolidation amount, the more likely it is to upset the family finances in the long run.”

With debt consolidation, making your payments is key.

Damon Duncan (@Damon_Duncan), an attorney with Duncan Law (@DuncanLaw), gave us his take on the different ways consolidation can impact your credit:

“Typically, debt consolidation can both help or hurt your credit depending on how you use it. If you make the necessary monthly payments on time each month it will typically help your FICO credit score. However, if you are late on payments or if you are applying for several different loans then your FICO credit score could be hurt. Usually, debt consolidation can help with a lower interest rate so doing it is beneficial as long as necessary payments are being made on time each month.”

Much like any financial service, you’ll have to weigh the pros and cons to see if debt consolidation is right for you. If you play your cards right, you could end up in a better financial situation with a better credit score to show for it.

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

How did debt consolidation affect your credit? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

Damon DuncanDamon Duncan (@Damon_Duncan) (@DuncanLaw), is an attorney on the North Carolina Bar Association and Foundation’s Board of Governors, a member of the Elon University School of Law’s Alumni Council, the Secretary of the North Carolina Bar Association’s Bankruptcy Section and adjunct professor at Elon University School of Law and Guilford Technical Community College.
Marie Martin is a consumer bankruptcy attorney who has been practicing for 20 years. She is a member of the National Association of Consumer Bankruptcy Attorneys, the American Bankruptcy Institute, and the incoming Chair of the Consumer Subcommittee of the Bankruptcy Section of the Minnesota State Bar Association.
Carlos Perez is the Director of Counseling Services at DebtWave Credit Counseling, Inc (@debtwave).

How to Finance a Phone with Bad Credit

finance-phone-with-bad-credit

Bad credit means everything costs more, even cell phones. So what are your options?

Remember when a cell phone was considered a big luxury, rather than a necessity? Back in the day, high-powered businessmen would pay thousands of dollars to carry around a brick that was slightly more effective than two tin cans tied to a string.

Over the years, cell phones have become much more advanced, with internet access and apps for everything. Presumably, the call quality has gotten better, although only robocallers seem to actually make phone calls anymore so who really knows?

Regardless, having a smartphone is practically essential these days, as so much of modern society is oriented around it. But how will your credit score impact your ability to get a phone? Is it possible to get a good deal on a phone contract even if you have bad credit?


Wait, what’s a credit score again?

Before we answer whether your credit score can affect your ability to get a phone, let’s go over what a credit score actually is.

Basically, your credit score is a three-digit number that’s compiled from the credit reports created by the three major credit bureaus: Experian, TransUnion, and Equifax. The most common credit score is the FICO score, which is scored on a scale from 300 to 850.  The closer your score is to 850, the better the loans you’ll be able to get—and with better interest rates too.

If you have a credit score below about 650, then you’re considered to have poor or bad credit. In this range, you won’t be able to qualify for many traditional loans or credit cards. Instead, you’ll have to settle for bad credit loans or no credit check loans, some of which are fine, but many of which come with eye-popping fees and interest rates.

But your credit score isn’t all about loans. It can also be a necessary factor for getting a car or an insurance plan or, yes, a phone and phone plan.

How much will your credit score impact your ability to get a phone?

When you try to enter into a cell phone contract, many providers will perform a credit check.

It makes sense. The reason for a credit score, generally, is to measure how reliable an applicant has been about paying down their debts and managing their credit. If you’ve generally been paying your bills on time, odds are greater that you’ll also pay your phone bill on time.

On the other hand, if you’ve run into trouble paying your bills previously, a provider will likely think that you won’t treat their bills with any greater value and will offer you worse rates—if they’re willing to offer a contract at all.

Obviously, a low credit score doesn’t necessarily mean that a person is irresponsible, but that is often the assumption a lender or service provider will make, at least when it comes to the subject’s likelihood to pay their bills.

Hard credit checks will temporarily lower your score.

Unfortunately, there’s a good chance this credit check will be a hard credit check. That means it’ll cause temporary damage to your credit score. If you are given the option, a soft credit check is always going to be better, but depending who the provider is, it may not be able to be helped.

Improving your credit score by paying off your debts, paying all your bills on time, and using credit cards responsibly, will allow you to get better options when it comes to phone plans.

But it can take time to build up a good credit score, and you probably can’t go that long without a phone. So what are your options?

You can pay more for your phone upfront.

One option you’ll have is to pay more money upfront when purchasing a new phone. Your monthly payments might even be lower than a person with better credit who chooses to pay less upfront.

Paying more upfront when you have bad credit is actually quite common. It can help you rent an apartment and sign up for utilities. With some services, like dental work, you may be able to pay less overall if you’re willing to pay for everything up front and in cash.

Of course, this means you’ll need a larger amount of money saved up, and you’ll want to make sure that the phone you’re getting has a good warranty, as you don’t want to lose that upfront investment if the phone gets damaged.

This won’t always be possible, however. If your credit is low enough, you may not be able to qualify for any financing plan at all. At least not with certain providers.

Many companies will give you the option to prepay for your phone use, but this tends to be more expensive over time than a traditional phone financing plan.

Unfortunately, it’s a recurring reality that the worse your credit, the more you’ll have to pay in the long run. If you do consider a prepayment plan, be sure to shop around at many different providers to see which ones specialize in these kinds of offers.

Shop around for phones and a cosigner.

Obviously, it’s always a good idea to look at different providers to find the one whose plan is the most affordable for you, but the big providers may be less likely to offer good deals to people with worse credit.

Some carriers, like T-Mobile, have started offering plans that don’t require a credit check. As tends to be the case, you may not get the same rates you’d get with good credit, but it’s worth looking into.

You can also consider reaching out to friends or family. If you know someone who trusts you and has good credit, see if they are willing to be a cosigner on the account. You can also look into joining a relative’s family plan and just pay them back each month as necessary.

Fixing your financial situation can feel like a Catch-22: You need a better job to get more money but you need a phone to get that job and you need more money to get a phone. But hopefully, this advice can help you on your journey to better credit and a better phone plan!

If you want to learn more about living with bad credit, check out these related posts and articles from OppLoans:

What are your best tips for buying a phone when you have bad credit? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

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Looking for a Credit Repair Company? Here are 4 Red Flags to Avoid Getting Scammed

credit-repair-company-red-flags-scammed

Do your research, don’t pay anyone up front, and take lots of notes.

Your credit score is incredibly vital. In fact, it might be the most important three-digit number in your life! The better your credit score, the more easily you’ll be able to get loans with good terms. Unfortunately, the reverse is also true: The lower your score, the more often you’ll be stuck with predatory payday loans with APRs of 400 percent or higher!

Fixing your credit score on your own can be a challenge, so you might consider enlisting the help of a credit repair company. If the price is right, a credit repair company can be worth it. A better credit score will save you money in the long run in the form of lower interest rates, so it is possible that the service can end up paying for itself.

But you have to be very, very careful when it comes to choosing a credit repair company. Much like those sketchy payday lenders hocking dangerous no credit check loans, scammy credit repair companies know that a low credit score makes you an easy target. That’s why you need know the red flags that identify a credit repair company as a credit DESPAIR company.


First, figure out where your finances stand. 

Before you start shopping for credit repair companies, you’re going to need a good picture of where your own finances are at. After all, if you don’t know what your own financial picture looks like, how can you protect yourself from getting scammed?

“First things first,” advised Justin Lavelle (@Justin_Lavelle_), Chief Communications Officer for BeenVerified.com (@BeenVerified), “determine your income and expenditures. If your income is not consistent, use the average monthly income to calculate.

“Expenditures are all the things you are responsible for paying for with your income: food, rent, utilities, insurance, and also your debt—credit card bills, car payments, medical bills, and anything else you are expected to repay.

“Next itemize your debt. When you work with a credit repair company, they will want to know how much of your debt is consumer debt and how much isn’t. Many times, companies will help you only if you have over $X thousand dollars in consumer debt. That means someone with a $500 credit card bill and $3,000 in medical bills will have different options than someone with the opposite debts.

“Know what you have to recover from before you begin. It may be daunting, but it is the best first step toward improving your credit score.”

Now that you’ve got a picture of your finances, it’s time to roll out the red flags! Here are the things you do and do not want to see from potential credit repair companies.

1. Check BBB ratings and online reviews.

Much like finding a restaurant, you’re going to want to use online reviews when determining which credit repair company to reach out to. Odds are if they’ve been scamming people, at least some of those people have been speaking up online.

“Once you know what you are up against, look at your repair assistance options,” Lavelle told us. “Make use of the Better Business Bureau’s search feature for your community and nationally. Check for the highest ratings, and then look at their complaints and conflict resolution documentation.

“The company you choose should have the best ratings, several years of successful and unblemished business history, and excellent conflict resolution practices. It’s fair to say people are angry or frustrated when they complain, but they aren’t necessarily wrong. How the company responds is a key piece in understanding what working with them will be like.”

2. Don’t give up your rights.

Speaking of looking for a restaurant, imagine that there was a restaurant that made you sign a waiver before you eat saying you wouldn’t sue them if you got food poisoning. You’d probably choose another restaurant, right? Well, some credit repair companies will try and pull a similar trick, and it’s a big red flag to watch out for.

“If the credit repair company requires you to sign any agreement which provides that, should you have any dispute with them, you must take your dispute to arbitration, they are robbing you (and their other customers) of the right to go to court,” warned attorney and consumer rights expert Donald E. Petersen. “It’s a sign that they are violating the consumer protection laws.”

3. Watch out for form letters, pre-pay, and promises to remove truthful (but damaging) information.

But that’s far from the only red flag Petersen advised looking out for. He told us you should be wary “if the credit repair company asks you to pay them before you’ve received the results of the dispute showing that the credit bureau removed or corrected the account tradeline.”

He also suggested that if something sounds too good to be true, it probably is. He told us it’s a red flag “if the credit repair company tells a consumer that they can remove information which is truthful concerning events which occurred within the past seven years. Consumers can dispute information even if it’s truthful but the information often reappears soon after they’ve disputed it. Some credit repair companies lodge a second dispute near the end of the 30 day dispute period so that the credit bureau will suppress the account tradeline while the *second* dispute is pending and then falsely tell the consumer ‘see, I removed it’ in order to be paid.”

Finally, Peterson warned against companies that try to use form letters rather than addressing your specific situation, telling us you should steer clear “If the credit repair company uses ‘template’ letters which contain little (if any) information to explain why the account information is false or misleading. For example, one huge so-called law firm routinely disputes ‘account included in bankruptcy’ by saying ‘I never filed bankruptcy, please remove this account.’ Of course that robs the consumer of the best weapon they have (their bankruptcy discharge and the bankruptcy court’s sanctions powers) but it’s easier (and far more profitable) to tell consumers what they want to hear and ‘scale’ using non-lawyers and a template letter.”

As mentioned above, doing some online research can help you determine if the company you’re considering uses practices like these.

4. Take proper precautions.

Even if you’re reasonably certain you’ve found a legitimate company to help you fix your credit, you should still take steps to protect yourself.

“Always ask for the name of anyone you speak to and write it down along with the date, time, phone and extension each time you communicate with the agency you choose,” suggested Lavelle. “Be sure to clarify verbally and in writing any and all terms offered to you. If you begin a process and things don’t line up, don’t click send on the payment screen. Stop and report your concerns to the company and authorities if necessary.

“Sign up for free credit monitoring through another service. This serves as a check and balance to be sure the commitments are being upheld by all parties involved in your credit repair process.”

You don’t need a credit repair company to fix your score.

Before considering a credit repair company, it’s worth figuring out if you could fix your credit score on your own without having to pay anyone.

The first step to fixing your credit is paying off your outstanding debts to the best of your ability, while still covering your day to day needs. One strategy you can use to overcome those debts is called the debt snowball.

To utilize that strategy, you put aside some money each month in addition to the minimum payments you have to make on your various debts. You add that money to the minimum payment you make on your smallest debt. Then when that debt is paid off, you take all the money you were putting into that debt and start putting it into the next smallest debt. With every debt you pay off, the amount you’re putting towards each subsequent debt gets larger.

It’s like rolling up all your debts into a big snowball which you can then use to create a snowman which represents your new, better credit score. And because this snowman is metaphorical, it won’t melt when spring comes!

Payment history is the #1 factor in your credit score.  

In order to fix your credit score, you’ll also want to start paying your bills in full and on time. Your payment history makes up 35 percent of your score, more than any other factor—although the total amount you owe is right behind it at 30 percent.

Payment history is so important that not carrying any debts at all could even cause your score to lower. That’s why it’s important to spend money regularly on your credit card so that you can pay it off in full every month.

If you can’t get approved for a regular credit card, then getting a secured credit card, which requires you to put up some cash as collateral, can be a good way to start building your credit. As long as you’re paying your bill in full, and on time of course. Seriously. We cannot stress that enough.

In addition to credit cards, most debt payments—like student loans, auto loans, mortgage loans, etc.—report payment information to the bureaus. However, many bad credit loans—like payday loans, “cash advance” loans, and title loans—do not. If you need a bad credit loan that reports to the bureaus, you’re best off looking for a long-term installment loan instead of a short-term payday loan.

Having low credit will always put you in a position to be taken advantage of. But stay vigilant and you’ll be able to improve your credit score, whether or not you need the help of a credit repair company.

To learn more about the ways that you can improve your credit score, check out these related posts and articles from OppLoans:

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

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

Justin LavelleJustin Lavelle (@Justin_Lavelle_) is a Scams Prevention Expert and the Chief Communications Officer of BeenVerified.com (@BeenVerified). BeenVerified is a leading source of online background checks and contact information. It helps people discover, understand and use public data in their everyday lives and can provide peace of mind by offering a fast, easy and affordable way to do background checks on potential dates. BeenVerified allows individuals to find more information about people, phone numbers, email addresses and property records.
Donald PetersenDonald Petersen is an Orlando, Florida trial lawyer who represents consumers against companies who violate their rights under the Telephone Consumer Protection Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act and other consumer protection laws.

When You Get a Cash Advance, Do They Check Your Credit Score?

Neither credit card cash advances nor cash advance loans require a credit check. But that doesn’t mean they can’t affect your credit score.

For people with not-so-great or flat out bad credit, applying for a loan or a credit card can be nerve-wracking. After all, applying for new credit is something that gets added to your credit report, and it usually causes your score to lower just a little bit.

When your score is already hurting, the last thing you need is for your score to drop any further. Plus, what if you apply for a loan and you get denied for it? Now you’ve got a lower score and nothing to show for it!

One option you could explore is a cash advance. After all, if you need fast cash to cover some emergency expenses, a cash advance seems like as good an option as any. But will they check your credit? Will a cash advance affect your score at all?


With a credit card cash advance, you use your card to withdraw cash.

There are two different types of cash advances. One is a credit card cash advance. This is a type of credit card transaction where you use your card to take out paper money and the amount you withdraw is then added to your total balance.

The annual percentage rate (APR) for a credit card cash advance is usually much higher than the APR for a regular transaction. Plus, the cash advance does not come with a 30-day interest-free grace period like regular transactions do. This means that the interest for cash advances starts accruing immediately.

Plus, most credit card cash advances carry an additional fee just to process the transaction. The fee is often expressed as either a dollar amount or a smaller percentage of the amount withdrawn. For instance: $10 or three percent of the amount withdrawn, whichever is higher. All in all, credit card cash advances are a much more expensive alternative to regular credit card use.

Some predatory loans advertise themselves as “cash advance loans.”

However, credit card cash advances are far preferable to the other kind of cash advances, which are just sketchy no credit check loans—like payday loans or title loans—that advertise themselves as “cash advance loans.”

These loans are a subset of bad credit loans. They’re financial products with short terms and high rates that can be very difficult for people to repay on time. Lenders who offer these products often stand to make more money from the customer rolling their loan over and entering a dangerous cycle of debt.

However, even though these two types of cash advances are very different, neither one of them involves a credit check.

With either type of cash advance, they won’t check your credit.

When you take out a credit card cash advance, there is no credit check run. In fact, the transaction won’t even show up on your credit report. It will just be seen as an increase in your total credit card balance.

As we mentioned earlier, most cash advance loans fall under the heading of “no credit check loans,” which pretty obviously means that they do not involve a credit check. Lenders that offer loans like these usually don’t report payment information to the credit bureaus either, which means that your cash advance loan won’t be showing up on your credit report.

With both types of cash advances, this is good news for your credit score. When a lender runs a full check on your credit history—otherwise known as a “hard” credit check—it will slightly ding your score. After all, looking for additional personal loans or credit cards can be a sign that you are “desperate” for more credit, which makes you a less appealing prospect to lenders.

The effects of the hard check won’t last long, but it’s always best if you can keep your score from lowering, even if it’s just a temporary “ding.”

There are two ways that a cash advance could affect your credit score.

Now, the only way that a credit card cash advance will affect your credit is if you take out a series of very large cash advances and add so much money to your balance that it starts to affect the “amounts owed” component of your credit score.

When it comes to credit cards, your credit score takes into account your “credit utilization ratio,” which measures how much of your total limit you’re spending. If you had a total credit limit of $10,000 and a balance of $3,000, your credit utilization ratio would be 30 percent.

And in fact, 30 percent is the ratio that you should aim to stay below. Above that, and you’ll start seeing your score be negatively affected. Luckily, it will probably take quite a few cash advances to push your balance above 30 percent, so this likely isn’t something you’ll have to worry about.

A cash advance loan, on the other hand, could affect your score if you fail to pay it back. In a situation like that, the lender will probably sell the debt to a collections agency, who will then report it to the credit bureau. Once that collections account is on your report, you will see your score be seriously impacted.

A “soft” credit check loan might be a better solution.

If you’re in the market for a cash advance loan, you should get out of that market right now. There are too many no credit check loans out there with incredibly high interest rates—often between 300 and 400 percent, but sometimes even higher—that will trap you in a cycle of debt.

Actually, the very fact that a lender does not do anything to check your ability to repay your loan is a big red flag. A lender that doesn’t care about your ability to repay is a lender that doesn’t mind if you have trouble repaying your loan. That way, they can charge you additional interest for a due date extension and make way more money.

Instead, look for a bad credit lender that runs a soft credit check with your loan application. These checks return a summary of your financial history but, most importantly, do not affect your credit score. You can apply for a soft credit check loan—like the installment loans offered by OppLoans—without having to worry about a denial lowering your score.

Plus, there are some other benefits to installment loans that a cash advance loan simply doesn’t have. To learn more, check out these related posts and articles from OppLoans:

What other questions do you have about cash advances? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

Bad Credit Repair: When to Close a Credit Card and When to Keep It Open

when-to-close-a-credit-cardClosing a credit card will negatively impact your score, but not for the reason you think.

Your credit score is very important. This three-digit number compiled by the three major credit bureaus determines what kind of loans and other credit cards you’ll be able to qualify for and at what rates.

Simply put, your credit score determines your financial future.


How does a credit score work, anyway?

If your score is in the high 700s or above, you’ll have a good shot at getting whatever kinds of loan you might need. But if that score is under 700, your prospects will look gradually worse and worse the lower it gets.

If your score is too low, you might not be able to find any loan at all, other than a bad credit loan. And while some bad credit loans can be useful financial tools,  many of them are quite risky. For instance, you could end up with a no credit check loan with super high rates and super short payment terms–you might even have to put up your car as collateral.

Clearly, you’ll be much better off with a higher credit score, but if you’re starting with a low score or even no score at all, it can be really intimidating to build up good credit. One of the most important steps is paying down your debts and paying all of your bills on-time going forward.

But there’s often some confusion when it comes to credit cards. If less debt is good, wouldn’t the best possible option be paying off your remaining credit card balances and then closing them so you won’t be able to acquire any further credit card debt?

Closing a credit card won’t lower the age of your credit.

While you might be worried about hurting your credit score through credit card misuse, proper credit card use is one of the most effective ways to build up your score. And that’s not all. If you aren’t careful, you can actually harm your credit score by closing a credit card.

“Closing credit cards is typically a bad idea for your credit scores, but not for the reason a lot of people believe,” advised Michelle Black (@MichelleLBlack) credit expert and president at www.HOPE4USA.com. “One of the factors which FICO considers when calculating your credit scores is the average age of the accounts on your credit reports—the older the better.”

“Some people believe that when you close an account, such as a credit card, you lose credit for the age of that account when your average age of accounts is calculated. However, that is not true. Closed credit card accounts remain on your credit for generally seven to 10 years (seven years for negative accounts, 10 years for positive accounts). As long as the account remains on your credit reports, the age of the account will continue to be considered by credit scoring models.

Closing credit cards will hurt your credit utilization ratio.

“The real reason why closing a credit card account often damages credit scores is because closing an account, especially one which is paid off, can trigger an increase in your aggregate revolving utilization ratio. Credit scoring models take a look at how much total credit card debt you owe versus your total credit limits on open accounts. When you close an account your overall or aggregate credit card limit is lowered, often resulting in lower credit scores.”

Katie Ross, Education and Development Manager at the American Consumer Credit Counseling, or ACCC (@TalkCentsBlog), reiterated the warning against closing credit cards recklessly while also advising how best to properly close them:

“Closing your credit cards, especially closing multiple cards at once, will hurt your credit score, credit utilization, and length of credit history. Only close your card if you can’t control your spending and need to remove the temptation. However, if you plan on closing cards, you should fulfill your debt obligation so that it doesn’t report as closed, but with a balance. If you decide to close multiple cards, gradually doing so every six months will help limit the damage to your score, rather than closing multiple cards at once.”

So closing credit cards isn’t an inherently good way to improve your credit, and can even cause it greater harm.

If you’re going to close a credit card, which one should you close?

This doesn’t mean that you should never ever close a credit card. But how do you know which to close and which to leave open?

Thankfully, Ross gave us the rundown on which cards you should close:

  • “The card you don’t use with an annual fee. A card with an annual fee that you aren’t using will just cost you money.”
  • “A newer card you don’t use; it won’t help you establish credit history.”
  • “Make sure closing one card doesn’t impact your score by paying off balances on all other cards. If you have zero balances, your credit utilization rate will be zero, and won’t be impacted by the loss of a balance.”

And which cards does Ross advise leaving open?

  • “Keep your oldest credit card open. A longer, positive credit history is beneficial to your score.”
  • “Don’t close a card with a high credit limit, especially if you have high balances on other cards or loans. Closing a card with a higher limit will negatively impact your credit utilization ratio, making it seem like your ratio is spiking.”
  • “If you do close a card, request a credit increase on another existing card to maintain a strong ratio.”

Old cards are better than new cards, and secured cards can also help rebuild your credit.

Another expert we spoke to echoed Ross’s advice about leaving open cards you’ve had for a while and offered some tips about trying out new cards:

“Keep the credit cards you use and the cards you have held for a long time,” Janice Lintz (@JaniceLintz), consumer writer and CEO of Hearing Access & Innovations, told us. “A card that you have held for an extended time boosts your score. I was shortsighted and closed a card I held which was an error. But I will not shut a card I have held for 32 years since it boosts my score dramatically.

“I regularly try and close cards that don’t work for me. Some cards I don’t think I will like and do and vice versa. I ‘date’ my credit cards to see if we can be in a long-term relationship. My score is in the high sevens to eights.”

But what if you don’t have a credit score or any credit cards? Or you lost your credit cards for some reason?

“After bankruptcy, all the credit card companies cancel the credit cards, so I tell my clients to open a secure credit card to start building a credit history and to improve their credit ratings,” explained attorney Arnold Hernandez.

Hopefully, this has all helped you get a better understanding of how closing your credit cards can impact your credit. Now go forth, and may your credit be stronger than ever!

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

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

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

Michelle Black (@MichelleLBlack) is a credit expert and President at www.HOPE4USA.com, a credit education program located in the Charlotte, NC area.
Arnold Hernandez has been an attorney since 2000. He has represented consumers in many different areas of law. He has handled personal injury, wrongful death, unpaid overtime claims, and bankruptcy. He hs set goals to also represent individuals pro bono.
Janice Lintz (@JaniceLintz) is also a consumer education/travel writer. Her work has been published in Forbes.com, Yahoo Travel, Huffington Post and Johnny Jet. She contributed twice to Wendy Perrin’s column in Condé Nast Traveler and is featured in Departures magazine’s marketing video. Janice has traveled to 106 UN countries and 147 Traveler’s Century Club destinations. She is also the CEO of Hearing Access & Innovations.
Katie RossKatie Ross, joined the American Consumer Credit Counseling, or ACCC (@TalkCentsBlog), management team in 2002 and is currently responsible for organizing and implementing high-performance development initiatives designed to increase consumer financial awareness. Ms. Ross’s main focus is to conceptualize the creative strategic programming for ACCC’s client base and national base to ensure a maximum level of educational programs that support and cultivate ACCC’s organization.

5 Surprising Ways You Can Hurt Your Credit Score

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Everyone knows that missing a payment can hurt your credit, but did you know that applying for credit can also lower your score?

Behavior like missing your payments is widely known to be bad for your credit score, but there are many ways you can hurt your score—some of which are a little less well-known. We rounded up five things that are pretty common behaviors, and one that, quite honestly, is just really annoying.


1. Getting a credit card 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.

When you account is charged-off, it basically means that it’s been shut down. You will no longer be able to use that card to make purchases, take out cash advances, transfer balances, etc. However, you will still definitely be liable for paying back the charged-off balance. That credit card has turned from a useful financial tool into nothing more than a chunk of debt that you have to repay.

Your credit card company will report the charge-off to the credit bureaus, and the information will remain on your credit report for seven years—starting from the date that you first became delinquent on the account.

That charge-off will cause your credit score to drop—and it won’t be a tiny drop either. Payment history is the single most important part of your credit score; it makes up 35 percent of your total. Luckily, your score will improve over time—assuming that you continue to make all your payments on time—but that first drop will be a rocky one.

2. Applying for more credit.

When you’re trying to get a new loan or credit card, 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 any money you borrow. But not every credit check is the same; some are hard credit checks while others are soft credit checks—and they affect your score in totally different ways.

With a hard credit check, your entire credit report is pulled for the lender to examine. These checks are themselves recorded on your credit report—and since they represent an instance of looking for new credit, they can cause your score to lower. (For more, check out how “new credit inquiries” factor into your score.) You have to give permission before a lender can run a hard check.

Soft credit checks, on the other hand, do not require your permission before they can be run. However, they also don’t return nearly as much information. They’re not a full deep dive into your credit history; they’re more like a summary. They also aren’t recorded on your credit report and do not affect your score. These checks can be run by anyone. If you’ve ever received a “pre-approved” loan or credit card offer in the mail, it’s because someone ran a soft check on your report.

If you can’t qualify for a bank loan and need to get a bad credit loan instead, you should stick with lenders who perform soft credit checks. That way, your score won’t be impacted and there won’t be any risk in applying. Additionally, you should do your best to avoid no credit check loans at all costs. Not performing any sort of credit check is a flashing neon warning sign that the lender doesn’t care about your ability to repay. In fact, they might stand to make more money by giving you a loan that you can’t afford and trapping you in a long-term cycle of debt.

3. Carrying any high balance on your credit card.

Paying your credit card bill each month is great, but it’s not enough to maintain good credit. Ideally, you want to pay your credit cards off in full every month—that way, you get all the benefits of using one, like points or miles, without accruing any interest. But lots of us carry balances on our cards from month to month, paying them down a little at a time.

Here’s the thing: A lower balance is much, much better for your score than a high balance. At 30 percent of your overall credit score,  your “amounts owed” is the second most important factor in your score. But we’re not going to just sit here and tell you to “owe less debt,” cuz that’s kind of obvious and isn’t super helpful. If you’re carrying high balances, you should aim to get them down to 20-25 percent of your total. Doing so should lead to a nice little uptick in your score.

And you should also be warned that most issuers report balances before your payment is received. So even paying off your balance in full every month could leave you vulnerable to high balances. To be safe, you should always avoid spending more than 30 percent of your balance, even if you plan to pay to it off by month’s end. Otherwise, you’ll risk negatively impacting your credit score for no good reason.

4. Failing to have a diverse credit mix. 

Okay, so spending too much money on your credit card—even if you’re paying it off every month—can be bad for your credit. Clearly, the solution is to just not have a credit card, right?

Wrong! That’s also bad for your credit. Yet another factor in your score is your “credit mix,” which tallies all the different kinds of credit that you’ve taken out. It looks at credit cards versus student loans versus mortgages and auto loans versus personal loans, etc. So if you think that you can take care of your credit score by, for instance, paying back your student loans without ever having a credit card, you’re wrong.

If you have bad credit and can’t qualify for a standard credit card, you should consider getting a secured credit card. Secured cards require you to put down some money as collateral that also serves to set your credit limit. So a $500 deposit would give you a $500 limit on your card. The great thing about these cards is that the lenders who issue them will report your payment information to the credit bureaus, which makes them a great method for rebuilding your credit.

5. By having the same name as someone else with bad credit. 

Yeah. It turns out that your credit score can be negatively affected without you doing a darn thing wrong! You can do everything right—pay your bills on time, keep your credit card balances low, only apply for new credit when it’s totally appropriate—and your score can still get dinged if the credit bureaus mix up your info with someone else’s.

Now, it’s totally understandable that the credit bureaus would make mistakes. After all, they are keeping detailed records for hundreds of millions of adults across the US. Errors are an inevitability. But that doesn’t make it any less frustrating when your information gets confused with someone else’s, especially if they’re making poor decisions with their credit.

Oftentimes, these errors will arise from you and that other person having a same or similar name, resulting in what’s called a “mixed” file. Other times, this incorrect information on your report could be the result of something much more serious. It could be an indication that someone has stolen your identity.

In order to keep on top of your credit report, you should be regularly checking it for inaccuracies. Here’s the good news: You can request three free copies of your credit report per year, one from each credit bureau. To order your free copy today, just visit AnnualCreditReport.com.

If you find an error and need to have it corrected, just follow the instructions laid out in our blog post, How Do You Contest Errors On Your Credit Report? When it comes to preserving your good credit—or improving your bad credit—you have enough to worry about without someone else’s mistakes ending up on your score.

To learn more about ways you can fix a bad credit score, check out these related posts and articles from OppLoans:

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

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

Can a Cash Advance Actually Help Your Credit?

Cash advances just show up as normal credit card purchases on your credit report.

When you’re in a financial bind and you need some quick cash, taking out a cash advance on your credit card can be an okay solution. Sure, they don’t come with the ludicrously high interest rates and short repayment terms of a payday loan, but they’re still much costlier than just maintaining an emergency fund.

If you’re living paycheck to paycheck, you should also consider how a cash advance will affect your credit score. After all, a higher score will lead to lower (i.e. better) interest rates down the line, which means a rosier financial outlook overall.

But how does a cash advance affect your credit score? Is there a chance that it could even help your score in the long run?


A cash advance is a loan you take out on your credit card.

When you make a normal purchase on your credit card, that amount you spend is added to your total balance. The same is true when you take out a cash advance, the only difference being that you receive cash instead of a purchased item. If you were to take out a $60 advance, you would receive $60 in cash and $60 would be added to your total balance.

When it comes to repaying your cash advance, nothing changes from how you would regularly pay down your balance. Ideally, you should pay off your balance in full every month, but your monthly minimum payments would only marginally increase with a cash advance added to your total versus a regular purchase.

A cash advance is convenient, but it’s much more expensive than just using your card.

However, there are some very important differences between cash advances and regular credit card transactions. For one, a cash advance comes with a higher interest rate than normal transactions. The difference will vary from card to card and from customer to customer, but the average credit card APR  is a bit over 16 percent while the average cash advance APR is almost 24 percent. That’s a big difference.

Second, there is no way to avoid paying interest on a cash advance. With a standard credit card transaction, there is a 30-day grace period before interest starts to accrue. This is why it’s so important to pay your credit card off every month; it means borrowing money interest-free! But with a cash advance, interest starts accruing immediately. While it’s still a good idea to pay off your cash advance as soon as you can, there’s just no way to avoid paying interest.

Lastly, you’ll typically get charged a fee for taking out a credit card cash advance. And it’s not a tiny fee either. The average cash advance fee is usually something like $10 or 5 percent, whichever is higher. That means that a $500 cash advance would cost $25 right off the bat!

Does a cash advance have any effect on your credit score?

Luckily, a cash advance won’t have any real effect on your credit. They aren’t recorded separately from other credit card transactions on your credit report, so the credit scoring algorithms have no way of knowing what’s a cash advance and what’s a regular transaction. All they’ll see is a higher credit card balance.

If you’re sensing a “but” coming, you are correct. Because, while cash advances won’t get noted on your credit score, a higher credit card balance will get noted and could possibly hurt your score if it grows too large. Your total amounts owed makes up 30 percent of your credit score, so taking out $1,000 cash advance and adding that thousand dollars to your balance could definitely lower your score.

And a cash advance definitely won’t help your score. Taking out additional debt and paying more money towards interest just means higher balances and less room in your budget to pay them down. In theory, paying off a cash advance would help your score since it will get noted in your payment history (which makes up 35 percent of your score) but it’s not really going to have any effect. Failing to pay your bill on time, however, will have an immediate negative effect.

Some “cash advance” loans are actually payday loans in disguise.

There are several types of no credit check loans that like to call themselves “cash advance” loans, possibly to make them seem more like credit card cash advances. But don’t be fooled.

While some bad credit loans, particularly installment loans, can be a useful way to cover emergency expenses, predatory no credit check loans are anything but. These loans come with much higher interest rates and significantly shorter payment terms, and they pose a much greater risk to your financial future.

These loans are typically payday loans or title loans, which can carry annual interest rates anywhere between 250 and 500 percent. They’re meant to be paid back in a single lump sum payment, usually only a few weeks to a month after the loan was first borrowed. These factors—high rates and short terms—can make these loans exceptionally hard to pay back on-time.

These predatory “cash advance loans” could really hurt your score.

Here’s the thing: These lenders don’t mind that. In fact, they stand to make a lot more money this way! If you can’t pay their cash advance loan back on time, they can let you roll the loan over—extending the due date in return for paying additional fees and interest. The more you roll the loan over, the more money the lender makes, all without the customer getting any closer to paying off the original loan.

While most of these lenders don’t report their loans to the credit bureaus—meaning that the loans themselves won’t affect the borrower’s credit score—the cycle of debt that these loans can create will certainly affect a person’s creditworthiness. More money going towards interest on a payday loan means less money for other bills and necessary living expenses. Defaulting on your gas bill because you rolled over your payday loan will ding your score for sure!

Plus, defaulting on a sketchy bad credit loan could mean getting sent to collections. And that collections agency will definitely report you to the credit bureaus. It’s pretty much a lose-lose!

While credit card cash advances are far from a perfect financial solution—and will not help raise your credit score—they are far preferable to “cash advance loans” that are really just payday loans in disguise.

To learn about some ways that you can actually improve your credit score, check out these related posts and articles from OppLoans:

Have you ever had a cash advance drop your score? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

Is the Credit Blacklist a Real Thing or an Urban Myth?

bad credit blacklist

Even though it can feel like you’re being blacklisted, the real answer is much more mundane.

Your fingers are shaking as you type the last of your information into the credit card application. You’ve been denied in the past, but this time you are sure that you will be accepted. After all, the company sent you a notice saying that you were “pre-approved!”

You hit “submit,” cross your fingers, and wait. 15 seconds later a response comes back.

Denied.

What the heck is going on here?! You mention it to your uncle Terry and he tells you about this thing called the “credit blacklist.” Basically, because you’ve misused credit cards in the past, you are on a secret list that will ensure you never get a credit card ever again.

Sounds about right, you think to yourself. But is that what’s really going on here? Is there really such a thing as a credit blacklist?


No, there is no such thing as a credit blacklist.

Please forgive us for not keeping you in suspense. But no there is absolutely no such thing as a credit blacklist.

Maintaining a hard blacklist is forbidden under the Fair Credit Reporting Act (FCRA) and the Equal Credit Opportunity Act (ECOA). The FCRA was passed in 1970 and the ECOA was passed in 2003. Both are aimed at preventing discrimination in lending and ensuring proper use of citizens’ private data.

But if there is no credit blacklist, then why would someone consistently be denied for credit? The answer lies in their credit history, as well as the algorithms that large companies use to make their lending decisions.

Your credit history determines your credit future.

Whenever you take out a loan or a credit card, make a payment (or not make payment), add money to your credit card balance, close a card, pay off a loan, or file for bankruptcy, that information gets reported by your creditor and added to your credit report.

Information stays on your report for seven years (or longer in some cases, including bankruptcy) and it weaves a fairly comprehensive picture of how you’ve used credit in the past. When people talk about your “credit history,” they are basically referring to what’s contained in your credit report.

Or rather, your credit reports, because you actually have three of them. Each of the three major credit bureaus—Experian, TransUnion, and Equifax—collects information and maintains their own separate version of your credit report. Depending on which businesses report to them, information can vary between reports.

The info contained on your report is what’s used to create your credit score. More often than not, the score used is your FICO score (created by the FICO corporation), but it could also be your VantageScore, which was created a joint venture by the three credit bureaus.

If you are being denied for credit, it’s likely because of the info on your credit report and how it’s reflected in your score.

A poor credit history can have the same effect as being “blacklisted.”

The exact algorithm for creating your FICO score is secret, but the FICO corporation has made it known that your score consists of 5 different information categories and that some categories are more important than others.

The two most important categories are your payment history and your amounts owed. Payment history makes up 35 percent of your score, while amounts owed make up 30 percent. Together they make up well over half your total FICO score.

The other three categories combine to make up an additional 35 percent of your score. The length of your credit history comprises 15 percent, while your overall credit mix and your recent credit inquiries each make up 10 percent.

If you’re being denied for credit, the odds are good that it’s because of problems in your payment history and/or your amounts owed. Maybe you had a period where you were out of work and skipped a number of credit card or installment loan payments. Or perhaps you were one of the 58 percent of recent college graduates who racked up too much credit card debt within their first two years out of school.

Even if it’s been half a decade since you cleaned up your financial act, that information is still on your report and dragging down your creditworthiness.

Credit report errors could be resulting in a “blacklist” effect.

Credit bureaus collect information on hundreds of millions of Americans, so it’s not at all surprising that mistakes end up on people’s reports. But that lack of surprise doesn’t forgive the immense damage that these errors can do to your score.

Errors can arise from any number of things, including the company that reports the info to the bureau making a mistake on their end. Oftentimes, an error will stem from your information being confused with someone else’s because you two have the same name.

Don’t worry. These errors can be fixed. To check your report for errors, just visit www.AnnualCreditReport.com and request a copy. By federal law, each credit bureau is required to provide you with one free copy of your report per year. All you have to do is request it.

If you find an error on your report, then follow the instructions laid out in this blog post: How Do You Contest Errors On Your Credit Report?

Getting flagged by Chexsystems can feel like you’re on a blacklist.

Beyond the three major credit bureaus, there are a number of credit reporting agencies that track different aspects of consumer behavior.

One of the major agencies is Chexsystems, which tracks deposit accounts (stuff like checking and savings account). If you have a history of poor financial behavior with a checking account—racking up NSF fees, constant over drafting, refusing to pay a negative balance—then Chexsystems will flag you.

The next time you go to a bank to open a new account, you could be in for a rude awakening. While opening a bank account might seem like a formality, a poor Chexsystem score will basically ensure that your application for a bank account gets rejected.

Information stays on your Chexsystems for five years, which means that it could be that long before you are able to open another bank account. And if a lender, landlord, or utility company decides to pull your Chexsystems report, it could negatively affect your application with them as well.

There is no credit blacklist, but that doesn’t make having bad credit any easier.

If there were a hard and fast credit blacklist, it would almost be a little comforting. After all, getting your name removed from this blacklist would set you on the path to financial success. Personal loan and credit card applications would come flowing in, and you’d stop having to rely on bad credit loans, no credit check loans, and cash advances to get by.

But the truth is far more complicated. Poor financial behavior will stick with you long after you’ve cleaned up your act, and random errors on your credit report will ding you for stuff you didn’t even do!

The only thing you can do to improve your credit is to keep practicing smart money habits–plus a few weird little tricks that can help you out as well.

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

Have you ever felt like you were on a credit blacklist? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

Why You Should NOT Close That Old Credit Card

Even if you’re closing it and replacing it with a new card, think again!

Your credit score might seem simple, but it’s not. And while basic “good money” habits will get you very far—stuff like paying your bills on-time and not maxing out your credit cards—there are other tricks to a good score that aren’t so obvious.

While it might seem like closing an old credit card is a good way to maintain good credit, it could actually have the opposite effect. Closing that card could actually hurt your score, not help it.


The 5 parts that make up your credit score.

Before we get into the specifics, let’s cover how your credit score is calculated. And when we say “credit score,” we are talking specifically about your score from FICO.

While the specific algorithms that are used to create your FICO score are unknown, we do know that credit scores are made from five different categories of info, some of which are more important than others.

The five categories are:

1. Payment History: This makes up 35 percent of your score, more than any other single category. It measures your history of paying your bills in full and on-time. If you have a bad credit score, odds are that your payment history is at least partially to blame. When a lender or a landlord is looking to do business with you, seeing that you keep up with your bills is key.

2. Amounts Owed: This is the second most important category, making up 30 percent of your score. The category is pretty straightforward: It measures how much money you currently owe. It calculates your credit card balances, as well as any outstanding loans you have, including personal loans, mortgage and auto loans, student loans, and certain bad credit loans. The only kinds of loans that won’t be included are no credit check loans—stuff like payday loans and title loans.

3. Length of Credit History: This category makes up 15 percent of your score, and it measures how long you’ve been using credit. The longer you’ve been responsibly using loans and credit cards, the better. It also takes into account the average age of your open accounts. Lenders not only like to see a long history of credit use, they also want to see longstanding relationships with other lenders and credit card companies.

4. Credit MixThis category makes up 10 percent of your score. It takes into account the different kinds of credit you’re using. This means credit cards versus personal loans versus home and auto loans versus student loans, etc. If the only type of borrowing you do comes from credit cards, for instance, that will ding your score. Lenders like to see a diverse credit mix.

5. New Credit Inquiries: This category also makes up 10 percent of your score, and it reflects the number of times that you have recently applied for more credit. Any time you apply for credit from a traditional lender, they will run a “hard” check on your credit. These checks are noted in your report, and too many within a short time frame can negatively impact your score—though not by much. Too many recent inquiries signal that you might be desperate for new credit, a sign that you aren’t handling your finances responsibly.

Got all that? Great. When it comes to closing your old credit card, the two categories that it can negatively affect are your amounts owed and the length of your credit history.

Closing a credit card will hurt your credit utilization ratio.

There is a second part to the “amounts owed” part of your score that we did not touch on in the above section. It’s called your “credit utilization ratio” and it relates specifically to your credit cards. It’s also a crucial element to your overall score.

Credit utilization ratio measures how much of your total credit limit is being used. For example, let’s say that you have two credit cards: Card A has a $3,000 limit and Card B has a $7,000 limit. That means, between the two cards, you have a total credit limit of $10,000

Now let’s say that you had spent $2,000 on Card A and $4,0000 on the Card B. This would mean you have spent a total of $6,000 against your $10,000 limit. Your credit utilization ratio would be 60 percent.

In an ideal world, you are paying off your credit card balances in full every month. But many people carry balances on their cards from month to month, paying them down a little bit at a time.

If you’re carrying outstanding balances on your cards, try not to let your credit utilization rise above 30 percent. That’s the range where your score will really start to suffer.

And here’s where closing that old card comes into play: Your credit utilization ratio is just as much about your total credit limit as it is your balances. If you have an old card that you are no longer using, that unused credit limit is improving your ratio.

Back to Card A and Card B. What if you got a $2,000 tax return and used it to pay off Card A? Your credit utilization ratio would now stand at 40 percent—still high, but way better than 60 percent. But if you closed the card, your ratio would balloon to 57 percent. That’s almost as high as when you started!

Old accounts help your score more than new accounts.

There’s another way that closing that old card will hurt your credit score, and it’s by lowering the average age of your accounts.

Lenders not only like to see that you’ve been using credit (responsibly) for a long time; they also like to see that you have been using the same accounts for a long time. It shows them that another lender has been able to maintain a long-term financial relationship with you as their customer.

So even if you closed out that old card in favor of a new one with better rewards and a lower interest rate, it would still ding your score. Keeping that old card open will allow it to stay on your credit report (as an open account), which will, in turn, be reflected in your score.

Of course, the trouble with keeping an old card open is that you might be tempted to use it. And if you’ve recently spent a lot of time paying down excessive credit card debt, taking on new debt beyond what you can immediately pay off is a recipe for financial disaster.

So instead, you should cut up the physical card. At the very least you should lock it away in a safe. Do whatever it takes to make sure that your old card can stay open and benefit your credit score without you using it to take on additional, unnecessary debt.

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

How do you resist the temptation to use old credit cards? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

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