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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Are You Opening a Bank Account with Bad Credit? Here’s What You Need to Know

While a bad credit score won’t prevent you from opening a checking account, similar poor money habits with previous bank accounts could pose a problem.

We’re not going to tell you that having a bank account is absolutely necessary. If you’re the type who prefers stuffing your money into mattresses and keeping most of your wealth in the form of precious metals buried in the backyard, all the more power to you.

But for most people, maintaining a checking account is a financial cornerstone. Without a bank account to hold onto your money, you end up spending money at check cashing stores just to access your funds, and relying on cash payments or costly wire transfers just to pay your bills!

If you have bad credit and need to open a checking account, you probably have a lot of questions. (That’s why we’re writing this blog post!). Bad credit can restrict your access to important financial products like personal loans and credit cards, but will it do the same for checking accounts?

You can open a checking account with bad credit.

Let’s start with the good news. Having a poor credit score will not prevent you from opening a bank account.

Your credit score is taken from information on your credit reports, documents that track your history as a borrower, and 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 scored on a scale of 300 to 850. The higher your score, the better your credit.

Your FICO score is, indeed, used by traditional lending institutions like banks and other personal lenders to determine whether or not to lend to you, but it isn’t used when you apply for a checking or savings account.

With a lousy score, you’ll be stuck borrowing no credit check loans (like payday loans and cash advances). But you’ll still be able to open a checking account … probably.

Bad credit behavior could hurt your ChexSystems score.

Okay, here’s the bad news. While banks don’t use credit scores with checking account applications, they do use something very similar, oftentimes from ChexSystems, one of several national consumer reporting agencies that track your banking history. Banks use them (or one of their competitors like Telecheck or Early Warning System) for checking account applications just like they use FICO scores and credit reports for loans and credit cards.

Not only does Chexsystems produce a Consumer Disclosure Report, they even produce a Chexsystems Consumer Score that’s graded on a scale from 100 to 899. If your score is too low, your application for a checking account will be denied. The bank will look at your banking history and decide that you simply pose too great a risk!

And what kind of behavior is considered “bad” when it comes to banking? Well, it’s stuff like bank overdrafts, bouncing checks, and racking up bank fees and then not paying them. Behavior like this points to a customer who is not using their bank account in a responsible manner.

Luckily, a bad Chexsystems Consumer Score is not permanent. Information remains on your Consumer Disclosure Report for five years before dropping off entirely. Five years of good banking behavior (or at least no bad behavior) and you’ll be all set.

But what if you don’t want to wait five years to open a checking account?

Open a second chance checking account.

Folks with a bad credit score are still able to take out a loan. Sure, it might come with a much higher interest rate and—in the case of a payday loan, cash advance, or title loan—trap them in a dangerous cycle of debt, but it’s still a loan that they can get approved for.

Similarly, people with a bad ChexSystems Consumer Score can still apply for a checking account. Many banks offer “second chance” checking accounts that give people with lousy banking history the chance to make good. You should also check out your local credit union, as many of them offer second chance checking as well.

But just like those higher interest rates for bad credit loans, second chance checking accounts come with more fees and restrictions than traditional bank accounts, and they also offer far fewer perks.

In order to get a second chance checking account, you will almost certainly have to pay a monthly maintenance fee. And the account might also come with additional requirements like maintaining a minimum balance or having direct deposit. Plus, you still might not get a debit card with the account or be able to use it for online bill pay.

But here’s the best reason by far to use a second chance checking account: Many of them come with graduation plans. That means that using the account responsibly for one to two years will get you upgraded to a regular checking account ahead of schedule. That’s fantastic!

Take care of your Chexsystems Consumer Score.

Even if you can graduate to a regular checking account by starting with a second chance account, you should still take care of your ChexSystems Consumer Score. In fact, you should treat it the same way that you treat your regular credit score.

First things first: order a free copy of your Consumer Disclosure Report. (By law they have to provide you with one free copy every year upon request.) You can request a copy on ChexSystems’ website or you can contact them by phone at (800) 428-9623.

Next, read over your report so that you can get a clear idea of where you went wrong. If you have any unpaid fees or charges, pay them! If you can’t pay all of what you owe, try negotiating for a lower amount. And make sure that the financial institution in question updates their records with Chexsystems once the charge is paid off!

Lastly, make sure to check for errors. If you find one, contact Chexsystems to have it corrected. After you’ve gathered the proper documentation, go to the Dispute section of Chexsystems’ website for more information. They should send you a resolution within 30 days. You can also dispute the info directly with your (likely former) financial institution and have them update ChexSystems.

Bad credit means living in a world with strict financial limits. And while it’s a great thing that checking accounts still lie within those limits, never forget the following: The kinds of poor money habits that cause bad credit are the same kinds of habits that can cost you a checking account.

To learn more about living life with bad credit, check out these related posts from OppLoans:

What other questions do you have about 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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Can You Take out a Home Equity Loan if You Have Bad Credit?

Even if you have a bad credit score, you stand a much better chance of getting approved for a home equity loan—but you’ll put your home at risk.

When you have a bad credit score, your borrowing options are pretty limited. If you have an unexpected expense pop up—and you don’t have an emergency fund to cover it—you’re not going to be able to take out a personal loan from a bank or take out a credit card to cover the cost.

In many cases, the only loans you’ll qualify for are bad credit loans and no credit check loans. And while the right bad credit installment loan can make for a great financial solution in times of crisis, settling for something like a no credit check title loan and putting your vehicle at risk (all for an APR of 300%) is not a good idea.

But if you own your home, you might have another option available to you. That’s right, you could possibly qualify for a home equity loan or line of credit–even if your credit is poor. And while your lousy credit score will still raise the total cost of these home equity products, the overall price tag will be way less than you would pay for a payday loan. Here’s what you need to know.

What is a home equity loan?

So you probably know what a home mortgage is: It’s a loan that you take out to purchase a house or condo that uses said house or condo as collateral. Well, home equity loans are similar to mortgages. They are also loans that are secured by the value of your home.

The difference between home equity loans and mortgages is that home equity loans are secured by the “equity” that you have in your home. And what’s equity? It’s the value of your home above and beyond what you still owe on your mortgage.

Let’s say that you bought a home for $300,000, and, after a couple of years, you still have $250,000 left on your mortgage. The amount of equity that you now own in your home is $50,000, and you own 20 percent of your home in total. The other 80 percent is technically owned by the bank until your mortgage is paid off entirely.

With a home equity loan, you could (in theory) borrow up to $50,000 against that equity. Of course, a lender will almost certainly not approve you for that full amount. In fact, they very rarely (if ever) lend more than 80 percent of a home’s equity value. With $50,000 in equity, that would mean a max loan amount of $40,000.

You could also try borrowing a home equity line of credit (HELOC) instead of a home equity loan. Unlike a loan, which gives you all your money at once, a line of credit lets you withdraw funds as you need—similar to a credit card. With a HELOC, you’ll only owe interest on the money you withdraw.

Taking out a home equity loan with bad credit.

Folks with bad credit and who need a loan are going to have trouble getting an unsecured personal loan from a traditional lender. That’s because your credit score is an incredibly important indicator as to whether or not you’re likely to repay. A poor score tells traditional lenders that you pose much too high a risk to be worth lending to.

Luckily, with secured loans, there’s collateral involved to reduce that risk. If you can’t repay, the lender can seize your collateral and sell it in order to make up their losses. Granted, this means the stake for taking out a secured loan—like an auto loan, mortgage, or home equity loan—are much higher. But it also means that you are more likely to be approved for one.

However, just because you can get approved for a home equity loan with bad credit doesn’t mean there aren’t drawbacks. For one, you are still less likely to be approved for a home equity loan or line of credit than you would be if you had a good score. Second, you’ll likely have to settle for a smaller loan amount and a higher interest rate plus possibly some additional fees.

No loan is ever without risk. Even an interest-free loan from a friend or family member can come with dire social consequences if you don’t pay it back. And while a home equity loan might be a lot easier to repay than a high-interest title loan, it still comes with the risk of losing your house if you go into default. It’s not a decision to be made lightly.

5 questions to ask yourself before borrowing.

If you have bad credit, you should consider all your options before taking out a home equity loan. Here are five important questions you should ask yourself:

  1. Do I need this money right now? If you’re considering this loan to pay for something that’s more of a “want” than a “need,” then you shouldn’t apply for it. And if you’re using it to cover an emergency expense, take a look at all your repayment options. Maybe this is a charge that you can pay off in installments instead of borrowing money to pay it all upfront.
  2. Can I pay for this some other way? One of the building blocks of responsible personal finance is starting (and maintaining) a well-stocked emergency fund. Maybe, instead of borrowing money, you can dip into that fund and save yourself all the money you’d be putting towards fees and interest!
  3. How much do I need and how much can I afford? When you have a credit card, there’s little harm in agreeing to raise your total credit limit. (In fact, your score could benefit!) With a loan, however, you don’t want to borrow any more than you need. And you’ll also want to consider how the size of your loan will affect the size of your payments. You don’t want to end up paying more than your budget can handle.
  4. What’s the best deal I can find? Don’t just apply for the first home equity loan you see. Do your research. Ask for quotes and gather offers from all the different lenders you can find. Find reviews of them and check out their BBB pages to see how other customers have liked dealing with them. Basically, find the best loan—and lender—that you can.
  5. What can I do to improve my application? Go to www.AnnualCreditReport.com and request a free copy of your credit report from one of the three major credit bureaus. Read your report to see why your credit is bad and what you can do to improve it. And take a look at the rest of your financials, as well, to see where you can do better. The more attractive you seem to a lender, the more you’ll be able to borrow, and the less you’ll have to pay.

Walking around with a bad credit score will completely shut you out from a lot of traditional loans, but not from a home equity loan or line of credit. The question you should be asking yourself isn’t whether you can get the loan, but whether you should.

To learn more about managing your finances when you have bad credit, check out these related posts from OppLoans:

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

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

Is Your Bad Credit Loan Amortized? If It’s Not, Here’s Why It Should Be

If you think all bad credit loans are the same, you are sorely mistaken. Non-amortized loans can easily trap borrowers in a dangerous cycle of debt.

Oftentimes, when people need a bad credit loan, it’s because they’re in the midst of a financial emergency. A family member has ended up in the E.R. or their car has suddenly died and they need to get it fixed pronto.

Whatever the reason, it’s not a situation that lends itself to careful shopping around. When the pressure’s on, folks are much more likely to pick the first loan they see and get on with it.

As you might have guessed, this kind of slap-dash decision-making can leave you with brand new financial headaches to deal with. If you have bad credit, choosing the wrong bad credit or no credit check loan can end up trapping you in a recurring cycle of debt.

There are many things to consider when choosing a loan for bad credit, but here’s why amortizing interest should be near the top of your wish-list.

What is amortization?

Anyone’s who’s learned how to drive (or taught someone else) has had to deal with the fact that some words—like “right,” for instance—can have different meanings depending on how they’re used. And the same is true for the term “amortization.” Depending on the context, it can mean some very different things.

One of these definitions has to do with how assets are valued, primarily for tax purposes. It’s slightly complicated and has very little to do with regular ol’ personal finance. That’s why we’re not going to talk about it here.

The other primary definition of amortization has to do with the way that loans are repaid. That’s the thing we’re interested in. Amortizing loans are paid off in a series of regular installments, with each installment going towards both the principal loan amount and the interest.

Early on in the loan, the majority of each payment goes towards the interest, while only a small amount goes towards the principal. But with every payment that’s made, this ratio shifts slightly in the other direction, until the last few payments on the loan are almost entirely paying down the principal. This process all unfolds according to a timetable called an  “amortization schedule.”

The interest for these loans also accumulates over time, so the smaller your principal, the less money in interest it accrues. At the beginning of the loan term, the principal is racking up a fair amount of interest. By the end, however, it isn’t racking up much interest at all.

This all might seem rather technical, but when you’re dealing with bad credit loans—where even the more affordable products come with much higher interest rates than regular personal loans—the difference between amortizing and non-amortizing loans can be huge.

Short-term vs. long-term loans.

Bad credit loans come in two distinct flavors: short-term and long-term. Short-term loans have payment terms that average around two weeks to a month and are structured to be paid back in a single lump sum. Common types of short-term bad credit loans include payday loans, cash advances, and title loans.

Long-term bad credit loans, on the other hand, generally come with payment terms anywhere between six months and a few years. These are generally referred to as installment loans, and their payment structures are almost indistinct from regular personal loans and auto loans.

Because short-term bad credit loans are paid back all at once, they are not amortizing. They do not accrue interest over time and that lone payment pays back everything, both the principal and the interest. Charging interest as essentially a flat fee means that paying back these loans early won’t save you any money.

On the other hand, paying off a bad credit installment loan early will save you money—so long as it doesn’t carry a prepayment penalty. The less time your loan principal has to accrue interest, the less money you will end up paying overall.

But being able to pay off any loan early is a best-case scenario, and it’s not wise to choose a loan based solely off of what can happen if everything goes right. Instead, you should look at what happens if you pay the loan back as scheduled. And when you do that, amortizing installment loans still carry a clear advantage over their short-term cousins.

Avoiding the payday cycle of debt.

With short-term payday, cash advance, and title loans, the cost of the loan can be minimized if it’s paid off on time. A 15 percent interest charge on a two-week loan might work out to an APR of almost 400 percent, but when paid off on two weeks, it’s still only $15 per $100 borrowed.

The problem is that many bad credit borrowers aren’t able to pay these loans off on time. Instead, they are either forced to reborrow their loan—meaning that they pay the original loan off and then immediately borrow a new one—or they have to roll it over, which is possibly worse.

Rolling over a loan means getting an extension on the due date in return for being charged additional interest. Oftentimes, the borrower will also be asked to pay the interest owed on the original loan term in order to secure the extension and then owes an entirely new round of interest on a new loan term. Basically, rolling a loan over once doubles your interest rate.

This whole process, wherein the borrower keeps taking out new loans and only paying off the interest, is referred to as a cycle of debt. Since none of their payments are going towards the principal, they’re not actually making progress towards getting out of debt, no matter how much money they pay.

According to a study from the Consumer Financial Protection Bureau (CFPB), the average payday loan customer takes out 10 loans annually and spends almost 200 days every year in debt.

This is exactly the sort of situation that an amortizing loan is constructed to avoid. So long as you make your scheduled payments, paying off the loan principal takes care of itself. Even if you refinance the loan and extend your repayment term, those new payments will also follow an amortization schedule.

No loan is going to be perfect, especially when you have bad credit, and there are plenty of things you should look for in a loan and a lender before signing any loan agreements. But when you take the financial long view—instead of just focusing on your immediate cash needs—you’ll see that choosing an amortizing installment loan is a no-brainer.

To learn more about managing your finances when you have bad credit, check out these related posts from OppLoans:

What else do you want to know about borrowing money with bad credit? We want to hear from you! 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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What Happens When You Can’t Pay Back Your Personal Loan

If you default on your personal loan, you’re going to enter a world of debt collectors and garnished wages. Instead, try talking to your lender first.

Nobody (okay, very few people) take out a personal loan with no intention of paying it back. Doing so can mean piling up late fees, getting hounded by debt collectors, or even ending up in front of a judge and having your wages garnished. Does that sound like something you want to sign up for? No, us neither.

And yet, it still can happen. Maybe you lose a job or have an unexpected medical emergency or car repair that ends up capsizing your budget. Whatever the reason, you might end up in a position where you’re not just behind on your loan payments, you aren’t able to pay the loan back at all.

Here’s what happens if you can’t pay back your personal loan …

Racking up late fees.

The first thing that will happen if you miss your due date for a loan payment is a late fee. This will be extra money added onto what you already owe. The size of the fee will vary, but that information should be pretty easy to find on your loan agreement or on the lender’s website.

If you’re able to get back on track with your loan payments, these late fees will simply become a part of what you have to pay back. They will likely be added onto what you owe on your next payment. But if you’re able to pay that larger amount, you’ll be back on track. Well, mostly …

Damage to your credit score. 

If you miss a payment by a few days or even a week, it likely won’t be reported to the credit bureaus. This is good, because once it’s sent over to the bureaus, it will get added to your credit report and will negatively affect your credit score. One late payment can do some hefty damage to your score, and a few within a short period will really wreak some havoc.

Once you get past 30 days, that’s when your late payment will get reported. As it passes the 60 and 90-day mark, the damage to your score will only increase. It’s always worth it to get caught up on late payments if you can, even if damage has already been done. The more payments you miss, the closer you get to …

Defaulting on your loan. 

Defaulting on a loan means that you have failed to live up to your end of the loan agreement. Your creditor knows you aren’t going to pay them back as hoped, so they’ll switch into collections mode, either sending you to an in-house team or selling your debt to an outside debt collector.

There is no way to know for sure at what point your loan will go from “behind in payments” to straight defaulted. This is because the point of default is different depending on the laws in your state and the terms of your loan. One lender might give you 90 days or more before declaring a default, while others might call it after 30.

Debt collectors calling you. 

The job of a debt collector is to get you to pay back as much of your unpaid debt as they can. And while there are many upstanding debt collectors out there, it’s a fact of life that many other debt collectors will try and use dirty and downright illegal tactics to make you pay up. Learn more about your debt collection rights in our post, What Debt Collectors Can and Can’t Do.

Rather than ignoring a debt collector’s calls, you should do the opposite: talk to them and do your best to negotiate. Most collectors will be willing to settle for a guaranteed lesser sum rather than continue pressuring you for the whole thing. Try and settle for a smaller amount. That way you can get the account closed out and move on.

Going to court and having your wages garnished.

This is another good reason to not avoid a debt collector’s calls. If a debt collector (or the original lender) can’t get you to pay at least part of what you owe, there’s a very good chance that they’ll seek a legal remedy. That’s right, they’ll take you to court and ask a judge to rule in their favor.

If that judge does issue in your creditor’s favor, they’ll institute a garnishment on your wages. After taking your living expenses into account, the garnishment will set aside a portion of your income from every paycheck to be paid to your creditor until your debt is cleared. Be warned: the amount you owe could also include court fees, making it even harder to get out of debt.

Years of bad credit and high interest rates.

By the end of this whole endeavor, you’ll likely be left with a terrible credit score that will make you radioactive to traditional lenders. That will mean relying on bad credit loans or no credit check loans (like payday loans, title loans, or cash advances) in order to cover emergency expenses.

And while the right bad credit loan can be a good financial solution (particularly bad credit installment loans), many short-term loans in this class come with ridiculously high APRs and can easily leave you trapped in a dangerous cycle of debt. In other words, if you can manage it, avoiding this whole situation is truly your best bet.

Talk to your lender.

No lender likes to get a call from a customer saying that they won’t be able to pay their loan as agreed, but that doesn’t mean that they won’t be willing to help. (It doesn’t mean they will be willing to, either, but it doesn’t hurt to try.) Give them a call, explain your situation, and ask them if there is anything they can do to help you out.

Maybe it’s as simple as changing your monthly due date so that it doesn’t overlap with a bunch of your other bills. It might also mean asking for a lower interest rate or refinancing your loan to decrease the amount you’re paying each month. Whatever solution you are able to arrive at with them, it’s certainly preferable to defaulting on your loan altogether.

To learn more about managing your finances, check out these other great posts and articles from OppLoans:

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

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Getting an “A”: Financial Literacy in Virginia

Virginia is a top contender in economics and personal finance instruction for high school students.

Why Virginia Received an A

Virginia was one of only five states to receive an “A” from Champlain College in the 2017 National Report Card on financial literacy. (The others were Alabama, Missouri, Tennessee, and Utah.) “A” states met a majority of the following requirements:

  1. Financial literacy is taught in a course (typically a one-semester or half-year course of personal finance instruction) that students must take as a high school graduation requirement.
  2. Teachers of these courses have received specialized training in personal finance.
  3. State or national funding has been secured to ensure personal finance courses are offered to all high school students statewide.
  4. Standardized tests are administered.
  5. Educators are given access to quality curriculum including lesson plans, videos, games, activities, projects, case studies, articles, and expert speakers. Ideally, each state also provides an accessible online financial education platform.

With an “A” grade, Virginia ranked in the top tenth percentile (92%) for high school financial literacy efforts.

How Does Virginia Teach Financial Literacy?

High school students in Virginia must take a one-year Economics and Personal Finance course as a graduation requirement, with the class of 2015 being the first to graduate since its implementation. The class can be taken as a full-year course or as separate semester courses in each subject. Students are able to earn this credit by successfully completing the course at any point during their high school career, although there is debate about whether an eleventh- or twelfth-grade focus may be the most beneficial.

Virginia is one of only three states (the others being Alabama and Tennessee) that requires a semester of economics instruction in addition to personal finance. Students receive about 80 hours of instruction in personal finance alone.

According to the Virginia Board of Education, the course “prepares students to function effectively as consumers, savers, investors, entrepreneurs, and active citizens.”

The state has specific Standards of Learning for the Economics and Personal Finance course that present concepts to students to help them “interpret the daily news, understand how interdependent the world’s economies are, and anticipate how events will impact their lives.” Further, students learn about economies and markets as well as how the United States’ economy is connected to the broader global economy. The aim is for students to “learn that their own human capital (knowledge and skills) is their most valuable resource.”

Ultimately, the standards aid students in developing critical thinking skills to analyze real-world economic applications. Nine out of the 18 standards are in personal finance.

Educators teaching Virginia’s Economics and Personal Finance course must be endorsed in one of six areas, but specialized personal finance training is not a requirement. Endorsement areas include agriculture education, marketing education, business and IT, family and consumer sciences, history and social studies, and mathematics.

At this time, Virginia does not have plans to put into effect a required standardized test for the course, but many school divisions administer the W!se Financial Literacy Certification to their students. There is statewide standardized testing of economics.

The Virginia Board of Education also makes available digital financial literacy resources for teachers, including instructional and webinar materials.

The History of Financial Literacy in Virginia

The Virginia Board of Education approved the financial literacy course in 2009 after a year of reviewing Virginia’s pre-existing graduation requirements. Proponents of the high school graduation requirement explained that financial education was vast and challenging enough to warrant its own year-long course. The course was then implemented for high school students entering the ninth grade in the fall of 2011, with the first class graduating in 2015.

Further, Governor Tim Kaine signed an article in 2009 that required local school boards to establish financial literacy educational objectives for all grades K-12.

Economics in Middle School

During middle school, Virginia students are required to take a civics and economics course. Students must demonstrate a competency in economic principles and decisions that include:

  1. The structure and operation of the U.S. economy
  2. How economic decisions are made in the marketplace
  3. Personal finance and career opportunities

At the end of the course, students are assessed as part of the history and social science standards of learning tests.

Top Performing High Schools

First published in 2013, the 100 Best W!se High Schools national ranking recognizes the highest performing high schools in financial education. In 2018, 45 of the top 100 schools were Virginia-area high schools with 11 ranked in the top 30.

Looking Toward College

In 2017, legislation was passed that required the Virginia Board of Education to add the following college-focused provision into the current Economics and Personal Finance standards:

“Evaluating the economic value of postsecondary studies, including the net cost of attendance, potential student loan debt, and potential earnings.”

This was a huge step, since few high school personal finance course descriptions include the word ‘college,’ according to a report by Next Gen Personal Finance.

Financial Literacy Groups Active in Virginia

It takes the work of individuals in government, education, and business united in their goal of financial literacy to propel a state to an “A” grade. In Virginia, some great local entities facilitate teacher training, student programs, and other financial education services.

“Virginia leads the charge in preparing students for lifelong financial success,” said Daniel R. Mortensen, the executive director of the Virginia Council on Economic Education.

Virginia Council on Economic Education

The Virginia Council on Economic Education (VCEE) is a nonprofit organization that works as a public-private partnership. It is the primary resource for state K-12 educators and school divisions for economic and financial education professional development and classroom resources. The VCEE is able to provide curriculum and services at low to no cost due to the financial support of partners.

Through a network of affiliated university-based centers for economic education, the VCEE annually serves 1,500 Virginia teachers who reach 150,000 students. They ensure that quality professional development is accessible in every school division. The centers provide teachers and school divisions with engaging K-12 curriculum resources and activities, workshops, and graduate-level courses. Since 2010, over 2,200 teachers teaching the Economics and Personal Finance course have attended a 40-hour Personal Finance Institute or a 42-hour Economics Institute provided by the VCEE and affiliated centers at no cost to them or their school division.

The VCEE provides teachers with comprehensive and interactive financial literacy programs for students. The VCEE joined with the governor’s office to provide the Governor’s Challenge in Economics and Personal Finance, an online and in-person high school team challenge. They also provide various awards and scholarships throughout the year.

Stock Market Game™ Program

The Stock Market Game™ is one example of an authentic simulation provided by the VCEE that teachers can use to enhance student learning. This online education program can be used to teach mathematics, economics, social studies, business principles, and language skills through learning about the stock market and investing. Students in fourth to 12th grade can participate as a class team to manage a digital investment portfolio and then compare their portfolios to those of other teams across their region.

Provided in partnership with Securities Industry and Financial Markets Association (SIFMA), the program is marketed to teachers and students throughout Virginia. As one high school teacher said, “I use the Stock Market Game for students to learn about investing and the risk and return involved in it. As a secondary part of the game students are learning not just about investing, but valuable life-long learning skills.”

She went on to say that these skills include:

  • Decision-making. Using the decision-making matrix, one example was what do students want in an investment and what are the alternatives.
  • Research. Before making a decision, the students had to complete in-depth research on a company, its products, and subsidiaries.
  • Comparison shopping to choose between two products. Students chose what looked like similar stocks, and then they looked into other items like dividends, P/E ratio, value of stock in order to make a research-based decision.
  • Learning about the relationship between cause and effect. For example, how natural disasters would affect the price of various items.
  • Demonstrating how supply and demand can lead to scarcity and abundance and how that affects the price of stock.
  • Understanding how a product is valued, such as a company and its stock.
  • Realizing their math skills are applicable to the activities in the SMG lesson plans.
  • How to build wealth with just a small investment and how important it is to start early by using activities with examples of compounding times and interest.
  • Predicting using historical data about stocks’ past performances.
  • Reflecting on how their decisions affected their outcome.

Virginia Jump$tart Coalition

The Virginia Jump$tart Coalition is a state-affiliated branch of the national Jump$tart Coalition, a non-profit, volunteer-driven organization for financial literacy. Virginia Jump$tart works to improve the financial literacy of teachers, students, and their communities within the state. It is comprised of more than 100 individuals and organizations within the business, government, nonprofit, and education sectors, who are passionate about financial education.

Goals of the coalition include:

  • Both developing and maintaining a clearinghouse of personal financial resources. It also keeps a statewide bureau of public speakers readily available for training and information on financial literacy.
  • Serving as a resource for the state legislature to assess the effectiveness of financial education.
  • Building awareness of and advocating for financial literacy.
  • Assessing and improving upon the level of financial literacy within the state by analyzing surveys and tests of student performance.

In fact, the state standards for the Economics and Personal Finance course are informed by Jump$tart’s national standards in K-12 personal finance education.

Financial Literacy Summit

Annually, the Virginia Jump$tart Coalition hosts a free Financial Literacy Summit in the fall. The summit brings together middle and high school teachers and administrators to learn about financial literacy. Attendees hear about new resources for use in the classroom and best practices when it comes to personal finance topics.

Junior Achievement of Virginia

Junior Achievement is a nonprofit youth organization that delivers volunteer-based K-12 programs in order to foster financial literacy, work-readiness, and entrepreneurship skills. In Virginia, the organization is divided into regional branches including Central Virginia, Greater Hampton Roads, Southwest Virginia, and the Greater Washington area.

“Junior Achievement reinforced concepts for me to remember later in life,” said one JA student.

JA teaches through experiential learning programs that inspire students to reach their full potential.

Based on information from Junior Achievement of Central Virginia, the 2016-17 programming reached 152 schools, 1,293 classes, 26,777 students, and involved 2,473 volunteers.

The nonprofit allows for community support through various volunteer and fundraising opportunities.

Junior Achievement of Central Virginia provides the curriculum, training, and a classroom for volunteers to make an impact. Volunteers only need to come with “a willingness to empower the next generation.” Fundraising events, like Bowl for JA, an annual team-building bowling night, give employees the opportunity to have fun together while raising money for Junior Achievement.

Career Center

Junior Achievement of Central Virginia opened a JA Career Center that offers hands-on activities and technology-based tools to middle and high school students. The career center is sponsored by Virginia529 and is the only center of its kind in the region. Students can learn about such topics as industry growth, college payment options, career opportunities, and future potential earnings.

Within the Center, the Career Compass houses eight 55” HD touchscreen monitors that display seven touchable icons linking to the following resources:

  • Career and technical education programs available by district.
  • Virginia529 college savings website.
  • JA My Way, a website that provides tips and tools to elevate students’ careers.
  • JA Build Your Future, an app that helps teens break down the real cost of their education and career goals.
  • Job Scatter Plot, an interactive screen that maps careers by pay and education.
  • My Next Move, an interactive tool for students and job seekers to learn about over 900 careers with information about skills, salary, and more.
  • Virginia Wizard, a Virginia Community College System website that helps students understand how to achieve their goals through career and college advice and assessments.

Virginia Demographics

Located in the central eastern portion of the U.S., Virginia is a densely populated state. In 2010, the state population surpassed eight million people for the first time. Now, it ranks 12th in terms of total population in the nation. Virginia has 11 metropolitan areas, but its capital, Richmond, is comprised of nearly 1.3 million people.

According to state demographics, Virginia’s 2018 population is 8,525,660 people. The median age of men and women combined is 38 years old. Of those over the age of 25, 89 percent have attained at least a high school education.

Percentage of the total population by race:

  • 68.7% white
  • 19.2% black or African American
  • 6.1% Asian
  • 3.4% two or more races
  • 2.3% some other race
  • 0.3% Native American or Alaska Native
  • 0.1% Native Hawaiian and other Pacific Islander

Based on data, the projected 2018 Virginia ninth- through 12th-grade public student population is 395,200. Out of the total U.S. population, 2.6 percent of high school students reside in Virginia.

An Expert’s Take

Sarah Hopkins Finley, Virginia Council on Economic Education

We spoke with Sarah Hopkins Finley, the director of programs at the Virginia Council on Economic Education, to get her insights on financial literacy initiatives in Virginia.

Having practiced law for over 15 years, Hopkins Finley holds a bachelor’s degree in political science and a J.D. from the University of Richmond School of Law. She worked in the Office of the Virginia Governor as deputy secretary of education before moving to the VCEE, where she was previously the executive director prior to her current role as director of programs.

Why Virginia does a good job teaching financial literacy

“I believe the biggest factor listed by [the National Report Card] is the fact that Virginia requires each student to earn a full credit in Economics and Personal Finance before they can graduate. The standards in place for what every student should learn are both rigorous and relevant,” Hopkins Finley said.

Adding, that “having qualified teachers to teach students,” is equally important.

Why financially literate students become successful adults

When asked what goes into making financially literate students, Hopkins Finley said that it takes “[a]n emphasis at each grade level, K-12, as promoted by the state and local school divisions.” Ideally, personal finance concepts should start being taught in the home and as early as possible. These principles can’t be taught overnight, but rather through a cumulative process of age-appropriate lessons.

She also emphasized the importance of “quality teachers who have the knowledge and creative lessons and resources to effectively teach their students.” In fact, teaching financial literacy in the classroom is a promising way to ensure that young people have healthy relationships with money outside of financial conversations that may or may not be occuring at home.

Financial literacy prepares students for success in adulthood, particularly for those students in high school who are weighing the cost-benefits of postsecondary education and potential careers.

According to Hopkins Finley, successful students are those able to make informed decisions about:

  • Setting goals and making choices through decision-making models to weigh costs and benefits and trade-offs.
  • Investing in themselves.
  • Choosing a post-graduation path: college, another education avenue or career that will be most beneficial for them and how to pursue it in a manner that will be most beneficial for them.
  • Managing money and controlling debt.
  • Learning to be a smart consumer, saver and investor and managing risks.

The Virginia Council on Economic Education Partnerships & Initiatives

The VCEE promotes K-12 economic and financial literacy through a number of partnerships, said Hopkins Finley. These partners propel the bulk of financial literacy efforts in the state, whether through the VCEE or otherwise. The support these partners provide for financial literacy in terms of time, expertise, and funding is probably one reason why Virginia receives an “A” for financial literacy. Partners include but are not limited to:

  • Virginia Department of Education
  • Local school divisions
  • Federal Reserve Bank of Richmond
  • Virginia Bankers
  • Virginia Credit Union
  • Virginia Society of CPAs
  • VA529
  • Bureau of Insurance
  • Bureau of Financial Institutions
  • Certified Financial Planners
  • Virginia Attorney General’s Office
  • Junior Achievement of Virginia
  • Virginia Jump$tart Coalition

The 40-hour Personal Finance Institute that the VCEE and its affiliated Centers for Economic Education provide to teachers is one example of how many of these entities work together to support teachers. These institutions provide them both content knowledge from experts in their field and engaging lessons and resources to use with their students.

Another example is TeachingMoneyVA. This website was developed in 2012 by many of the partners listed above to identify lessons, speakers, and other resources that teachers can use in their classroom to teach Economics and Personal Finance. It is maintained by the Federal Reserve Bank of Richmond and the VCEE.

“I believe Virginia is an exemplar for the many efforts and partnerships that exist to support teachers and schools in teaching personal finance,” said Hopkins Finley.

An Educator’s Take

Cherry Dale, Virginia Credit Union and Virginia Jump$tart Coalition

We also spoke with Cherry Dale, the Financial Education Director at the Virginia Credit Union, to get an in-depth look at the financial education programs and groups working within Virginia.

Cherry Dale has worked for the Virginia Credit Union for eleven years. She has been with the Virginia Jump$tart Coalition as a volunteer for nine years, the last five of which she has served as chair of the board of directors. Dale has a masters in curriculum instruction and is a former public school teacher and was an adjunct professor at Longwood University for four years.

Why Virginia does a good job teaching financial literacy

Dale attributed the state’s “A” grade to the work of financial education groups within Virginia.

“I do think it’s because groups have rallied around supporting [the Economics and Personal Finance course] within the schools. I don’t think just having a mandate automatically means you’re going to be successful,” she said. It’s the “community support” established by organizations like Jump$tart that builds fervor and support. Adding, “[y]ou also have to have the buy-in of school systems and parents.”

Not only have financial education initiatives been a longstanding priority for many within Virginia, but “then everyone coming together and rallying behind that has given the resources needed to make it successful for the students.”

Virginia Credit Union Initiatives

According to Dale, The Virginia Credit Union’s CEO at the time, Jane Watkins, who retired in 2015 after 33 years of service, wanted to develop programs and partner with local school districts to teach personal finance. During this period, the state of Virginia didn’t have a mandate for the Economics and Personal Finance course in school systems. Although personal finance concepts were being taught in a number of different classes and subject areas, there was no set curriculum.

When Dale first came on board at the Virginia Credit Union, her first year was spent integrating into and understanding the needs of the community. She found that personal finance was separate and disjointed in how it was being taught and by whom, and in which subjects it was covered. “For example, [personal finance] might be taught in a student living class or in a math class or a social studies class, there was no consistency,” Dale explained. “And there were different teachers, certification wise, teaching it that might not necessarily have the background to teach personal finance.”

In response, the Credit Union came up with a personal finance curriculum (SmartStart Curriculum for Teachers) that was complete and ready to use that could be implemented in the school systems. The curriculum is available online and has won awards, said Dale.

Years later, Virginia has become a leader in financial literacy. Dale attributes this to a change from sporadic teaching of personal finance in different areas to a concentrated curriculum and mandated graduation requirement in all high schools across the state.

“Now there is a pacing guide to teaching [the course] and definite standards to implementing it within the classrooms,” said Dale. The Credit Union has taken the Standards of Learning and applied them to their own curriculum, thus their freely provided curriculum meets the objectives of the personal finance components. Further, the credit union organizes teacher training helping educators learn how to implement the personal finance course and curriculum into their classrooms.

Jump$tart Teacher Training Initiatives

When asked about the Virginia Jump$tart Coalition’s role in all of this, Dale said that Jump$tart “really is a conduit, it’s an extension of that.” The nonprofit brings together organizations and individuals that are passionate about personal finance. Jump$tart was another key organizer that lobbied to make the Economics and Personal Finance course a graduation requirement in Virginia.

According to Dale, it was the perfect opportunity for Jump$tart to step in once the mandate was rallied around and passed. One of the main concerns of the school system was how to then implement the course in a comprehensive yet cost-effective way, so Jump$tart provided materials and teacher training for the school systems to meet this need.

“Jump$tart’s training is really bringing together credit unions, banks, the Department of Education, the Federal Reserve, the Virginia Council on Economic Education, so really all of the players that are very passionate about financial education… all in one place where teachers can come and get solid training that is free,” said Dale. Since teachers can now be certified in multiple areas, it brings up the same issue of teachers of the course without personal finance backgrounds. In order to remedy this, Jump$tart really wants to ensure that free, accessible teacher training is provided.

Other organizations that deliver teacher trainings on the Economics and Personal Finance course include the Virginia Council on Economic Education and the Federal Reserve, with Junior Achievement of Virginia providing excellent resources, as well.

Significantly, the Virginia Credit Union’s curriculum fits nicely with Jump$tart’s teacher training. On average, the credit union’s curriculum reaches about 300 teachers annually through Jump$tart’s teacher training, as well as the Credit Union League. Future sessions with the two organizations are already being explored, she mentioned.

Credit Union League

The Credit Union League is the “political activist group for all credit union groups across the state,” said Dale. The League provides a ‘Real Money Experience’ teacher training program by bringing together individuals in the credit unions.

“Credit unions, in general, have the mission to help teach members and students of personal finance,” Dale explained. She went on to say that “most financial institutions believe in this [mission]” and so Jump$tart helps facilitate these partnerships and collaborative initiatives.

Financial Literacy Education

Experts tend to agree that financial education should start as early as possible with age-appropriate concepts taught each year. Even though the focus tends to be high school, personal finance should be taught in grades K-12 said Dale. “It needs to be a conversation that is had starting in elementary school, middle school, and especially as students are preparing even more so on their career path, because many are having to decide what career path they’re taking before they even enter high school,” she said.

While students should ultimately enjoy their career path, “[at] the end of the day it’s going to be about their job…and the lifestyle that comes with it,” Dale explained. She cited the fact that many students believe they’re going to graduate with six-figure salaries, even though that’s rarely the case. Thus, conversations “having [students] understand as they’re choosing their career paths, truly what jobs are available and what salary comes out of that, and also what they can afford within those salaries,” should be had in middle school at the latest.

To gain a solid foundation in personal finance, students must then learn about the idea of credit and its impacts. Building credit can start in senior year, said Dale, “as far as thinking about building credit and what those implications are, as far as looking at student loans and how that is going to be reported to credit bureaus, which then six months later gets them that credit score.” In reality, credit “just kind of happens as [students] go on with their lives, but it’s something that they need to be aware of.”

In teaching adults, Dale has observed that although we might know which financial decisions are best, we don’t necessarily make them. “Spending money is natural,” she said. On the other hand, saving is not a natural thing, but rather a habit that must be taught. “It’s a habit and it takes thoughtfulness to [save],” but with repetition it becomes easier, she assured.

Lessons for Other States

As for how other states can look to Virginia in establishing and growing their own financial literacy efforts, Dale said “you need the buy-in.”

“You absolutely need to get everyone on the same page. I think the buy-in is that everyone needs to understand the urgency and the need for this type of education within the school system.”

Since financial literacy isn’t necessarily being taught in homes, though ideally it would be, it’s important for schools to equip students with the tools they need to become successful adults. This is crucial so that students can “truly understand the decisions that they’re making do impact them the rest of their lives,” Dale urged.

She went on to explain the ways in which students can be impacted by financial decisions for the rest of their lives.

“Taking on student loan debt it’s not just the signature, but you’re going to have to pay that back, you’re going to have to pay it back with interest. And then are you landing a job that’s going to provide you with income to be able to pay that back?”

A lack of financial literacy has very risky real-life consequences.

“Not paying back money borrowed on a credit card, or not paying medical bills, or paying your cell phone bill (something as simple as letting your cell phone go into default), will kill their credit [and credit score],” Dale said. Bad financial decisions that accumulate in early adulthood could even prevent students from renting or purchasing a home later in life.


Sarah Hopkins Finley is the director of programs at the Virginia Council on Economic Education. She previously worked as the deputy secretary of education in the Office of the Virginia Governor before moving to the VCEE initially as the executive director.

Cherry Dale joined Virginia Credit Union as its first full-time director of financial education in 2007. A former kindergarten teacher, she taught at Ridge Elementary School in Henrico County for eight years and holds a master’s of education degree in instruction and curriculum from the University of Virginia. Attracted to Virginia Credit Union’s not-for-profit status and its mission of helping everyday people get ahead, Cherry formed successful partnerships with schools and community organizations, such as Fairfield Elementary School and the Richmond Public Library. Cherry is the chair of the board for the Jump$tart Coalition for Financial Literacy, she has organized numerous educational programs for teachers in meeting state Board of Education requirements for personal finance and economics. She has developed financial education curricula for all ages, and provided hundreds of hours of classroom time teaching about savings, budgeting, and managing debt. Under her direction, 24,000 people participated in Virginia Credit Union financial education workshops or seminars during 2017.

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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Found Yourself On The ChexSystems Blacklist? Here’s What You Can Do

A poor score from ChexSystems will affect your ability to open up a checking account. Here are some steps you can take to fix your score, plus a helpful alternative to traditional checking.

People with bad credit get turned away from banks when they apply for a personal loan, but a poor credit score doesn’t mean they can’t open a checking account. For people who get scored poorly by Chexsystems, however, that is precisely the fate that awaits them.

If you’re one of these folks, don’t panic. There are steps you can take to try and raise your Chexsystems score and other options you can pursue if you still can’t open a traditional bank account. Sit back, take a deep breath, and learn what you need to know.

What is ChexSystems?

First things first: Who are these guys? Well, they’re a national consumer reporting agency that most banks rely on for information. Just like the three major credit bureaus (Experian, TransUnion, and Equifax) that track your use of credit, Chexsystems tracks how you use your bank accounts. If you have a history of bouncing checks and/or over drafting your accounts, that’s something banks want to know.

Credit bureaus maintain your credit reports. They contain the info used to create your FICO score, which is scored on a scale from 300 to 850. Chexsystems does something similar. They maintain Consumer Disclosure reports that track your overdrafts, bounced checks, unpaid fees, credit freezes, and more.

They also turn that info into a score, but this one is on a scale from 100 to 899. The higher your ChexSystems Consumer Score, the better—just like with your FICO score. If your score from ChexSystems is poor, most banks will deny your application for a checking account. In their eyes, you simply pose too great a risk!

What does it mean to be on the ChexSystems blacklist?

So the term “blacklist” is a little misleading, even though it’s how most people commonly refer to this phenomenon. It’s not as though ChexSystems has a giant list of names tucked away in a safe somewhere that banks consult when they have an application. The truth is a lot more informal than that.

To be “blacklisted” by ChexSystems effectively means that you have a very poor ChexSystems score. Due to a history of overdrafts, bounced checks, etc., your score is low enough that any bank considering you for a standard checking account will deny you based on your risk profile.

Lacking a bank account will negatively impact your finances in many ways. You might have to carry cash around with you everywhere (which can be dangerous) and resort to check-cashing stores in order to access your money at all. Prepaid debit cards aren’t much better either; they usually come with a whole host of expensive fees.

Even many bad credit loans will be out of reach, as many of these lenders still require their customers to have a checking account before they’ll lend to them. The only loans you’ll be able to get will be certain types of no credit check loans like cash advances, payday loans, and title loans.

The good news is that, unlike real blacklists, your status is hardly permanent. ChexSystems keeps information for five years, after which it drops off your report. So five years of good banking behavior will ensure that damaging information disappears from your Consumer Disclosure report. Once that happens, your score will rebound!

If you’ve been blacklisted, here’s what you should do.

Five years is a long time to wait just to get a regular checking account. In the meantime, there are actions you can take that might improve your score, possibly pushing it over the threshold that you need in order to open an account. Here are some steps you should take if you’ve been blacklisted by ChexSystems:

  1. Request your Consumer Disclosure report: Just like the three major credit bureaus, ChexSystems is required to provide you with one free copy of your report every 12 months. All you have to do is ask! You can contact Chexsystems by phone at (800) 428-9623 or you can request a copy on their website. Once you have your report in hand, you can review it to learn exactly why your score is so low.
  2. Pay off any outstanding debts or fees: When assessing a consumer’s trustworthiness, unpaid debts (especially when they come from fees) is a huge red flag. While you’ll still get dinged for having these debts accumulate, paying them off will help. Try to pay them in full. If you can’t, try negotiating with your creditor to settle for a portion of your debt. Since businesses prefer getting something over nothing, they’re usually somewhat flexible. Once you’ve paid off the debt, ask your creditor to update your information with ChexSystems or to provide you with documentation so you can send it Chexsystems yourself.
  3. Dispute any errors you find: This holds true for both your ChexSystems score and your FICO score. You have enough to deal with from your own mistakes without having to also deal with someone else’s. Incorrect information on your Consumer Disclosure report should be disputed pronto. First, gather documentation that supports your case. Next, go to the Dispute section of the ChexSystems website. You can submit your dispute online, by fax, through the mail, or over the phone. ChexSystems will then investigate and resolve your claim within 30 days. You can also dispute the information directly with your creditor and ask that they update ChexSystems themselves or provide you with corrected documentation.

Taking the steps listed above might not be enough to get you off the blacklist. Still, it doesn’t hurt to make sure that all the information on your report is correct, that all your debts have been paid, and that you fully understand why your score is so low in the first place.

Apply for a “second chance” checking account.

Like we mentioned earlier, five years is a long time to wait before opening a checking account. In the meantime, it’s probably a good idea that you open up a “second chance” banking account, which are designed for people in your exact situation. Many banks offer these accounts, and you’d do well to check out your local credit union as well.

Because of the added risk that you present as a customer, second chance checking accounts usually carry monthly fees in order for you to use them. Additionally, they might come with some extra strings attached, like requiring direct deposit or a minimum balance. And some have fewer perks like online bill pay or debit cards.

Here’s the good news: Second chance checking accounts usually come with a graduation process whereby you can work your way up to a standard checking account. All you need to do is handle the account responsibly for a year or two–although the exact terms and conditions will vary from institution to institution.

Second chance checking accounts are far from perfect. But they sure as heck beat stuffing money in your mattress or putting it on a prepaid debit card. Just remember that no matter what banking option you choose, there’s only one surefire way to rebuild your banking history and get your ChexSystems score back up to snuff. You need to be responsible with your money.

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

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

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