Does Your Credit Score Show up on a Background Check?

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

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

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

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


What is a credit score anyway?

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

Your credit score is made of five parts.

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

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

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

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

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

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

When will you get a background check?

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

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

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

Will it or won’t it include your score?

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

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

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

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

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

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

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

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

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

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

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Contributors

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

How to Shop for Electronics When You Have Bad Credit

how-to-shop-for-electronics-when-you-have-bad-creditYour best bet is to skip making this purchase altogether, but some savvy deal searching or shopping refurbished could also work.

It seems like there are more and more cool gadgets and gizmos coming out every day. And you might feel like some sort of caveperson if you don’t have the newest thing. A lot of these devices even seem smart enough to make fun of you for not having them.

But what if your credit isn’t so great? Can you still gain access to the wonders of our digital, always online, Internet of Things age?

Read on and find out!


Why do I need credit for electronics?

If you have the cash to buy a device outright and it won’t hurt your budget and finances too badly, then it doesn’t really matter what your credit score is. You can walk right into the store, plunk down the money for an Alexa, and then ask that Alexa to play Money by Pink Floyd or Money by Barrett Strong.

But if you don’t have the cash on hand, your ability to get electronics is going to depend on your credit. If you have good credit, you’ll have a wide range of options. Obviously, if you qualify for a credit card, you can use that to purchase whatever electronics you need—so long as they’re within your credit limit.

However, if you want to keep your good credit, you should really make sure you’re paying off your credit card bill in full each month so you don’t start racking up interest.

Some electronics stores even have their own credit card that will provide specific benefits if you shop there regularly. Best Buy’s card offers cash back and financing options. Amazon, Target, and Office Depot all have similar card offers. These cards are easier to qualify for, but they usually have much higher interest rates, too. So be careful!

But if your credit still isn’t good enough to qualify for one of those cards, that isn’t likely to help.

If you have poor credit, be careful with “alternative financing” options.

If your credit isn’t great, you’re going to have fewer options when it comes to purchasing electronics, as is the case with purchasing most things. One bad credit option for purchasing an electronic device is, of course, to not buy that item.

Even if your credit is too low to work out a financing plan with the store, you could turn to a personal loan to get the item. But if your credit is too low for financing, the only loan you’ll be able to get will be a bad credit loan, which will come with a much higher annual percentage rate (APR) than a standard loan. And while the right bad credit loan can be a great solution for emergency expenses, it’s likely that a new laptop doesn’t qualify as an emergency.

Unless the electronic device in question is something vital to your job or another part of your day-to-day life, you’re probably better off waiting until your credit is in a better place before purchasing it. And if you’re considering taking out a no credit check loan like a payday loans or a cash advances to pay for electronics, then stop that immediately.

In the meantime, if you don’t qualify for a traditional credit card, consider a secured credit card. A secured credit card requires you to put down some cash as collateral, but you may be able to get one even with poor credit.

Then you can use that secured credit to make purchases (perhaps even cheaper electronics) and build up your credit. Just be sure to pay your bill in full each month and try to spend no more than 30 percent of your credit limit. Admittedly, with a cash deposit securing your credit limit, 30 percent of your total might not add up to very much.

Renting a film on a laptop is one thing, but renting a laptop?!

Even if your credit isn’t in a good enough place to purchase an expensive but necessary electric device like a computer, you could look into one of the services that let you rent a computer. Many of them are “rent-to-own” so you won’t just be throwing your money away. The payments will be applied towards eventual ownership.

If you do consider a rent-to-own agreement, you’re going to want to read the contract very, very carefully. Aside from being certain that you’ll be able to afford the payments, you need to know what the penalties for missing a payment and for getting out of the deal early. The last thing you want is to be hit with penalties that will cause your credit to get even worse.

Deals, deals, deals.

Another method to getting the electronics you need without the credit you want is to become a deal master. By keeping an eye out for deals and taking advantage of sales, you may be able to get a TV or even a computer for way less than you’d normally pay. Many apps will also provide you with virtual coupons or other deal opportunities.

It may also be worth looking into used or refurbished products as a cheaper alternative. For example, you may find that there are tablets that will be able to fill the role of a laptop for you right now—and that are hundreds of dollars cheaper.

Bad credit doesn’t mean you can’t purchase things you need or even want. But it does mean you should be very careful and thoughtful about how and on what you spend.

Want to learn more about living your life with bad credit? 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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Can a Payday Lender Garnish Your Wages?

If you fail to pay back a payday loan, having your wages garnished by a court judgment is certainly a possibility.

There are a lot of risks involved in taking out a payday loan—too many risks if you ask us. First of all, there’s the interest rate, which comes out to an average APR of almost 400 percent. Next, there are the short payment terms, which mean you usually have only two weeks to pay the loan back in full. Lastly, there are the lump sum repayment terms, which can be harder for many folks to pay back than an installment loan that lets them pay it off over time.

But there are even risks beyond those. For instance, do you know what happens if you can’t pay your payday loan back? One of the options could be to the roll the loan over, which means that only pay the interest due and then you extend the loan term in return for a whole new round of interest.

But if you default on the loan entirely, the situation will go from bad to worse. You could even end up in court with your wages getting garnished. The answer to the headline above, by the way, is “yes.” If you fail to pay back a payday loan, your creditors can get your wages garnished. The only thing is … it might not be the payday lender that’s doing it.


What happens when you default on a payday loan?

To broadly paraphrase one of the worst lines in modern film history, “the same thing that happens when you default on any other kind of loan.” Defaulting on a personal loan means that you have failed your end of the loan agreement. Once a default has occurred, your creditor pretty much gives up on you paying what was originally agreed upon and shifts into trying recover as much of the loan as they can.

Except that most lenders have a different way of going about this. Instead of trying to collect on your debt themselves, they opt to get out of the game altogether. In situations like this, they will sell your account to debt collection company for a fraction of what you still owe and write the whole thing off as a loss. That debt collector is now the creditor to whom you owe money, and they are the ones who will try and get you to pay.

There’s one aspect of this situation, however, that’s a little different for payday loans than it is for regular loans. Most payday lenders don’t report your payment information to the credit bureaus, which means that any one-time payments you make on that loan won’t help your score.

In contrast, debt collectors do report to the bureaus, which means that defaulting on your loan and having that debt sold off will result in a black mark appearing on your credit report. This is why taking out a payday loan cannot help your score, but it can harm it. This has very little to do with the issue of wage garnishment, but it is a nice little reminder that payday loans are almost never worth the risk.

Creditors can take you to court if you don’t repay.

A debt collection company will first try and get you to repay by calling you on the phone. They might even start calling your friends, relatives, and work associates. While it is legal for them to do that, there are many other practices they might engage in that are also flatly illegal, like threatening you. You can learn more about your debt collection rights in our post, What Debt Collectors Can and Can’t Do.

If trying to collect via the traditional methods doesn’t work, that debt collector can take you to court. The same holds true for payday loan companies that have held onto your debt to collect themselves. But payday loan companies taking debtors to court is possible, it doesn’t happen very often.

The idea of taking a debtor to court is to have the judge rule against you and issue a judgment in the creditor’s favor for a garnishment. That means that a certain amount of money will be deducted from each of the debtor’s paychecks until the debt is repaid in full. While a regular paycheck can be garnished, there are certain kinds of income, like Social Security benefits, are exempt from standard forms of garnishment.

Sometimes, you could end up getting your wages garnished to pay a debt much larger than what you originally owed. The moment you fall behind in payments, most lenders will start racking up fee and late charges—plus court costs once they do take you before a judge. Add in the fact that many companies will sue debtors in bulk, and there is almost no amount too small for them to take you to court over.

What can you do to avoid wage garnishment?

There are three things that you can to stave off the possibility of going to court and getting money garnished from your paycheck

  1. Negotiate: It can tempting to just entirely ignore a debt collector’s calls. Don’t do that! Instead, use this is an opportunity to negotiate with them and settle on a smaller amount. Many debt collectors don’t have very high expectations that they’ll be paid back in full. Take advantage of this and offer them the low-hanging fruit of smaller (but guaranteed) payday.
  2. Show up: You know what happens when one sports team doesn’t show up to the game? They forfeit. And many debt collectors are hoping the exact same thing happens when they take you to court. If you don’t show up, they win by default. So show up! If you do, that means they’ll actually have to make their case, and they might not be as prepared to do so as you’d think.
  3. Hold them accountable: Remember, your debtors aren’t the only ones who can take you to court. You can also take them to court if they violate your rights. And while there are a ton totally legit debt collectors, there are also some who will do illegal stuff to try and intimidate you into paying. Learn about your rights under the Fair Debt Collection Practices Act (“FDCPA”) and be prepared to fight back if a debtor crosses the line.

But in the end, there’s only one foolproof solution. The best way to avoid having a payday lender garnish your wages is to avoid taking out a payday loan in the first place! The same goes for other types of short-term no credit check loans like title loans and cash advances.

While any loan you take out is going to require repayment—whether it’s an online loan or one from a brick-and-mortar lender—there are many other bad credit loans out there that will give you lower rates, better terms, and more manageable payments than your standard payday loan. Plus, lenders like OppLoans even report your payment information to the credit bureaus, meaning that on-time payments will help your credit score!

To learn more about payday loans, check out these related posts and articles from OppLoans:

Has a payday lender ever tried to garnish your wages? We want to hear from you! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

No Credit Card? Here Are 6 Ways You Can Still Fix Your Credit Score

no-credit-card-6-ways-you-can-fix-your-scoreStrategies include becoming an authorized user on someone else’s account, getting a cosigner, paying down your outstanding debts and more!

Traditional credit cards are a great way to rack up debt, but they are also perhaps the number one way to improve your credit score. By keeping your balances below 30 percent, making all your payments on time, and paying off every purchase within the 30-day interest-free grace period, your credit card can double as a ticket to the financial promised land.

There’s only one little catch. People with bad credit cannot usually get approved for a regular credit card. It can feel like a Catch-22: You need a credit card in order to improve your credit, but you need good credit in order to get a credit card! In the meantime, you’re stuck with high-interest cash advance loans that drain your bank account and don’t even do anything to improve your credit!

Here’s the good news: There are lots of other ways to improve your credit. That’s why Katie Ross, Education and Development Manager for the national financial education nonprofit American Consumer Credit Counseling (@TalkCentsBlog), offered us six great strategies for improving your credit without a traditional credit card.


1. Become an authorized user on someone else’s account.

“If possible,” said Ross, “become an authorized user on someone’s account—whether it’s a parent, spouse, sibling, or another family member or close friend. Note that you will be authorized to use this person’s credit card with your name. Becoming an authorized user can help (re)build credit in your name. Make sure that you act responsibly! Your misuse of this person’s card can cause financial ramifications on their end.”

Ross is dead on. Misusing another person’s credit card account is a perfect way to tank their credit, as well as your relationship. But the great thing about becoming an authorized user is that you don’t need to use the account in order to help your credit. So long as the credit card company reports information for authorized users (instead of just primary account holders), positive activity on the account will benefit your credit.

When it comes to being an authorized user, trust also goes both ways. Just as positive activity on the account will benefit your credit, negative activity on the account will hurt it. Make sure that the person you ask is someone who’s good with money and uses their credit responsibly. Borrowing money from friends and family comes with its own set of risks, and linking your credit histories together via a shared account is no different.

2.  Get someone with better credit to be your cosigner.

“Similar to becoming an authorized user,” Ross offered, “if you are looking to obtain a line of credit but do not qualify on your own, consider a cosigner with good credit to help you obtain the loan. Note that if you fail to make payments, the cosigner is legally responsible for the loan.”

While becoming an authorized user on an account is a two-way street in regards to trust, asking someone to be your cosigner is more of a one-way arrangement. You are asking the cosigner to put their own credit history on the line in order to help you secure a personal loan or line of credit. But they’re not the one who’s going to be making the payments on the loan—that’s all on you.

Falling behind on payments or defaulting on that loan will reward their trust in you with a big ol’ dent in their credit score. Really, “dent” is not the right word to describe what will happen to their score, any more than saying someone “dented” your car when in fact they “t-boned you and caved in the passenger-side door.”

Being on the hook for a loan that someone else took out is the reason that many people are extremely cautious about cosigning. And they are right to be wary. Getting a cosigner can be a fantastic way to help build your credit—it means being able to borrow larger amounts of money at more affordable rates—but screwing it up is an equally fantastic way to torpedo your close relationships.

3.  Take out a small loan.

“Take out a small credit-building loan from a bank” Ross advised. “Local institutions are often more likely to extend credit to those with little to no credit history. Acquire a small loan for an item that you already have money available for in another account. This way, you are sure to repay the loan in a timely manner and thus get good marks on your credit.”

Ross is right that local institutions are much better suited to these types of transactions then big multinationals. And while local banks are great, local credit unions could be even better for your borrowing needs. These are nonprofit institutions that seek to serve specific communities with better products and services than for-profit banks.

One thing that needs to be noted: The kinds of small loans you should be getting to help build your credit are vastly different from small-dollar no credit check loans like payday loans, and title loans. Even if that payday loan storefront down the street is a “local business,” it’s not one that’s going to be helping you out in this regard.

First of all, These loans come with extraordinarily high APRs—an average of almost 400 percent for payday loans and 300 percent for title loans—that can push borrowers into a dangerous cycle of debt. Second of all, most of these lenders don’t even report information to the credit bureaus. So even if you were to pay your loan off on time, you wouldn’t get any “credit” for it.

4. Get a store credit card.

“If you are unable to qualify for a regular, unsecured credit card, consider taking out a store credit card with a small limit and low APR,” said Ross. “Look into stores that you frequent and can make small, routine purchases that you can immediately repay to help build your credit. Having a card that you don’t use will not help rebuild your credit, but rather, responsibly using that credit can make a difference. Only charge what you can afford to pay in full each billing cycle.”

The great thing about store credit cards is that they are easier to get than regular credit cards. Stores have different incentives than traditional lenders, which means that their cut-off point for credit scores is going to be much lower. Simply put, someone with a lousy credit score stands a much better chance of being approved for a store card than for a regular one.

The trick with using a store credit card to rebuild your credit is the same trick as using any credit card to rebuild your credit: Do not put more money on the card than you actually have in your bank account. Racking up credit card balances well beyond what they can afford to pay off month-to-month is how many people end up with bad credit in the first place.

As Ross mentions, you have to use a credit card in order to improve your credit score, so keeping your purchases small and manageable is the way to go. Store cards come with an average APR that is roughly 50 percent higher than regular cards, so be very deliberate when shopping around and aim for the best rate you can. Then again, if you are paying the balance off in full every month, interest rates shouldn’t be a huge worry.

5. Take out a secured credit card. 

According to Ross, “A great option for those with poor credit are secured cards, Secured cards work similarly to regular credit cards, except they typically require a cash or collateral security deposit to ensure payment of the debt. The borrower will offer cash or collateral to the equivalent of whatever the loan amount is. Then, you will receive a secured card with that same limit. To get your security deposit back, you must repay the amount you’ve spent on the card. The larger the security deposit, the higher the limit granted.”

A secured credit card is even easier to get than a store card, and that’s because the lender assumes very little risk. By using the borrower’s cash collateral to set the credit limit, the lender basically ensures that the principal balance on the card is going to be repaid. Sure, they might miss out on some interest, but they won’t actually be losing money.

This is great news for people with bad credit. By building up a cash reserve and then using it to take out a secured card, you can set yourself on the path to an improved payment history and a higher score. Sure, saving up money isn’t the easiest thing when you don’t have a lot of income, but even several hundred dollars towards a secured credit card could be a huge boon to your financial wellbeing.

The general advice with using a secured credit card is pretty much the same as the advice for using the store credit cards—or any credit card at all. Do not use the card to live beyond your means, only take out what you can immediately pay off, and make all your payments on time. Secured credit cards can often have some pretty hefty fees attached for various services, so make sure you know those ahead of time and do your best to avoid them.

6.  Focus on loan repayment and paying down your debt.

“Loan repayment is considered on your credit report. Whether you have an auto loan, federal student loans, or other types of loans, repaying your lenders on-time and in full each month will help to (re)build your credit,” said Ross.

After your history of on-time payments, your amounts owed is the second most important factor in your score, making up 30 percent of the total. So if you have a lousy credit score, there is a fairly good chance that it’s because you have taken on large amounts of debt. That could include credit cards, but it could also mean, as Ross mentioned, stuff like auto loans and federal student loans.

And while nobody is exactly thrilled to be making payments on their car or student loans every month, those outstanding loans do provide you with a golden opportunity to work on your credit score. Every on-time payment that you make not only adds to your payment history, but it reduces that amounts that you owe. Even the right bad credit loan—one that reports payment information to the credit bureaus—can help improve your credit if you make your payments on time every month.

Lastly, if you have large amounts of outstanding consumer debt, and you want to improve your score, paying more than your monthly minimum amounts is the way to go. Our advice: Create a debt repayment plan that allows you to focus on one debt a time like the Debt Snowball or the Debt Avalanche. And once you’ve made that plan, all you need to do is stick to it.

Improving your credit score without a traditional credit card isn’t the easiest thing in the world, but it is most certainly doable. Whether it takes help from a family member, a secured credit card, or just a solid debt repayment plan, you have the power to take your score from zero to hero.

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

Were you able to build up your credit without using a credit card? We want to hear from you! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

Katie Ross, joined the American Consumer Credit Counseling, or ACCC (@TalkCentsBlog), management team in 2002 and is currently responsible for organizing and implementing high-performance development initiatives designed to increase consumer financial awareness. Ms. Ross’s main focus is to conceptualize the creative strategic programming for ACCC’s client base and national base to ensure a maximum level of educational programs that support and cultivate ACCC’s organization.

What Exactly Is A “Bad” Credit Score?

There’s no single definition as to what makes a “bad” credit score—but we can provide some handy signposts to help you decide whether your credit’s in trouble.

On this blog, we write a lot about how bad credit negatively affects people’s lives, and what these folks can do to improve their scores. We write about bad credit so much, in fact, that it’s easy for us to forget this very simple fact: Lots of people don’t know what a “bad” credit score is.

Like most things, we can tie this back to TV. Here’s an exchange from the beloved cult sitcom Brooklyn Nine-Nine:

Jake: But look at this credit score! 100!

Victor: Out of 850.

Jake: No, really?!

Obviously, that’s exaggerated for comedic effect— for instance, you can’t have a credit score below 300—but the point still stands. You can’t fix your bad credit if you don’t understand that you have bad credit in the first place.

Luckily, that’s where we come in. So sit back, relax, and enjoy this primer on what exactly constitutes “bad” credit.


How do credit scores work, again?

Your credit score is a three-digit number that expresses your creditworthiness. It’s the number that lenders, landlords, and other companies will pull in order to determine whether or not they should do business with you.

By looking at your credit score, these parties can determine how likely you are to pay them back. The better your score, the more personal loans and credit cards you will be approved for. Additionally, you’ll be able to score higher principals (or credit limits) and lower rates.

The most common type of credit score is the FICO score, which was introduced by Fair, Isaac and Company in the 1980s. (The company now just goes by FICO.) Your FICO score exists on a scale of 300 to 850. The higher your score, the better.

Your score is drawn from information on your credit reports, which contain records of your history as a borrower. Most of that information dates back seven years, but some info—like bankruptcies, for instance—stays on your report for longer.

And how do credit reports work?

Your credit reports are compiled by the three major credit bureaus: Experian, TransUnion, and Equifax. They consist of information reported to the bureau by lenders, landlords, utility, companies, debt collectors, and also information that’s on the public record. Not all of these parties report to all three credit bureaus, which means your info can vary from one report to another.

Those three bureaus keep records on hundreds of millions of Americans, which means that mistakes can and do happen. A mistake on your account could dramatically affect your credit score, so you’ll want to check your reports regularly and contest errors when you find them. Luckily, you can request a free copy from each of the bureaus once a year, just visit www.AnnualCreditReport.com.

If you think of your credit report as a test, then your credit score is the final grade you receive. Information about whether you pay your bills on time, how much you’ve borrowed, how long you’ve been borrowing for, and how many hard credit checks you’ve had is fed into the credit scoring formula to produce a single three-digit number that summarizes your creditworthiness.

Okay, so what is a bad credit score?

The reason that many folks don’t know what constitutes a “bad” credit score is that, well, there isn’t a hard and fast line between a “good” and a “bad” score. And while some definitions don’t make room for credit that’s neither good nor bad, we don’t believe in that. You’ll see below that we have a tier for “fair” credit, a range that some would simply write off as bad credit.

Phew. Okay. All that having been said, here are the five basic credit score tiers:

720-850Great Credit
680-719Good Credit
630-679Fair Credit
550-629Bad Credit
300-549Awful Credit

You can haggle over any of these designations. Some will tell you that “great” credit starts at 750, not 720; others will insist that any score below 650, or even 680 is “bad” credit. But while a score under 680 certainly qualifies as “subprime” credit, we believe that there’s enough of a difference between scores in this range and scores under 630 to classify them separately.

Anyway, there you have it: a bad credit score is a score between 550 and 629. Really, there is very little difference between having “bad” and “awful” credit. One way they do differ: Folks with bad credit can generally access bad credit loans and credit cards, while those with awful credit often have to rely solely on no credit check loans like payday loans, title loans, cash advances.

There’s a difference between bad credit and no credit.

In 2017, the average credit score in the United States was 700, but there are still over 100 million Americans with scores that are either subprime or worse. Having been locked out from traditional lenders, people with bad credit often have to rely on predatory lenders just to get by. Even those with fair credit can find borrowing from a traditional lender difficult.

There is, however, an important difference between people who have bad credit and those who have no credit. Simply put: Bad credit means you have a history of using credit poorly, while no credit means you don’t have enough credit history to build an accurate score. While both can result in very low credit scores, having no credit can just as easily result in no score at all.

The length of your credit history is one of the five main factors used in creating your credit score. And it makes sense: The longer your track record of using credit responsibly, the more likely you are to use it responsibly in the future. If you have no credit, getting a secured credit card and using it to slowly build your credit history is a great strategy to establish better credit.

How can you improve a bad credit score?

We mentioned in the previous section that the length of your credit history was one of the five main factors used in creating your credit score. The other four factors are payment history, amounts owed, credit mix, and new credit inquiries.

Of those five factors, your payment history and your amounts owed are by far the most important. Payment history makes up 35 percent of your score, while your amounts owed makes up 30 percent. Together, these two factors comprise 65 percent (almost two-thirds) of your total credit score!

So if you’re looking to take your score from bad/awful to fair/good/great, there are two things you need to do above all else: Start paying all your bills on time and pay down your outstanding debts. If you take care of those two things, everything else should fall into place.

Easier said than done, right? We know. To read more about how you can dig yourself out of debt,  check out these related posts and articles from OppLoans:

Have you been able to build your credit score from bad to great? We want to hear about it! You can find us on Facebook and Twitter.

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How Bad Credit Can Affect Your Kids’ Future

How Bad Credit Can Affect Your Kids' Future

Beyond the higher rates and greater financial burden, your kids might adopt your own bad money habits for themselves!

Updated: August 7, 2018

Bad credit can feel like an anchor weighing you down. No matter how hard you struggle to the surface, your lousy credit score keeps dragging you back towards the depths.  Even if you’re careful,  you could still be harming your credit in ways you didn’t even know were possible!

And as unfair as that is, things get even less fair from there. That’s because your credit won’t just affect you. It can also affect your kids.

Try and take the expert advice contained in this post as both a warning and a motivation to rise to the challenge of improving your credit. You’re not just doing it for your own future, but for your children’s future as well.

Higher rates mean less bang for your buck.

You probably know that a lower credit score means higher interest rates, and those higher rates can eat away at your finances, leaving you less money to invest in your children.

“Sadly, your credit doesn’t just affect you, it also affects your kids,” Michael Banks, founder of FortunateInvestor.com (@FortunateInvest), warned us. “One of the biggest ways it can affect your kids is via interest rates. With a lower credit score, every loan you take out ends up having a higher interest rate.”

It may not seem like a 4.65% interest rate on your mortgage is that much worse than a 4% one, but over the life of your children, that can add up to thousands of dollars—dollars that could be used to pay for college, cars, and other expenses you may encounter as your children grow up.”

A good education is expensive, especially for college.

You’ll notice one of the concerns Banks mentioned was college costs, and education was a recurring concern among the experts we talked to.

It makes sense: Your kids’ education can have a big impact on the rest of their life. And sadly, if bad credit is going to influence that education, it’s not going to influence it in a positive direction.

Accredited financial counselor and founder of Youth Smart Financial Education Services Roslyn Lash (@RosLash), painted us a picture of how things can go wrong:

“If the child needs an expensive graphing calculator and you don’t have the cash, your bad credit could prevent you from buying it, contributing to your child’s classroom struggles. In addition, higher grade classes offer expensive field trips, often out of the country.

“Without good credit, your child may not be able to attend. If s/he does attend, it will be at a higher cost due to the higher interest rate. And lastly, when it’s time for college, your teen may need a co-signer (with good credit) for a student loan. Again, you won’t be able to help them.

“Bad credit hinders you from helping them get a better grip on life.”

Your money anxieties could be contagious.

If you have bad credit, you probably find yourself worrying about it somewhat frequently. Sadly, children can catch some of that worry.

Marc Johnston-Roche, co-founder of Annuities HQ (@AnnuitiesHQ), echoed the concerns about education, in addition to bringing up financial anxiety:

“Growing up in an environment of constant financial worry can cause your children to ‘inherit’ those same concerns and carry them into their adulthood.”

Good money habits can be learned. Bad ones can too.

Justin Lavelle, Chief Communications Officer for BeenVerified.com (@BeenVerified), covered some of the ways bad credit can generally affect children’s upbringing:

“Kids learn a lot from their parents and financial management is one of them. If you are constantly struggling with your finances or are denied credit for large purchases these events can rub off on your kids and they may be less likely to handle money of finances when they are of age to need to.

“Set a good example and mind your finances if for no other reason than to set a good example for your kids.”

“Don’t waste away your financial future and your child’s hopes and dreams because you have sloppy money habits, Lavelle added. “Make sure that you don’t have more credit than you can handle. Pay your bills on time and act responsibly with money.”

Bad credit even means higher insurance rates.

Bad credit can even affect you and your kids in ways you might not have realized. Like your insurance coverage!

“In some states, your credit-based insurance score can be used to rate your insurance,” Scott W. Johnson, manager and founder of Marindependent Insurance Services LLC (@marindependent1), told us.

“If your parents have a bad score and end up having to pay more for auto or home insurance, it could result in the parents opting for less insurance. This could obviously wreak havoc on a young adult that is still getting their auto insurance from their parents.”

“Lucky for me, my home and auto clients are based in California where this practice is not allowed,” said Johnson. “There are a few more states where this practice is illegal.”

Whatever you do, don’t give up hope!

We know, we know. This all sounds like a huge bummer. If you have a lousy credit score and get hit with a financial emergency, and you might think a bad credit loan is your only option. And believe us when we tell you: Settling for predatory products like payday loans, cash advances, and title loans is definitely not the financial solution you are looking for.

But as we said earlier, take all of this as an incentive to grow your credit and take control of your financial future. Start paying your bills on time, make a plan to pay down your outstanding debt, and maybe even ask your friends or family for help.

Before you know it, you’ll have a shiny new credit score and your children will have a shiny new future!  To learn more about improving your financial habits, check out these related posts and articles from OppLoans:

What financial habits did you learn from your parents? We want to hear from you! You can find us on Facebook and Twitter.

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Contributors
​​​​​​​Michael Banks is a seasoned finance professional and founder of FortunateInvestor.com (@FortunateInvest). With 20 years of professional experience in the financial services industry, he uses his expertise to turn simple lessons on money into lifelong habits that form the basis for a successful financial future.
Marc Johnston-Roche, working steadily in the financial services, online marketing and lead generation industry for over eight years, Marc has had literally thousands of conversations concerning annuities with prospective buyers and advisors. Always looking forward to the time when he could develop a company network of retirement professionals based on three equally important but simple principles: respect, integrity, and professionalism. With his understanding of online marketing operations – he branched out with his partner and formed Annuities HQ (@AnnuitiesHQ).
Roslyn Lash (@RosLash) is an Accredited Financial Counselor. She specializes in financial education, adult coaching, and works virtually with adults helping them to navigate through their personal finances i.e. budgeting, debt, and credit repair. She is also the founder of Youth Smart Financial Education Services. Her advice has been featured in national publications such as USA Today, TIME, Huffington Post, NASDAQ, Los Angeles Times, and a host of other media outlets.
Justin Lavelle is a Scams Prevention Expert and the Chief Communications Officer of BeenVerified.com (@BeenVerified). BeenVerified is a leading source of online background checks and contact information. It helps people discover, understand and use public data in their everyday lives and can provide peace of mind by offering a fast, easy and affordable way to do background checks on potential dates. BeenVerified allows individuals to find more information about people, phone numbers, email addresses and property records.
Scott W. Johnson is the owner of Marindependent Insurance Services LLC (@marindependent1), a hard to place and affluent home Insurance Agency based in Marin County California.  Scott enjoys reading, investing, and the outdoors.  He can often be seen on the trails in Northern California on his mountain bike or skis.

It’s True: Bad Credit Can Mean Paying More for Car Insurance

Turns out your credit history is a pretty good indicator of how many claims you’ll file.

When you borrow money, a bad credit score means higher rates. Sometimes, it might even mean that you can’t borrow from a traditional lender at all. Instead, you’ll be stuck with dangerous no credit check loans like payday loans, cash advances, and title loans. Not great!

But there are many other ways that bad credit increases your cost of living. As it turns out, having poor credit is expensive! It can mean larger deposits to secure an apartment or to sign up for utilities—it can even mean trouble getting hired for certain kinds of jobs!

One of the myriad ways that having poor credit adds to your cost of living is through your car insurance. As it turns out, the higher your credit score, the lower your insurance rates! Unfortunately, that means that the opposite is also true: bad credit means paying more for car insurance.


How does your credit score work?

Your credit score is a three-digit number that expresses your creditworthiness as a borrower. It’s a number that traditional lenders like banks, auto dealerships, and mortgage companies use to help determine whether to lend you money and what kind of rates you’ll have to pay. The better your score, the more loans you’ll able to qualify for and the lower your interest rates will be.

Credit scores are based on the information in your credit reports, which contain records of how you’ve handled credit over the past seven years. (Some information, like bankruptcies, stays on your report for longer.) Credit reports are created and maintained by the three major credit bureaus: Experian, TransUnion, and Equifax.

The most common type of credit score is the FICO score. It’s based on a scale of 300 to 850, with 300 being the worst and 850 being the best. While definitions of “good,” fair,” and “bad” credit vary, generally any FICO score above 720 is great, any score between 719 and 630 is fair, and any score under 630 is bad.

There are five categories of information used to create your credit score: payment history, amounts owed, length of credit history, credit mix, and recent credit history. Your payment history and your amounts owed together make up 65 percent of your total score. For more on how each category works, check out our Know Your Credit Score blog series.

Why do insurers factor in your credit history?

Simply put, auto insurers look at your credit history when determining your insurance rates because …. that history is actually a pretty good indicator of how good a driver you are! We know, we were surprised too.

However, insurance companies don’t simply pluck out your regular credit score and use it determine your insurance rates. Instead, they take the same information that FICO takes from your credit reports and they use it to create a “credit-based insurance score.”

These credit-based insurance scores differ slightly from regular credit scores in that they aren’t designed to predict whether or not you’ll pay your bills. Instead, they are designed to predict how many claims you’ll file, as that’s the thing that insurers care most about when setting your rates. The more claims they think you’ll file, the higher your premiums will be.

In 2007, the Federal Trade Commission (FTC) released a report titled Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance. According to that report:

“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.”

Now, even though your credit-based insurance score is different from your regular FICO score, it’s safe to say that the two are also very similar. If you have a bad credit score, the odds are very good that you will also have a poor credit-based insurance score.

How can you improve your credit score?

Earlier in this post, we mentioned that your payment history and your amount owed are the two biggest factors in creating your credit score. Your payment history is the number one factor, making up 35 percent, with your amounts owed coming in a close second at 30 percent. Together, they make up 65 percent of your score, almost two-thirds of the total!

So, if you’re going to fix your score, you should focus on these two areas. The two most important things you can do to improve your credit score are paying all your bills on time and paying down your open balances. Furthermore, any open credit card balances you keep should stay under 30 percent of your total limit. This will help maintain a good credit utilization ratio.

If you don’t have your bills set up on autopay, you should go ahead and do that. Just make sure you’ve also budgeted properly so that your bill payments don’t result in bank overdrafts. And when it comes to paying down all that outstanding debt, we suggest either the debt snowball or the debt avalanche methods of debt repayment.

Fixing your credit score is hard. We know. But the benefits of having great credit will be felt all throughout your financial life. Lowering your insurance premiums could save hundreds or even thousands of dollars per year! What are you waiting for?!

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

Did you see better insurance rates when you fixed your credit? Let us know! You can find us on Facebook and Twitter.

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Can You Lease A Car With Bad Credit?


Cars! They get you from one place to another place. Sometimes that other place is work. If you have a job and you don’t live within walking distance or close to good public transportation, you’ll probably need a car to get there!

But we don’t have to tell you that cars are important. And we don’t have to tell you that they’re expensive either. That’s why many people choose to lease a car instead of buying it outright. And then you’ll only have to commit to a few years.

But what if your credit isn’t so hot? Can you still lease a car? And should you?


How does leasing a car work?

First of all, it’s important to understand that when you lease a car, you in no way own that car. It’s essentially the equivalent to renting an apartment. Much like renting an apartment, there are pros and cons to leasing. The main disadvantage is that you aren’t building any equity in the thing you’re leasing, so once that lease is up, you won’t have anything to show for all the money you’ve spent. However, unlike a house or apartment which might increase in value, especially with renovations, cars are notorious for very quickly losing their value. So it might not be that much of a downside, comparatively.

And there are advantages to leasing. Aside from the shorter commitment we alluded to earlier, you may not be fully on the hook for repairs. Although you’ll still need insurance, you may be able to bring a lease back to the dealer for certain repairs, just like you can have a super fix a problem at your apartment. Eventually.

So if you are approved for a lease, you’ll sign on for the length of time you’d like to lease the car, and then make your monthly payments. You’ll also likely have a limited number of miles you can drive each year you have the lease or else you’ll have to pay an additional fee.

But how will your credit influence your chances of being approved for the lease?

Credit cars. 

Unless your credit is in a really bad place, you’ll probably be able to get some kind of lease. But it’s going to be less than ideal to say the least.“Most people think of their credit score as a black and white number, but having a bad credit reputation is more of a gray area,” advised Jonas Sickler, marketing director for ReputationManagement.com (@repmgmt_com). “Your credit score can be lowered by a number of factors that won’t affect your ability to lease a car. What will? Bankruptcy, more than 90 days of credit card delinquency and recent charge-offs will all raise flags when you sit down to discuss financing. Still, some companies are willing to overlook a tawdry credit reputation if you’ve turned things around and have a steady income source. However, you’ll pay more for your past indiscretions with a much higher rate.”

But is it a good idea?

Assuming your credit isn’t so bad that you’re denied a lease outright, are the increased rates Sickler mentioned worth it? Or are their better methods to get a car out there?

Walter Zeiss (@WalterZeiss), public relations lead for Mychoicecarinsurance.ca offered a couple notes in favor of leasing with less than great credit, assuming you’re able to make all of your payments: “Your bad credit will begin to eventually improve. Generally speaking lease repayments tend to be somewhat cheaper than auto loan repayments, so leasing could be a good short term alternative.”

But he also outlined the downsides: “Leasing isn’t the best option to improve your credit rating, auto loans will actually do a better job at improving your bad credit rating faster. Most likely you’ll need to pay a large upfront fee before beginning the lease. Your credit rating is an indicator of how you behave and manage your finances, so taking on a large financial burden probably isn’t the best idea. You still won’t own the car, so you would be much better off saving up and purchasing your own car outright and avoiding high interest fees. Bottom Line: While leasing a car with a bad credit rating is completely 100% achievable, there is much more sense in trying to get an auto loan or go one step further and save up to purchase your own car instead.”

Okay, but I really want to… 

If you do decide you want to lease a car anyway, there are steps you can take to make it better for yourself while you’re still working on your credit.

Sam Olmsted, writer and consultant for Superior Honda, told us what some of those steps are: “Although it’s not ideal, leasing a car with bad credit is possible. The simplest course of action is to wait and strive to build up your credit so that you’re in the best financial position before committing yourself to a contract. However, if you need to lease a car quickly, here are some tips:

“Save cash – Chances are your dealer will require a larger cash down payment to mitigate their risk if you have bad credit.

“Be prepared to pay more – Good credit scores instill trust in the transaction and lead to lower interest rates. Those with bad credit will likely have to pay a higher interest rate.

“Research lease takeovers – For those who are having trouble leasing a car due to bad credit, it is possible to take over another person’s lease. Typically, these takeovers don’t require such a strict credit check, though they may be done by a third party and not a dealer.”

Whether you decide to lease a car or go a different direction, it’s important to know what you’ll be getting into. Now happy driving and enjoy these related posts from OppLoans:

How have you dealt with transportation and financial issues? Have you ever taken out a bad credit loan to fund a vehicle? We want to hear from you! You can find us on Facebook and Twitter.

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Contributors

Jonas Sickler is responsible for building and executing the digital marketing strategy at ReputationManagement.com (@repmgmt_com). The broad scope of his role encompasses strategic content creation, web analytics, and developing and deploying targeted digital campaigns from concept to completion.
Walter Zeiss (@WalterZeiss) is the public relations lead over at Mychoicecarinsurance.ca, where he heads up a small team of eager writers and content creators. In his spare time he’s a car enthusiast that likes to spend his time consuming the latest info about high-tech cars and seeing as much motorsport as he can.
Sam Olmsted is a writer and researcher for Superior Honda, a new and used car dealership outside of New Orleans, LA. Sam researches the automotive industry’s top trends and latest news. He spends time writing about the latest car releases, newest technological features and upgrades, the best tips and tricks on vehicle maintenance and servicing, and more. Sam also works to create marketing materials and promote the dealership online on a variety of platforms.

Do You Still Need to Manage Your Credit Score as a Senior?

Pretending like your credit score doesn’t matter anymore could seriously tarnish your golden years.

Worrying about credit scores is a young person’s game, right? After all, it’s in your twenties to forties when you’re out buying houses and cars, racking up miles on your awesome rewards card, and purchasing thousands of fake followers for your Instagram account. You know, the three basic reasons that people care about their credit …

In theory, seniors shouldn’t have to worry about their credit scores. Once they’ve paid off their house, they’re pretty much done borrowing money. And if you don’t need to borrow money, then you don’t need to worry about your credit score. You can kick back, relax, and enjoy all those fake Instagram followers you bought those many decades ago.

Unfortunately, things aren’t that simple. Cost of living doesn’t magically plummet when you retire. There are still going to be situations where you need a good credit score in order to borrow money—plus situations where you wouldn’t even think a credit score is necessary, but it is! It could even affect your application for assisted living or long-term care.

If you’re a senior, you still need to worry about maintaining good credit.


4 reasons you’ll need good credit as a senior.

It’s easy to survey the golden years ahead of you and assume that everything will be finally a-okay—especially if you’ve spent the previous decades building up a sizeable nest egg to see you through. And while having more savings on hand is certainly going to help, there are still tons of situations where you might need a good credit score.

    1. Tickets and reservations: One of the great things about retirement is that you can finally travel more! Unfortunately, a bad or non-existent credit score could mean paying more for hotel reservations and plane tickets. Plus, not having a credit card means getting a hard credit check if you try to rent a car. Seriously, that’s a real thing. Maintaining your credit will help you stretch your travel budget even further.
    2. Downsizing: Many seniors decide to move to a smaller home or apartment after they’ve retired—after all, a house that you bought to raise a family in will often seem way too big once everyone’s grown. But whether you decide to buy or rent, you’ll still need good credit in order to secure that new home. Unless you can buy a home entirely in cash, you have to have good credit.
    3. Insurance: While health insurance can become more manageable in retirement due to Medicare, there are other types of insurance that won’t be so simple. Home, renters, and car insurance all take credit scores into account when determining your rates. For seniors living on a fixed income, they want all the savings they can get. Spending more money on homeowners and car insurance doesn’t make any sense.
    4. Basic living expenses: When you’re a senior without a sizeable nest egg and are relying on government benefits or another form of fixed income, cost of living can easily outpace your resources. In cases like this, a senior might need to borrow money in order to make ends meet. It’s not a good solution, but it might be the best one they have. Without a good credit score, these seniors might be forced to rely on sketchy no credit check loans like payday loans, title loans, and cash advances—driving themselves even deeper into debt.

Now you can see why maintaining a good credit score throughout your golden years is important. Here’s what you can do to make sure your credit stays golden, too.

5 ways seniors can maintain good credit.

Taking your credit score from bad to good can be a little tricky. It’s not impossible, by any means, but it is going to involve paying down a lot of open debt and keeping to a rigorous payment schedule. If your score is already good, however, maintaining your good credit is much simpler. Here are five things seniors can do to maintain their credit post-retirement.

  1. Check your credit report: You credit score is based off the information in your three credit reports from TransUnion, Experian, and Equifax. You can request one free copy of your report from each of them once a year. Check one report every couple of months to make sure there are aren’t any errors and to prevent someone from stealing your identity. Scammers love targeting seniors, and checking your report regularly will help keep you safe.
  2. Keep old accounts open: Paying off a credit card feels great, but that doesn’t mean that you should close the card out. A card that you’ve maintained for years in good standing is dynamite for your credit—as the length of your credit history is one of the five factors used in determining your score. Keep that old account open, and let the good credit vibes keep flowing. You can even request a higher balance, which will look even better. Just be careful that you don’t let those open balances tempt you into overspending.
  3. Use your credit cards responsibly: The best way to use credit cards is to never exceed your means. Only put money on your credit card that you already have in your bank account. If you use your card at the grocery store, for instance, make sure you pay that balance off immediately. And even if you do let a few purchases rack up, never exceed 30 percent of your total credit limit. In the meantime, you can rack up those rewards all while keeping your credit score in tip-top shape.
  4. Pay your bills on-time: This might seem like it’s obvious, but you know what they say about common sense: It ain’t really that common. Payment history is the number one factor in determining your score, making up 35 percent of the total. This means that paying your bills on time every month is the best thing you can do to maintain good credit. If you already have good credit, this is simply something you’ll want to keep up. If you don’t, well, there’s no time to start like the present.
  5. Be very careful about cosigning: Helping your kids, grandkids, or even a close family friend secure a loan might seem like the least you can do to help them out. However, cosigning a loan or a credit card means that those balances will show up on your credit report, which could tank your overall score. Plus, if the other party defaults on the loan, you’ll be the one who’s on the hook for repaying. Being a cosigner can be a very nice thing to do for someone, but it can wreak havoc on your credit. We aren’t going to tell you not to do it, but it’s something you should avoid if possible.

Once you’ve retired, you have to be careful with your money. Otherwise, you could find yourself relying on bad credit loans just to get by. Whether you’re fresh out of college or checking into a senior living community, maintaining your credit score is a major factor in your overall financial health.

To learn more about the ways your credit score can affect your everyday life, check out these related posts and articles from OppLoans:

What have you done to maintain your credit score in retirement? Let us know! You can find us on Facebook and Twitter.

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If You Have Bad Credit, There Aren’t “Grants” That Can Help You

if-you-have-bad-credit-grants-cant-help-youWhile the government does have grant programs aimed at helping people in need, they aren’t the kind of thing that you can just apply for directly.

Loans are a necessary part of modern-day life. Without them, most people wouldn’t be able to afford any large purchases like houses, cars, or even furniture and other major appliances. Being able to put down a little money now and pay something off over time in exchange for some interest allows folks to live better than they otherwise could.

But when you have bad credit, getting a personal loan can be tough. Real tough. And borrowing from a traditional lender, like a bank, is pretty much impossible. While there are many safe, responsible bad credit loans available, there are also tons of dangerous predatory loans that will trap you in a never-ending cycle of debt.

if you’ve seen ads promising a government grant for someone with bad credit, you might think this is the answer to your problems. But it’s not. While there are grants designed to help people with low incomes, they aren’t something where you can simply go online, fill out a form, and expect a deposit in your bank account. More likely than not, the ad you’re seeing is a scam.


How is a grant different from a loan?

The main difference between loans and grants is simple: Loans have to be repaid, while grants do not. When you take out a loan, you are borrowing money. The institution that lent it to you is expecting you to pay them back, plus interest. When you take out a grant, the institution is giving you money for a specific purpose. No repayment required.

Both loans and grants can be made to individuals or organizations. Loans typically come from banks or lenders, while grants can come from a variety of sources, like schools, non-profits, individuals, and trusts. The federal government also doles out tons of both, as do state governments.

Because grants don’t have to be repaid, you’ll see people refer to them as “free money.” And you know what? That’s true! When you take out a loan, you’re not getting free money. You’re paying interest so that the lender can reduce their risk and turn a profit. With a grant, you’re not paying any extra costs. However, the term “free money” gets used a bit too … freely.

Most federal grants go to businesses and states, not people.

This is the biggest reason why you can’t just go get a grant to help stabilize your finances. The Federal government does provide financial aid resources to help people in need, but they do so by dispersing money to nonprofit organizations and state or local governments. Even federal benefits like Supplemental Nutrition Assistance Program or SNAP (also known as “food stamps”) are administered through individual states.

One of the major exceptions to this rule is if you’re in an area that’s been hit by a natural disaster. In cases like that, you should be able to apply directly to the federal government for assistance. You can learn more by visiting DisasterAssistance.gov.

When it comes to lending, the government usually insures or helps private lenders arrange loans rather than lending money to individuals itself. The government’s involvement helps people qualify for loans who would not otherwise be able to. For instance, you might be able to qualify for an FHA mortgage loan, which is insured by the government and come with lower capital requirements.

If eligible, you should apply for government benefits.

If you’re going to get a grant from the government, it is likely going to be in the form of public assistance, and it’s probably going to be administered by your state or local government. Government programs you might qualify for include SNAP, Temporary Assistance for Needy Families (TANF), Supplemental Security Income (SSI), and Low Income Home Energy Assistance Program (LIHEAP). Additional programs are available for US Veterans.

Eligibility will vary depending on age, location, and income. Meanwhile, just because you are eligible for a government program does not mean that you will be accepted, so don’t limit your search to these larger federal programs. You should also check out local government programs in your city, state, or county, as well as grants that are offered by local non-profits and aid organizations.

Programs like these are not what most people are thinking of when they think “I need a grant” but they are the closest thing that you’ll find. And if someone comes along offering you something better, it’s most likely a scam.

Beware of “government grant” or “free money” offers.

Con artists love dangling promises of free money to entice potential victims. If you get an email in your inbox promising an easy “government grant” or someone calls you with a fantastic sounding pitch for “free money,” they are a scammer. You are being scammed.

The jerks who run these scams are likely looking to do one of two things. They either want you to pay some kind of upfront fee, after which they disappear, or they want to get your personal/financial info—stuff like your bank account and social security numbers—at which point they’ll steal your identity. Either way, their only goal is to screw you over!

If you receive an email promising free money or a government grant, delete it. Don’t even open it, and certainly don’t click on any links it contains. Doing so will open you up to a phishing scheme, where scammers steal your online ids and logins.

And if you receive a phone call from someone making similar promises, just hang up on them. Whatever you do, refrain from giving them any personal information over the phone. Even if they pinky swear that they’re from a legitimate government branch, ask them for all their relevant business and contact info. That’ll make them get off the line right quick.

If you have bad credit and need money, there are other options.

When you have a credit score below 630 and you have an unexpected expense, like a car repair or a medical bill, you’re going to be in a tough spot. Building up an emergency fund is the best way to handle situations like these, but that’s more a long-term play. If you need money, and need it now, your options will be limited—especially since a “government grant” won’t be on the table.

Borrowing money from your family can be a good way to go—even if it might mean swallowing your pride—but lots of people don’t have that option. You can also try pawning some of your valuable, but the trouble with pawn shop is that you’ll probably only receive a fraction of what your item is worth. In many cases, the sentimental value will be much higher than what you can get for it.

Putting the bill on your credit card isn’t great, but it’s much better than settling for a high-cost no credit check loan. Short-term “cash advance” products like payday loans and title loans can all too easily lead to a predatory cycle of debt. You don’t want that, trust us. The right installment loan, one with affordable payments, is likely a much better option.

No matter what kind of loan you end up taking out, make sure you do your research. Borrowing money means being on the hook for repayment, and there could be dire consequences for your credit score if you default on your loan agreement. Sure, a grant would be far preferable to loan but, for all their faults, bad credit loans have a big leg-up on bad credit grants: They actually exist.

To learn more tips about living with a bad credit score, check out these related posts and articles from OppLoans:

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