When Should You Refinance a Bad Credit Loan?

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Having bad credit, unfortunately, means having far fewer financial options than a person with rosier credit. And that lack of options is even more restrictive when you’re seeking out a loan.

People with great credit have access to all manner of personal loans. Big loans, little loans, loans with shiny gems embedded throughout. People with not-so-great credit, on the other hand, will have access to, well, fewer loans than that.

In all likelihood, they’ll be stuck with a bad credit loan with an Annual Percentage Rate (APR) that’s much, much higher than the annual rate for a standard loan.

Still, not all bad credit loans and no credit check loans are the same. Some have reasonable rates and manageable payments, while others can trap you into a dangerous cycle of debt.

If you’ve taken out a bad credit loan, you’ll probably be given the option to refinance your loan at some point before the loan is fully paid off. Here’s what you need to know to determine whether refinancing your loan is a responsible financial decision or a gateway to predatory, unmanageable debt.


Just what is refinancing, anyway?

Refinancing means paying off your old loan by taking out a new loan, ideally with better payment terms or lower interest. Refinancing offers are fairly common with long-term installment loans.

Let’s say you are two years into paying off a three-year, $5,000 installment loan. Your APR for the loan is 20 percent, and your monthly payments amount to a little over $185 per month. After two years of payments, you’ve paid almost $1,500 in interest, and you’ve got a remaining balance to be paid of $1,853.

You get an offer to refinance your loan, and you decide to take it. Your refinanced loan also has two-year payment term, and the interest rate is only 15 percent. Your new monthly payment is only $90.00. So you’ll be paying much less every month, and your balance will be earning less interest, but you will be paying off the loan for one year longer than you otherwise would have.

Often when people talk about refinancing loans, they aren’t talking about short-term loans like payday loans or title loans, but longer-term loans, like student loans and mortgages. Still, shorter-term bad credit loans can have some level of flexibility.

Payday loans aren’t refinanced, they’re “rolled over.”

First of all, don’t take out payday loans. But let’s say you already have. Can you refinance it?

Short answer: Nope.

Long answer: The payment terms for payday loans tend to be around two weeks long. You’ll have to pay back the loan, with fees and interest, in two weeks. Unless you have an unusually friendly payday lender, and you almost certainly won’t, they’re not likely to let you refinance for better terms.

However, if you can’t pay back your loan on time, that doesn’t mean your out options. It just means that the option you do have is pretty awful.

Depending on whether or not it’s legal in your state–which should be your first big clue–your payday lender might give you the option of paying a fee to “rollover” your loan. When you rollover a loan, you basically pay only the interest that is owed and, in return, you get some additional time to play the loan off—plus a whole new round of interest.

Let’s say you have a two-week, $300 payday loan that costs $45. To roll it over, you would pay the $45 in interest and receive another two weeks to pay the loan off plus another $45. Whereas before you only owed $345 back to the lender, now you owe them $390 in total. With just one rollover period, the cost of your loan has doubled.

Oh, by the way, the APR for that payday loan? It’s 390 percent.

A high APR might not seem like a pressing issue when your loan is only two weeks long. But the more you roll it over, the more worrying that APR becomes—not to mention more expensive. And if you’re having trouble paying your payday loan now? it seems like you’ll still have a tough time paying it two weeks from now, with the rollover fee on top.

Installment Loans for bad credit can usually be refinanced.

Longer term, bad credit installment loans will not only offer you the option of refinancing—it can actually be a really good financial decision.  These loans have much longer payment terms than payday loans—usually a year or more—and they often have lower APRs. If you’re able to refinance and lower your payments, the relief it could provide to your budget might be worth the risk of paying more money in interest overall.

Whether or not they’ll be willing to refinance the loan will likely vary from lender to lender, so it’s always important to do your research before taking out a loan. Look at the lender’s website and terms thoroughly. But that’s not enough. Unless the lender has a section of their site titled “Our Crooked Practices,” and they probably don’t, you’re going to have to get some of your information elsewhere.

That’s where review sites come in. Just like when you’re looking for a restaurant, you can check reviews for both storefront lenders and online loans to see what kind of experiences other customers have had. Obviously, it’s possible that one person could have a bad experience with a relatively trustworthy company or a few people could have had a good experience with a generally crooked company, so you’ll want to make sure there are a lot of reviews so you can get a good sample size.

Reading reviews should also give you a good sense of whether a company will consider refinancing your loans, and how understanding they might be with that process.

(Oh yeah, you should also watch out for payday lenders that advertise their loans as “cash advances.”)

You’ll definitely want your lender to have actual people you can call for your customer service needs. Then, if you’re worried you might miss a payment or you just want to try and get better rates, you can call their customer service line and, if the good reviews you looked up are true, you’ll hopefully be met with someone willing to accommodate your situation to the best of their abilities.

It’s even better if the installment lender reports your payments to the credit bureau. Then, as long as you make your payments on time, you’ll build your credit as you pay it back. And then the next time you need a loan, you’ll be able to get better rates. It’s almost like refinancing your life!

Oh, and one last thing: If you’re looking for a bad credit loan that offers the possibility to refinance and the power to improve your credit history, then might we suggest a personal installment loan from OppLoans? We might indeed! In fact, we shall!

Just click the “Apply Now” button to begin your application. We’ll let you know if you’re approved within minutes, and applying for a loan will not affect your FICO credit score.

To learn more about the ins and outs of living with bad credit, check out these related posts and videos from OppLoans:

Have you ever refinanced a bad credit loan? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

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An Apple a Day Keeps the Bad Credit Away*

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*None of these are apples. These are financial tips to help you improve your credit rating. Do not try and use these to make a pie. It won’t work.

Bad credit: it’s bad. If it wasn’t, they would have called it good credit. It means higher rates on your loans and credit cards, trouble renting an apartment, and less financial leeway in general.

But thankfully, there’s a very easy way to get rid of bad credit. All it takes is an apple a day!

To clarify, none of the following things we’re about to list are actually apples. They’re all just tips you could consider to improve your credit, only a few which are even fruit at all.*

*None of these are any other kind of fruit either.


Head down to the orchard and see what’s available.

There’s a reason picking your own apples is still such a classic activity. It’s great exercise and there’s a joy in the process of going to the orchard, examining each apple on a tree to find the perfect one.

Of course by “going to the orchard” we mean checking your credit report.

You can use AnnualCreditReport.com to safely get a copy of your credit report each year. You’ll want to check for blemishes like missed payments, collections notices, and overly large credit card balances. These financial “bruises” are often of the self-inflicted variety, but there very well might be some mistaken information in there as well!

By checking your credit report, you’ll know what you’re working with when it comes to taking a bite out of your bad credit. You can prepare for the right way to take the apples life has given you and make … um … appleade!

Get rid of the bad apples.

Just like credit, not all apples are good. Some apples might have been bruised if they fell off the tree, or you may have had them sitting in the fruit drawer for too long and now they’ve grown moldy.

Those bad apples are debt, and just like you’re getting rid of the bad apples, you need to get rid of your debt. And the longer you put off getting rid of those rotten apples, the more they start to smell.

When it comes to debt, part of that bad smell is interest—the kind of interest that accumulates when you don’t pay off your credit card bill.

You really, really need to try and pay off all of your credit card bill in full each month, or that smell is just going to get worse. Same with paying off all of your other debt as quickly as you reasonably can and always paying your bills on time.

If you can’t pay off the whole balance, then do your best to make sure that you’re paying as much as you can. If you’re only making the minimum payment each month, it could take you a really long time to pay off your credit card bill. You might even end up paying more in interest than you originally spent!

Another way to avoid excessive interest, by the way, is to stay away from credit card cash advances. Standard credit card purchases come with a 30-day grace period before interest starts to accrue. But with cash advances, interest starts getting added the minute the transaction is made!

You like apples? How ’bout them apples!

It’s easy to give apple advice when you have mountains of delicious apples, like Matt Damon in Good Will Hunting. As you’ll recall, his character is absolutely loaded with apples, and he delights in the opportunity to show them off whenever he can.

(Fun fact: None of us have ever watched Good Will Hunting.)

But perhaps you aren’t apple rich, like Matt Damon. Maybe you’ve yet to get yourself a single apple. You probably wonder how you can get that first apple. Who is going to trust you enough to give you an apple if you haven’t yet proven your apple-handling ability?

If it hasn’t become obvious, we are no longer talking about apples. We’re talking about credit. If you have a bad credit score, it can be really hard to get an installment loan or a credit card. Lenders take one look at your score and think “this lady’s not going to pay us back.”

That’s how you end up needing sketchy no credit check loans like payday loans and title loans that can trap you in a dangerous cycle of debt.

Paying off your personal loans and credit cards responsibly is one of the best ways to raise your credit score. But if no one will give you the chance to take out a safe, affordable loan or credit card in the first place, then what are you supposed to do?!

That’s where a secured credit card comes in. You can use money as collateral to get yourself a shiny, red (or whatever color) secured credit card. Then you can use that secured card to start building your credit.

Keep it up, and you’ll be rolling in apples in no time!

Manage your apples well.

You know that expression about not putting all your eggs in one basket? Well, it’s even more true about apples! Just imagine if you had put all of your apples in one basket and then a shifty apple thief grabs the basket while you’re focused on an apple-based website you’ve visited on your Android device.

Similarly, you don’t want to put too many purchases on any one credit card. Overloading one card is going to mess with your “credit utilization ratio” which measures how much of your available credit limit you’re actually using.

While an ideal credit utilization ratio is zero percent (which you’ll get if you pay the card off in full every month), the number you should really watch out for is 30 percent. Once your ratio rises above that number, lenders really start to take notice—and not in a good way.

So even though you need to use the card to build your credit, you should try to use it modestly and never go above 30 percent of your credit limit each month.

Don’t be like Snow White.

To be clear, we mean don’t be like Snow White in one very specific way. Snow White is generally pretty pleasant, but she makes a big mistake by biting into an apple she receives from a stranger.

Biting into an apple you got from a stranger is like taking out a bad credit loan with a sketchy storefront lender who doesn’t even both to check your income: a bad idea.

Snow White should have done proper research and checked out the online reviews for that mysterious woman with the apple… And you should do research and check out customer reviews for the lenders you’re considering using—this goes for both for storefront loans and online loans—so your credit doesn’t get a dose of poison and fall into a deep sleep.

Because, unlike Snow White, there’s no handsome prince who’s going to kiss your credit better.

We hope these tips will help you harvest better credit! Keep up with these apples and you’ll be golden. Golden delicious, that is!

If you want to learn more about taking your credit score from rotten to ripe, check out these related posts and articles from OppLoans:

What are your most pressing credit score questions? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

What if Animals Had Credit Scores?

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We’re taking a break from answering your most pressing bad credit-related questions and answering a question you definitely weren’t asking.

Everyone spends so much time talking about human credit scores:

“Will getting a mortgage affect my credit score?”

“How can I repair my bad credit?”

“Will my score down if I check my credit report?”

We hear you. All those questions can be totally exhausting. Don’t you sometimes get a little jealous of animals—that they don’t have to spend their days obsessing about their credit scores?

And it’s not like all of them have great credit either. Maybe if they spent a little less time foraging or hunting for food and a little more time thinking about debt reduction, some of these animals would be a little higher up on the food chain.

(Editor’s note: What? That’s not … how any of this works.)

In the spirit of scientific inquiry why we spent the last decade traveling the globe, studying different animals to find out what their credit scores are.

(Editor’s note: We did not do that.)

And now we’re bringing that information to you, so when you need to borrow some money or cosign a lease, you know which animals to turn to—and which animals you should hang up on when they call asking for money.

(Editor’s note: Do not ask an animal to cosign a loan. We were locked in a closet while this post was being written. In fact, we’re still in the closet. We’ve been in here for days. Help!)


Octopus

Octpus
Octopi have incredible credit scores. In fact, every single octopus has a credit score over 800. This is for a few reasons. First of all, octopi are very intelligent. They almost never get taken in by scams like phishing or fake charities. Many can also change color to escape from predatory lenders. Plus, each of those eight limbs can be paying off a different bill at once, so an octopus never lets debt—and the resulting interest—build up. On the rare chance they do ever get caught it in a debt trap, they can still escape through a hole as small ping pong ball.

 

Koala

Koala
Terrible credit scores. Just awful. All they eat is eucalyptus and that can get expensive quickly. Maybe they could slide in a nice, cheap apple every so often but apparently noooooo. And it’s not like they only eat a little of it. Koalas eat up to 500 grams of eucalyptus each day. This 500-gram jar of eucalyptus honey costs about ten euros, which is around $12.50. And remember, that’s probably mostly honey so… you know, let’s just assume pure eucalyptus must be a least five times that. All that money they spend on eucalyptus is money that can’t go towards their credit card bills or personal loan payments. They are easy pickings for sketchy storefront lenders hocking payday loans and title loans. Get it together Koalas! Eucalyptus doesn’t even taste that good!

 

Platypus

Platypus
These weirdos must have bad credit, right? They’re mammals that lay eggs! They have a duckbill and venomous spurs! Maybe they could use the venomous spurs to hold up a bank, but you can’t fix your credit with stolen money, can you? Well, all of these assumptions are just revealing your biases. Platypuses actually have amazing credit. We couldn’t tell you why. Maybe living on both land and water has given them a well-rounded perspective that allows them to spend responsibly. They have a diverse credit mix and also keep their credit utilization well below the 30 percent threshold. Or maybe they’ve been robbing banks with their venom spurs, who really knows?

 

Ostrich

Ostrich
Ostriches don’t literally bury their heads in the sand. That’s a myth. But they absolutely metaphorically bury their heads in the sand. They keep telling themselves that the collections agency will stop calling; that if they don’t pay their credit card bill, it’ll all just eventually work out; that they’ll never run into an emergency, which means they’ll never need an emergency fund. Well sorry, feathered friend, but it’s just not true. Emergencies happen to everyone. And without an emergency fund, these large flightless birds will be forced to turn to a predatory no credit check loan or take out a high-interest cash advance. A refusal to plan for unforeseen expenses is why ostriches have terrible credit.

 

Pug

Pug
One great way to stay ahead of your payments is to use online services and bill pay. You can even set up automatic payments to guarantee you’re never late. But if you’ve ever seen a pug, you know they can’t quite figure that out. We love them. They’re adorable, but let’s just say technology isn’t their strong suit. Waking themselves up by farting might be adorable, but it won’t fix their financial situation. Many animals have worse credit, but most pugs probably won’t be able to buy a house without some help.

 

Cats

Catr
Cats have amazing credit. And why shouldn’t they? They use their owner’s credit cards to purchase whatever they want. They don’t even consider it stealing because according to Cat Law, they own everything in the house where they live. Why do cats have to live by our human credit rating agencies even though they have their own sets of laws for everything else? We don’t know, but we do know that, under Cat Law, every cat is entitled to the fish they need to live. Maybe we could learn a little something from Cat Law. Oh, and if you own a cat and keep seeing mysterious credit card purchases that are tanking your human credit score, now you know why.

 

Termites

Termite
Termites build their own homes. That means not having to worry about a mortgage or rent, which is a huge help towards maintaining good credit. Still, using too little credit can actually hurt your score, so termites have a few credit cards that they use sparingly and an installment loan that they make payments on every month. Those regular on-time payments really help juice their score, as payment history is the single most important credit score factor. Oh, and if a collections agency does ever come after a termite nest., they can just eat up the foundation so the building collapses. They wait until night time, of course, because termites are not murderers.

 

Chameleon

Chameleon
Unfortunately, you can’t hide from debt. And while chameleons are great at avoiding their creditors, they do no favors to their credit score by doing so. Why is it that octopi use their camouflage abilities to avoid predatory lenders hocking dicey bad credit loans while chameleons use it to dodge responsibility? We couldn’t tell you, but the difference is clearly reflected in their credit scores. Chameleon credit score? Not good.

 

Dolphin

Dolphon
Dolphins are very smart and have very good credit. This isn’t directly related, however. After all, many people have bad credit even though they are quite intelligent. The actual reason dolphins have good credit is because they live under the water and there are no cool figurine stores where they’ll be tempted to blow all their money.

If you want to read more about the fun side of finance, check out these related posts and articles from OppLoans:

What sorts of animals do you think would have bad credit? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

Should Bad Credit be a Dating Dealbreaker?

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Between the apps, the blind dates, the meet-cutes, and the constant pressure from mom to “settle down,” dating can be a stressful experience. Finding someone you like enough to share your life with is hard enough—mix in the fraught concept of money, and it gets even harder.

Studies have shown that money is the leading cause of discord within romantic relationships. According to a survey by SunTrust bank, 35 percent of couples said they fought most often about finances, and 47 percent of respondents said they and their partners had different saving and spending habits.

So when it comes to dating dealbreakers, just how bad is bad credit? If you’re fiscally responsible to a fault, is it even worth trying to date someone with a mountain of debt and a habit for payday loans? On the flip side, if your credit is poor, is that enough to doom you to the single life forever?

We talked to Sam Schultz, co-founder of Honeyfi (@honeyfiapp), a money-management app for couples, to find out how romantic duos can be hurt (or helped!) by having the dreaded credit conversation.


How soon should you talk credit with your partner?

You’re in the first stages of a new relationship, and everything is going well. It feels like you’re in sync on everything—favorite movies, favorite foods, even a shared love of pygmy elephants! But there’s one topic you haven’t yet had the stomach to explore: credit and money. Where do you even begin? And when is the right time?

In general, you should probably start having money talks once a relationship gets serious. What that means is different for every couple, but if you’ve started to include them in your daydreams about the future, or if you’ve had serious talks about being exclusive, moving in together, or even getting married, there’s no time like the present.

“If you’re having trouble starting that conversation, try discussing your financial goals first,” said Schultz. “I’d just focus on creating an open dialogue about money. Once you start talking about these things regularly, you’ll naturally get into conversations about spending habits, debt, and credit.”

Because money is often such a taboo topic, it can be difficult to know when is an appropriate time to bring it up. That’s why Schultz recommends scheduling 15 to 30-minute “money dates” a few times a month where you and your partner can chat about finances in a safe space.

This conversation is going to be different for every couple, and you need to go into it with no judgement on either side. If you’re looking to talk to your partner about money or credit, go in with an open mind and hear them out. If you’re the one with a history of bad credit loans and poor budgeting, Schultz said it’s important to show your other half that you are actively working to improve your situation.

“Do some research to understand why your credit is bad and then identify ways to improve your score,” he said. “Demonstrating that you’re taking your credit seriously will go a long way with your partner.”

So your credit and money habits are different than your partner’s. What now?

You had the conversation, and it turns out one of you is much more fiscally responsible than the other. Does this mean your relationship has an expiration date? Not necessarily.

“I’ve talked to lots of couples who approach money completely differently,” said Schultz. ”But the important part is that these couples have a system to manage money together that fits their needs. For many couples, a joint account isn’t good enough. In fact, only 34 percent of Millennial couples completely combine finances, according to the 2017 TD Love and Money Survey.”

The key, Schultz said, is finding a system for managing money within your relationship that “balances transparency with independence and teamwork with individual accountability.”

For example, many couples with different views on money use an “allowance” system, where they set up a joint account for shared expenses like rent and groceries and agree on an amount each person is allowed to spend individually per month without having to consult the other.

While working out a system like this can work for some couples, it’s true that not everyone is going to have the patience or drive to overcome financial hurdles in a relationship, and that’s OK. If you know that you lack the patience to stand by someone through some pretty serious financial ups and downs, the relationship might not be worth pursuing further.

There’s nothing wrong with wanting a partner with similar financial standing and goals. Let’s say that your partner is constantly having to resort to no credit check loans, cash advances, or even borrowing money from you in order to make end meet; if you can’t see yourself supporting them—either emotionally or financially—while they get their credit in order, you probably shouldn’t force the relationship.

How can you encourage your partner to improve their credit?

If you’re dating someone with financial problems, it can be tempting to give them a lecture every time the issue comes up. But that’s not productive, and it probably won’t help either of you in the long run.

“Start with empathy,” suggested Schultz, when asked how to help a partner repair their credit. “Your partner might be embarrassed or sensitive about their bad credit score. So, before you give advice, listen to your partner and try to understand how they feel about their credit. Then, remind your partner that a credit score isn’t permanent, and if they are open to suggestions, help them find tools to better understand their credit score. Free apps like Credit Karma and Credit Sesame are often a great place to start.”

How supportive is TOO supportive?

It’s generally a good thing to stand by your partner in their time of financial need, but when it comes to helping them better their credit, it’s important to look out for yourself as well.

If your partner comes to you and asks whether you’ll cosign on a personal loan or add them to one of your existing credit card accounts, you might want to reconsider how far you’re willing to put yourself out to help them. For instance, would you be willing to use your car to secure them a title loan? Probably not.

If your partner has a history of poor financial decisions, or being irresponsible with their credit, you should think very long and hard before cosigning on a loan or credit card with that person. No matter how much you love them, tying your good credit to the credit of someone who has historically not been very responsible may not turn out well for you. Instead, work with them to find ways they can improve their credit on their own, without risking yours in the process.

Does your credit merge when you get married?

Short answer? No. Long answer? Your spouse’s bad credit CAN affect your life negatively. But your credit score is yours and yours alone, married or not. If you’re thinking of taking that next step, make sure you two are on the same page when it comes to money management, or that you’ve worked out a system that can make up for any major differences in the way you each approach your finances.

So, should bad credit be a dating dealbreaker?

Schultz says it depends on the situation.

“From my perspective, bad credit shouldn’t be an absolute dealbreaker,” said Schultz. “But if you are considering dating someone with bad credit, you should go into the relationship with your eyes wide open.”

Schultz said research suggests that people with higher credit scores are more likely to form and stay in long-term relationships and that couples with credit scores around the same level are more likely to stay together long-term.

“If you’re in a relationship with someone who has bad credit, you should be aware that their bad credit could be a challenge in your relationship, and you should proactively take steps to address it early on.”

To learn more about managing your life without a credit score, check out these related posts and articles from OppLoans:

What are your bad credit dating stories? Let us know! You can email us or you can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

Sam.headshot.croppedSam Schultz is the co-founder of Honeyfi (@honeyfiapp), a free app that helps couples manage money together.

Want to Avoid No Credit Check Loans? Build an Emergency Fund

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When an unexpected bill rears its ugly head, an emergency fund will help you make ends meet without turning to high-interest predatory loans.

When you’re faced with a sudden and unexpected expense, it’s easy to throw your money smarts out the window. When your car won’t start and it’s the only way you can get to work, or your kid breaks her arm and you need to take her to the emergency room, the last thing you want is for concerns about cost to get in the way.

But it’s also a fact that 6 in 10 Americans have less than $500 in savings. Without money in the bank to handle these kinds of emergency expenses, lots of people turn to no credit check loans to make ends meet. And this is especially true for folks who have less than stellar a credit; a payday loan or a title loan might seem like the only way they can afford to pay off those extra bills. Sure, it means paying a lot of extra money in interest, but that’s not what’s important …. Right?

Not exactly. While there are certainly safe, affordable bad credit loans out there, there are others that are, well, not-so-safe and not-at-all-affordable. While you might do well with an installment loan or an online loan from a reputable lender, there are far more predatory loan and dangerous cash advance traps out there waiting to snare you.

And resorting to one of these dangerous loans during a time of crisis can lead to a massive financial hangover that will take you months or even years to get over. A busted car or a kid in the ER are both emergencies, but so is being trapped in a continuous cycle of debt.

The best way to avoid turning to a payday or title loan for emergency expenses is to not need one in the first place. And the best way to do that is to have an emergency fund.


What is an emergency fund?

When you were growing up, did your parents ever talk about saving money “for a rainy day?” Because that’s basically what an emergency fund is. It’s money that you put aside for a time when you really, really need it.

An emergency fund is different from your regular savings. When you’re putting something in your savings, you’re thinking about the long-term. That’s money you’re saving for a down payment on a house, or to put your kid through college, or for your retirement.  Funds that you’re putting into “savings” is usually money that you’re sticking in a 401k or other kind of investment account. It’s earning interest and growing over time.

Your emergency fund, on the other hand, should probably be in cash, on a prepaid debit card, or in a basic savings account that you can easily access. It’s not designed to grow your overall “wealth portfolio.” (Sorry, we typed the words “wealth portfolio” and now we’re coverd in monocles.) An emergency fund is designed for you to take money out when you need it. The quicker you can get to that money during an emergency, the better.

You know in spy movies or tv shows where operatives will have a “go bag” filled with money and passports and tactical gadgets that they can grab instantly and disappear into a crowd? Think about it like that. (Especially if you’re having a hard time getting excited about it. An emergency fund sounds boring. But a financial “go bag?” Heck yeah.)

How much money do you need in your emergency fund?

“Listening to experts on this topic is like owning a Cadillac, a Honda, and a Kia,” says Howard Dvorkin (@HowardDvorkin), CPA and Chairman of Debt.com (@debtcom). “You’ll get different mileage even while you head to the same destination.”

Think about the different kinds of financial emergencies in your life. Repairs to your car could run you a few hundred dollars, while a surprise hospital visit—even with insurance—could run you a couple thousand. And what about losing a job? Depending on how long you’re out of work and how expensive your lifestyle is, you could be looking at tens of thousands of dollars in bills that would need to be covered.

“Some experts insist you need a year’s worth of expenses in an emergency fund,” says Dvorkin. “Others say three months or six months. I say even a week is progress. I never want to give a hard number, because that might discourage people from even starting.”

Start with an achievable goal, like $1,000. Save up $1,000 and stick it in a safe or in a sock drawer with a “No Trespassing” sign hanging from the knob. Once you have that $1,000 saved, you can start working towards a higher goal. As long as you’re putting money away on a regular basis, you’re doing well.

What’s the best way to build an emergency fund?

There is no “right way” to save, just like there’s no “right way” to eat an Oreo. It’s all about doing what works best for you.

However, there are some basic principles that apply to any savings strategy:

  1. Have a Plan. If you want to get serious about saving, then you can’t just “figure it out as you go.” You need to make a plan and then you need to stick to it.
  2. Be Consistent. When you’re creating your savings plan, you should avoid saying stuff like “I’ll just save whatever I have left over at the end of the week.” Decide on a specific amount that you’ll save every week, every month, or even every day!
  3. Pay Yourself First. This goes back to the idea that you shouldn’t put aside “whatever money is left over.” Make building this emergency fund a priority. Decide the amount you want to put away and then build the rest of your budget around that.

Okay so maybe we lied. There is definitely a “right way” to save.

Here’s what Dvorkin has to say on the subject:

“Saving is like dieting. If you don’t make it part of your lifestyle, you’ll eventually cheat and fail. So saving on a regular basis means saving very little all the time, instead of a lot every paycheck. We’re talking one more brown bag lunch, and those few bucks going into a savings account.”

Saving a little bit all the time is a great strategy for another reason as well: If you end up cheating and splurging on something you don’t need, it’s not a big deal. Saving small means failing small. And failing small makes it all the easier for you to get back on the horse and keep going.

One more piece of advice: As you’re creating your savings strategy, take a good long look at your monthly budget. Maybe, as you try and save for six months’ or a year’s worth of expenses, you’ll notice places where you can cut back. It’ll give you more money to save all the while making your eventual goals more achievable!

Is it wise to build an emergency fund if you’re in debt?

Yes, it is. Paying down debt is super important to your financial wellbeing—not in the least because it will help raise your credit score—but not having an emergency fund means you’re leaving the door open for future debt.

Still, it’s not like you should stop all your debt repayment efforts to build an emergency fund. Doing so is going to cost you a lot of money in the long run.

“Paying off debt is more important, purely for the numbers,” says Dvorkin. “You’ll earn only one percent interest on your savings—if you’re lucky. Meanwhile, your credit cards are charging you 16 percent and up.”

Really, it’s a matter of balance. Don’t let building your emergency fund set you too far back in paying off your personal loans and credit cards, and don’t let zeroing out your debt leave you with no money to put towards savings.

Besides, the kinds of discipline that building an emergency fund requires of you might come in handy with debt repayment as well. Dvorkin likes to say that “Saving when you’re in debt might seem like drinking bottled water when the boat you’re in is sinking.”

“But if you save small amounts constantly,” he adds, “it might also help you focus on paying down your debts.”

When should you start building your emergency fund?

“If you don’t have an emergency fund right now, you’re running behind schedule,”  says Dvorkin. “Everyone who’s graduated from high school needs one, because everyone can suffer an accident or an illness.”

You heard the man! Start building your emergency fund right now. Seriously. Reach into your wallet, grab a dollar, and shove it under your mattress. Congratulations, you now have an emergency fund.

That wasn’t so hard, was it? Now all you need to do is keep going!

To learn more about the ins and outs of saving money and handling emergency expenses, check out these related posts and articles from OppLoans:

Do you have an emergency fund? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

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Contributors

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

Your Guide to Cash Advance Scams

Cash Advance Scams

Don’t give out your personal information and watch out for excessive upfront fees or collectors calling about debts you’ve already paid.

It’s a new year and we’ve got a new resolution for you: don’t get scammed. This year, be on the look out for the “cash advance” scam. This can mean a lot of different things, so we’ll give you a brief tour of the scummy underbelly of cash advance scams so you can recognize the warning signs.


Wait, what is a cash advance?

Before we get into cash advance scams, let’s talk about cash advance loans, which can take many forms. At the most narrow, accurate, and specific level, a cash advance loan is a cash loan you take out using your credit card. It has to be within your credit limit and it often comes with fees and not insignificant interest.

(Plus, with a cash advance, there’s no grace period on interest like there is with a regular credit card purchase. You start accruing that “not insignificant” interest the second the advance is made.)

The term “cash advance” is used a lot.

Predatory lenders offering payday loans and title loans will also use the term “cash advance” to refer to the products they offer. These sorts of lenders don’t tend to care about your credit score and some don’t even require any proof of income. They do tend to charge exorbitant fees and interest rates well beyond what you’d pay on a normal cash advance—so this could be considered the first sort of “cash advance scam.”

Avoiding predatory bad credit loans is a matter of looking out for the proper warning signs. Maybe you don’t have a great credit score, so you can’t qualify for a “traditional” loan. That’s all right. It’s still important to not settle for just any lender.

Although these predatory lenders may try to gain a sense of legitimacy by calling themselves “cash advance” places, you shouldn’t be fooled. If they don’t care about your credit score or your income or your bank account, then that means they aren’t too concerned about whether you’ll be able to pay them back or not.

Odds are, the fees for not being able to pay these loans back on time are so high that they’ll be fine with you never actually paying it off. The longer you stay stuck in a cycle of debt, the more money they stand to make.

Big upfront fees.

Another, similar, kind of cash advance scam is charging you a large upfront fee to get the loan. You’re trying to get money, so why should you be giving them money?!

And of course, just because they’re charging you an exorbitant upfront fee doesn’t mean they won’t charge you other exorbitant fees afterward. If anything, it’s even more likely. After all, once you’re a predatory lender, why not really commit to the bit?

Beware who is on the other line.

You’re at home eating dinner when suddenly you get a call. Could it be a friend of yours? NO. It’s someone calling to offer you a cash advance loan. Don’t do it. Just hang up. You probably hang up on telemarketers anyway, but now you can do so with the knowledge that they might have been trying to scam you.

If you’ve applied for a loan from somewhere and they call about your application, that’s fine. Maybe you don’t want them disturbing you at dinner, but at least they’re calling for a good reason. Someone who calls you out of the blue and tries to offer you a no credit check loan, however, is certainly not to be trusted.

Don’t trust people who contact you online either.

Remember what we just said about phone calls? All of that goes double (or triple!) for email and other online offers.

Hopefully, you’re already very careful about where you enter your financial information online, but there is no shortage of scammers who will try to take your money—through “cash advance” promises or other shady offers.

Don’t worry, you can definitely find a good online loan, but you should do your homework on all the lenders out there and look at their reviews to make sure you don’t get taken advantage of. We’ve covered what to look out for a few times before.

And if someone tries to offer you a cash advance in an email? Don’t click on any of the links, don’t even open the message. They might be trying to hack into your computer through a process called “phishing.” Just delete the email—and do so with extreme prejudice.

Watch out for fake debt collectors.

Last year, the Washington State Department of Financial Institutions released a warning about various entities using the name “cash advance” to carry out a phone scam. The caller will claim that they are collecting on a cash advance loan and require payment. They’ll then become belligerent and demand your payment information, threatening to seize your assets if you don’t comply. Other threats might include legal action, wage garnishment, or even arrest.

A situation like that can be can be scary, even if you know for a fact that you don’t have any overdue bills or collections notices against you. And the most important thing you can do when receiving one of these calls is to stand your ground. No matter how much they threaten you, do not give in.

Thankfully, the Better Business Bureau has a list of actions to take if you receive a cash advance collection scam call:

  • Just hang up: If you don’t have any outstanding loans, hang up. Don’t press any numbers or speak to an ‘agent.’
  • Ask the debt collector to provide official ‘validation notice’ of the debt. In the U.S. and most of Canada, debt collectors are required by law to provide information in writing. The notice must include the amount of the debt, the name of the creditor and a statement of your rights. If the self-proclaimed collector won’t provide the information, hang up.
  • Ask the caller for his/her name, company, street address, and telephone number. Then, confirm that the collection agency is real.
  • Do not provide or confirm bank account, credit card, or other personal information over the phone until you have verified the call.
  • Check your credit report. In the US, check with one of the three national credit reporting companies (Equifax, TransUnion, Experian). In Canada, check with Equifax Canada. This will help you determine if you have outstanding debts or if there has been suspicious activity.
  • Place a fraud alert on your credit report. If the scammer has personal information, place a fraud alert with the three national credit reporting companies.”

Follow all of these steps, and you’ll be a scam-stopping machine!

For more ways to avoid getting scammed or otherwise taken advantage of, check out these related pages and articles from OppLoans:

Have you been taken in by a cash advance scam? We want to hear about your experience! Email us or let us know on Facebook and Twitter.

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How to Get an Apartment With Bad Credit

How to Get an Apartment With Bad Credit

Renting with bad credit is tough, but it’s not impossible. Here’s how to score your dream place even when your credit’s a nightmare.

Like the ghost of apartments past, one of the most sinister consequences of bad credit seems to always appear when you’re on the hunt for a new home. If you’re a renter, you’ll find that most landlords do extensive background checks on prospective tenants, and unfortunately, they’re often looking to see whether you’ve got any dings on your credit report. A bad credit score, shaky rental history, or no credit to speak of can sometimes put you in the “no” pile just as fast as an appearance on Hoarders.

But don’t worry. It’s not like landlords only rent to tenants with perfect credit and a spotless record. Those people are one in a million. In general, landlords run credit reports and background checks to look for the following issues:

  • Delinquent accounts
  • Repossessed cars
  • Evictions
  • Late or missed rent payments

If you have one or more of these marks on your record, it’s probably going to be difficult to find a landlord willing to rent to you. But no matter how bad your credit is, there are several things you can do to increase your chances of getting approved.


Consider where you’re renting

The more competitive the rental market in your area, the lower your chances of finding a landlord willing to overlook any past financial screw-ups. Think about it: landlords in trendy areas are typically flooded with applications. If they have a choice between renting to someone with rocky credit plus a few evictions under their belt, or someone with stellar credit and a flawless rental record, you don’t need to be a rocket scientist to figure out who they’re going to pick.

The lesson here is this: when your credit is shot, your chances of getting approved for an apartment in a super hip ‘hood are not great. Instead, try looking outside of the trendy box.

Check out up-and-coming neighborhoods that are still a little rough around the edges, or if transportation isn’t an issue, consider moving out to the ‘burbs, where apartments are cheaper and finding a place doesn’t require you to volunteer as a tribute in the housing Hunger Games.

In short, look for a place where you will be your landlord’s best option, not their last resort.

Find a co-signer

Moving away from a competitive rental market might be a good option for some people, but it won’t work for everyone. If you need to stay within walking, biking, or public transit distance from your office, you’ll need to find another way to get around the bad credit block. One easy solution? Find a co-signer.

Essentially, a co-signer is someone—typically a trusted friend or family member with solid credit—who is willing to vouch for you and take legal responsibility for your rent if you cannot. Landlords love renting to people with co-signers, as it gives them an extra layer of protection from a missed payment.

If you have someone in your life willing to co-sign on a lease for you, make sure you mention that to your prospective landlord before they have a chance to deny you outright.

And remember, your co-signer is essentially tying their good credit to yours. If you want to have a positive relationship with this person going forward, make sure you make all your payments on time so they don’t have to shell out any cash on your behalf.

(By the way, getting a co-signer also works great if you want to avoid a shady bad credit loan or no credit check loan. It’s the same principle: a traditional lender that wouldn’t lend to you because of your credit score can be assured that the cosigner will pay them back if you can’t.)

Look to individual landlords over big rental companies

In our experience, renting from landlords who own just a few buildings is, in general, a better idea than renting from a giant rental company for a variety of reasons. Not only do big companies often have issues providing timely maintenance for tenants, they also have much less wiggle room when it comes to renting to people with lower credit scores.

While a landlord who owns one building and lives on site may be willing to overlook bad credit for the right kind of neighbor, larger rental companies aren’t going to be interested in negotiation.

If you want to give yourself a better chance of acceptance, do some research on who owns the building you’re eyeing. You could save yourself a lot of time—and application fee money—by avoiding large rental companies.

Put your money where your mouth is

If you have a bad rental history and want to rent without a co-signer, most landlords will be skeptical about renting to you. What is considered a bad rental history? Think multiple missed or late rent payments or a history of eviction.

If this sounds like a page out of your memoir, you might need to pay a little more to prove your worth to your future landlord. You have a few options here:

  • Offer to pay a bigger security deposit before move-in
  • Offer to pay multiple months in rent upfront
  • Offer to pay more per month for rent than the apartment is listed for (and show bank records to prove you can afford the higher monthly payment)

Money talks. If you have the funds to do so, paying a little extra can help turn even the most skeptical landlord into a true believer. Just make sure you don’t turn to a predatory payday loan or title loan to get that extra cash. It won’t end well, we promise.

Look for a roommate, not a landlord

Spend any time trawling Craigslist for apartments, and you’ll likely see a lot of posts like this:

“Roommate needed in 2 bed/2 bath apartment! All utilities included!”

People who are looking for short or long-term roommates are often working on a short timeline—unless they find someone to move in ASAP, they’ll be on the hook for paying rent on behalf of the entire apartment. Because of this, they may be less inclined to ask potential roommates to submit a credit check, or even to sign a proper lease.

If you have some serious blemishes on your report, finding a situation like this can be a great option—just make sure the landlord is OK with you living there before you hire that moving truck.

Explain yourself

If the pockmarks on your credit report were the result of life situations beyond your control, you have a right to make that known. There’s no harm in sending along a detailed letter with your rental application, explaining in advance what your landlord is likely to find when s/he runs your credit.

Use the letter to detail what happened and why it’s unlikely to happen again, and include a few trusted references your landlord can call to corroborate both your story and your current financial standing and responsibility.

Dispute discrepancies on your report

The FTC estimates that one in four credit reports include at least one error that could negatively impact a person’s credit. We’ve written before about why it’s so important to take a good look at your report as often as possible, and possible errors on your report is a major reason why.

So if it’s been a while since you checked yours out, head over to AnnualCreditReport.com to get free copies of your credit report from TransUnion, Equifax, and Experian, the three major U.S. credit bureaus. You’re entitled to one free download of each report every year, so you can either grab them all at once or spread them out every four months to get an update three times a year.

If you see anything on your credit report that doesn’t look like you—think mystery credit cards or cash advances, evictions you didn’t experience, or even delinquent utility accounts you never opened—send a dispute letter to the credit bureaus. You can read the sample letter from the FTC.

According to the FTC, this letter should:

“Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information and request that it be removed or corrected. You may want to enclose a copy of your report with the items in question circled. Send your letter by certified mail, “return receipt requested,” so you can document what the credit reporting company received. Keep copies of your dispute letter and enclosures.”

Credit bureaus will typically investigate your dispute and resolve it within 30 days. For more information on how to dispute an item on your credit report, head over to the FTC site.

For more ways that a low credit score can affect your everyday life, check out these related pages and articles from OppLoans:

Has bad credit impacted your ability to rent? We want to hear from you! Email us or let us know on Facebook and Twitter.

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Can You Get a Bad Credit Loan Without a Bank Account?

Bad Credit Loan With No Bank Account

Without a checking or savings account, getting a loan is going to be much more difficult, and you’ll be stuck with riskier options.

If you live in one of the nine million unbanked households in the U.S., then you understand the added financial stress of living without a checking or savings account. You have to take your paycheck to a check-cashing store just to get your money—plus whatever fees they decide to charge; you have to pay all your bills in cash through the mail or in person, which is a way bigger hassle than doing them online. The list goes on.

And if you don’t have a checking account, the odds are good that you don’t have great credit. While a bad credit score doesn’t necessarily mean you’ll get denied for a bank account, the kinds of behaviors that tanked your score can also lead to your account application being rejected.

So what happens if you have a financial emergency and you need to take out a bad credit loan? If you need a bad credit loan and don’t have a bank account, can you still get much-needed cash?

The short answer is “Yes.” The slightly longer answer is “Yes, but none of the options are good.”


Why is it hard to get a loan with no bank account?

Simply put: it’s hard to get any kind of loan with no bank account because lenders get worried that you won’t pay them back. Okay, let’s rephrase that. When you don’t have a bank account, lenders get more worried that you won’t pay them back. Lenders, you see, are always worried about paying them back. They’re lenders. It’s what they do.

You might think that a bad credit lender would be less worried about this, but that isn’t so. Even though most bad credit lenders don’t check your credit score before issuing a loan (which is why their products are often referred to as “no credit check loans”) they still want some kind of assurance that they’ll get paid back.

(With some loans, especially short-term payday loans, the lender might not care so much about you paying your loan back on time because they’ll make a lot more money from having you rollover or reborrow your loan. For more on that, check out our post: Payday Loan Rollover: How Short-Term Loans Turn Into Long-Term Debt.)

Some lenders will use the account information that you provide during your application to schedule an automatic debit from your checking account on the date that payment is due. Others simply take a checking account as a sign that the borrower is at least somewhat financially stable–even if they don’t have good credit.

When it comes to loans that need a bank account, you’ll have better luck with a storefront lender than you would with a company that issues a online loans. But either way: Most bad credit lenders will require some sort of bank account before they issue you a loan.

If you want a bad credit or no credit check loan that doesn’t require an account, you’re probably going to have to offer up something as collateral.

The problem with title loans and pawn shop loans.

When it comes to bad credit loans that require collateral, the two most common types are title loans and pawn shop loans. If you don’t have a bank account and need a no credit check loan, these are the kinds of secured loans you’ll be looking for.

Between the two types of loans, title loans are the riskier option by far. These loans are secured by the title to your car or truck, which means that your car or truck will get repossessed if you can’t pay the loan back.

Title loans are usually short-term loans, designed to be repaid in a month or so. The only problem is that, with principals often above $1,000 and annual percentage rates (APRs) that average 300 percent, you’ll be very hard-pressed to pay your title loan off on-time.

And once you start extending or reborrowing your loan, that’s when those high interest rates really start to hurt. You can end paying way more in interest than you paid on your original loan amount, all the while living under the threat of repossession.

Pawn shop loans, on the other hand, are much less dangerous than title loans, but they also don’t grant you as much money. Since the items being used as collateral for these loans are much less valuable than a car—it’s usually stuff like jewelry, electronics, or valuable antiques—the principal loan amounts are much smaller too.

With a loan from a pawn shop, you’ll still have to pay a high interest rate and risk losing your valuable stuff—some of which might have a far greater sentimental value than dollar value—all for a couple hundred bucks at best. If your unexpected expense comes with a bill larger than that, a pawn shop loan probably isn’t going to cut it.

A prepaid debit card works, but it’s still plenty risky.

Some payday and no credit check lenders will allow you to load your loan funds onto a prepaid debit card. They might even provide you with a card as a part of approving your loan.

This approach has its benefits and its drawbacks. It’s certainly a better option than a title loan, as it doesn’t mean using your car as collateral, but you’ll probably be stuck with the same kinds of issues that plague so many payday loan borrowers.

Even with the funds easily accessible via your card, you’ll be stuck paying payday-level interest rates, which can average over 300 percent—-and sometimes way, way over! You’ll still have to pay the loan back fairly quickly, and probably in a single lump sum.

A payday loan on a prepaid debit card suffers from the same problems as a payday loan in a checking account. The risks of entering a predatory cycle of debt are the same, as are the chances that you’ll owe way more in interest than on the loan principal itself.

The best thing you could do would be to avoid taking out a loan entirely, but sometimes that just isn’t an option. And compared to a title loan, a prepaid debit card is a definitely better. Just do your research on the lender first and make sure you know exactly what you’re getting yourself into before you sign.

To read more about the issues facing people with bad credit, check out these related pages and articles from OppLoans:

Have you ever taken out a loan without a bank account? Let us know on Facebook and Twitter.

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How to Fix Your Bad Credit in 2018

How to Fix Your Bad Credit

Getting a copy of your credit report and paying down your balances is a great start, but there’s a lot more you’ll need to do.

This is the time of year when New Year’s resolutions start dropping like flies. Look, there goes your friend Becky’s plan to exercise every day! Oh wow, your dad’s promise to read a book a week just plummeted to the ground. Oh dang, did you reinstall the Twitter app on your phone? What happened? You’d been doing so well!

One resolution that shouldn’t be left by the wayside this year is your promise to fix your credit score. That score is one of the most important numbers in your life, and it pretty much dictates your financial wellbeing. Sure, shedding those 10 lbs of belly fat would feel nice, but adding another 50 points to your score would bring real financial benefits for years to come.

Here’s the thing: Fixing your credit score can be difficult, and bad credit doesn’t disappear overnight. It’s a lot like training for a marathon. If you’re in this, you’re in it for the long haul. (Oh, by the way, that marathon you said you were going to train for? Come on now. Let’s be real.)

With all of that in mind, here are five things you can do in 2018 to fix your FICO score and turn your bad credit reality into distant, fading memory.

1. Get a copy of your credit report

If you don’t know why your credit is bad, then you aren’t going to be able to fix it. Since your credit score is based off in the information in your credit reports, then getting a copy of those reports is the place you need to start.

Your credit report is a document that tracks your borrowing history. It has records of what loans and credit cards you owe, how much you owe, whether or not you pay your bills on time, whether you’ve ever been sent to collections or filed for bankruptcy, and more. Information generally stays on your report for seven years, but some information, like bankruptcies, can hang around for longer.

These reports are compiled by the three major credit bureaus: Experian, TransUnion, and Equifax. Your information might differ slightly from report to report, meaning that a credit score based on your TransUnion report, for instance, might be slightly higher than a score based on your Equifax report. But if you have bad credit, it’s a good bet that the major trends are going to be the same no matter which reports you request.

There are five major factors that go into creating your FICO score, but the two biggest factors by far are your payment history and your balances owed. Together, they make up 65 percent of your total score. If you have bad credit, it’s very likely that the problem lies in one of those two categories. Your credit report will give you a clear picture of what exactly is dragging down your score.

Now here’s the good news: You can request a copy of your credit report for free! That’s right. Under federal law, the credit bureaus all have to provide you a free copy of your report every year. All you have to do is request it. To get a copy of your report, just visit www.annualcreditreports.com.

To read more about the importance of checking your credit, check out this post:

2. Pay down your balances

Carrying a massive amount of debt is pretty much the modern American way. According to a 2017 study, the average debt load for a person who attended college is over $49,000, and the average U.S. household carries $16,000 in credit card debt alone.

But just because debt overload is commonplace doesn’t mean your score is immune. While some forms of debt, like student and mortgage debt, are commonly seen as “good” debt, other kinds of debt, like credit card and auto debt, are seen as “bad” debt. (Read this post to learn about the difference.) Carrying too much of them is a surefire way to end up with bad credit.

One of the biggest factors in determining your credit score is your credit utilization ratio – i.e., what percent of your total available credit you’re using at any given time,” says personal finance writer Lindsay VanSomeren (@notoriousDEBT). “It’s best to keep it under 10%, otherwise your credit score could drop.”

If your high balances are dragging down your score, then paying them down is a surefire way to boost your creditworthiness. Balance transfer offers that come with 0% APR can be a great way to make your debt load more manageable and easy to pay off, but those offers are going to be scarce if you don’t already have a good score.

If you’re going to be paying down your debt, you’re going to need a strategy. First of all, focus on your unsecured consumer debt. This means credit cards and personal loans. Second, don’t just throw extra money at these debts willy-nilly. Pick a method of debt repayment and stick to it.

There are lots of debt repayment methods out there, but the two most popular are the Debt Snowball and the Debt Avalanche. Both methods involve putting all your extra funds towards one debt at a time. The major difference between the two is that the Debt Snowball method prioritizes paying off your smallest balance first, while the Debt Avalanche says you should pay off your debt with the highest interest rate.

There are positives and drawbacks to each one. The Debt Snowball gives you early victories that can encourage you to keep going, while the Debt Snowball will end up saving you more money overall. If you want to learn more about the Debt Snowball and the Debt Avalanche, you should read these in-depth posts:

Once your credit cards are paid off, make sure you don’t close them out. Use them properly, and you can reap the financial benefits.

“Most people with high credit scores are able to pay off their credit card in full every month so that they avoid racking up too large of a balance,” says VanSomeren. “A nice side bonus is that you’ll never pay any interest by doing so, meaning you can earn credit card rewards entirely for free!”

3. Pay your bills on-time

Your payment history alone makes up 35 percent of your score. It is is the single most important factor in maintaining good credit. At its core, improving your payment history is simple: Pay your bills in full and on-time. Even one late payment can hurt your credit.

There are a couple different factors that might be making on-time bill payment difficult for you. Maybe it’s a cash flow issue. You don’t have enough money in your checking account when your bills are coming due. If this is the case, you should call your lender or utility company to talk about changing your due date. If you have a record of continually making late payments this might be a difficult ask, but most businesses are willing to work with their customers on this.

Second, it might be an issue of you just plain forgetting to pay them. And, trust us, we know how hard keeping track of your bills can be. Still, if you want to dig out from under a bad credit score, this is non-negotiable.

First, we recommend keeping a spreadsheet or a note taped to the fridge that contains all of your due dates. That way, you’ll have an easy reference point if you find yourself forgetting when something is due. You should also set reminders for yourself on your phone or on an online calendar. That way, even if you forget, you’ll still get a friendly kick in the pants to make you remember.

Some bills like utilities fluctuate month to month. The same can be true for your credit card bills if you’re doing a lot of spending on them—or if the card has a floating interest rate. But for lots of debt, you will have a fixed payment amount every month. With bills like these, you should automate your payments. We’re not saying to “set it and forget it.” This is more like “set it in case you forget it.”

Lastly, if you do pay a bill late, contact your lender or utility company ASAP. A late bill only affects your credit score once it’s reported to the bureaus, and most companies have a grace period before they report a late payment. If you contact them soon after the missed payment and pay the full amount owed (including any late fees) then you should be good to go.

If you miss a due date, don’t ignore the issue and fall into a spike-filled pit of despair. That’ll only make it worse. The same goes for any accounts that you’ve had sent to collections. Being proactive about settling that account will be better for your score than just dodging your bill collector’s calls.

Another option to boost your on-time payments is to sign up for a rent reporting service. For a fee, they will make sure that your rent payments get reported to the credit bureaus.

According to VanSomeren, the cost might be worth it if you have bad credit, but even then you might be better just saving your money:

“I’d only consider paying for a rent reporting service if a) I had a poor credit score, and b) I needed to raise it within a certain amount of time for a large purchase like a home or a car. Even so, I’d carefully consider whether the cost was justified.

“If you can boost your score into prime credit ranges before you buy a mortgage and get the best interest rates as a result of that, it can be worth thousands of dollars in savings over the life of your mortgage since you’re not paying as much interest.

“Otherwise, if you don’t have a large purchase to make within a short period of time, why not just develop good credit habits now and let your score rise naturally?”

4. Build an emergency fund

We want to be clear about this. Building an emergency fund will not directly affect your credit score. This is more of a long-play.

No matter how well you plan and budget for the future, financial emergencies can rear their ugly mug. Your tire will blow out on the highway, or your car battery will die suddenly. Your daughter will break her arm on the jungle gym, or your husband will come down with a flu bug that turns out to be something worse.

That’s where an emergency fund comes in. It’s money that you set aside that is easily accessible and is only to be used in the worst scenarios. Your budget should already include a bit of wiggle room in it, for stuff like dentist and doctors appointments and for yearly car repairs or tune-ups. An emergency fund is for more than that. It’s for the big stuff.

And that’s how an emergency fund can help your credit score. When people find themselves in the middle of an emergency, they don’t tend to think about how much money they’re spending. (And they shouldn’t!) But the tendency in situations like that is to just throw the money on a credit card and to worry about paying it off later.

Behavior like that is how people end up with high balances that they can’t pay off, tanking their score in the process. With an emergency fund, however, they already have all the money they need on-hand. Rather than taking on additional debt, they can pay the necessary bills right then and there.

To start off your emergency fund, aim for $1,000. We recommend that you keep this money in cash in a secure place in your home. Put aside some money every month towards building up your fund. If that means paying down your debt at a slightly slower pace, so be it. A month or two of extra interest payments are worth the security.

Once you reach $1,000, you can start aiming a little higher. Your eventual goal should be six months worth of expenses. That includes rent, utilities, debt payments, groceries, etc. We know, that sounds like a lot. But you don’t have to get there today, tomorrow, or even next year. And once you’ve built that fund up, trust us, the sense of financial safety will be worth it.

To learn more about handling unexpected medical expenses, you should check out:

5. Steer clear of predatory loans

Remember when we mentioned that people will run up their credit card balances during emergencies? Well, some folks don’t have the room on their cards to do that. Instead, they end up turning to predatory payday loans and title loans to get the cash they need.

If you’re trying to fix your bad credit, staying away from predatory loans like these is a must-do.

These lenders mostly target people who already have bad credit, as those are the folks who lack access to loans and credit cards from traditional lenders. People with bad credit don’t have very many options, which is something these lenders use to their advantage, charging their customers ridiculously high interest rates.

Not all bad credit loans are dangerous, but payday and title loans are two types that should definitely be avoided. It’s not just their annual percentage rates (APRs), which usually average around 300 percent or higher. It’s also their short repayment terms, often a month for title loans and two weeks for payday loans.

Instead of letting their customers pay the loan off in a series of manageable installments, these lenders demand that their loans are fully repaid by the date the loan is due. Think about it: If you borrowed $300 at a 15 percent interest rate and then were given just two weeks to pay back $345 (for a total APR of 390 percent), is that something you’d be able to afford?

Many people who take out these kinds of no credit check loans don’t have that kind of money. Instead, they’re stuck rolling the loan over or reborrowing it, racking up additional interest payments without ever getting closer to paying off the loan itself.

This known as a “cycle of debt” or “debt trap.” People find themselves paying far more in interest than they originally borrowed, and sometimes they still end up defaulting on the loan. Some even get taken to court and have their wages garnished in order to repay the loan in full. (Check out this post for more on loan rollover and the payday debt trap.)

Adding insult to injury, even the folks who do pay these loans off on-time don’t get credit for it on their score. These types of lenders don’t report payment information to the credit bureaus, meaning that the only way these loans can affect your score is by getting sold to collections. There’s no way to win. All you can do is lose.

(The same thing goes for cash advances by the way. If you think they’re a better option than a payday or a title loan … they’re really not.)

Like we said up top, fixing your credit score isn’t something that’s going to happen overnight. It requires a lot of focus, determination, and self-discipline. But following these five pieces of advice will put you in a good position by the time the year is up. Even if you don’t crack a 720 FICO till December 31st, 2019, you’ll be well on your way to success.

To learn more about your credit score and how you can make bad credit a thing of that past, check out these related posts and articles from OppLoans:

What are you doing to fix your credit score in 2018? We want to know! You can email us or you can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

o6EFvO2P_400x400Lindsay VanSomeren (@notoriousDEBT) is a millennial personal finance writer living in Fort Collins, CO with a houseful of pets including two cats, a dog, and a husband. She has been a professional dogsled racer, a wildlife researcher, and a participant in the National Spelling Bee. She shows other recent college grads how to manage their money through her own experiences at Notorious D.E.B.T.  

Can a Bad Credit Loan Help Raise Your Credit Score?

opploans-bad-credit-loan-help-score-holly-johnson

Payment history is a huge part of your credit score. So finding a bad credit lender that reports your payments can actually help improve your credit.

The main problem with having a low credit score (let’s say anything under 620) is that it cuts you off from traditional sources of credit. Bank loans and regular credit cards are entirely out. And auto loans or mortgage loans are going to come with much steeper interest rates.

If you’ve got bad credit and there’s an emergency expense that needs to get covered, you’ll probably end up with a bad credit loan or a no credit check loan. Certain kinds of bad credit loans can be dangerous, especially ones from a sketchy payday or title lender. But others can actually help your credit!

Here’s what you need to know.


The five parts of your credit score.

When people talk about your “credit score,” they are almost always referring to your FICO score. This is the score created by the FICO corporation using information from one of the credit reports produced by the three major credit bureaus: Experian, TransUnion, and Equifax.

(The credit bureaus can also produce their own credit scores using their VantageScore model. It will probably differ from your FICO score, but not by a lot.)

Your FICO score is graded on a scale from 300 to 850. The higher your score, the better. There are five basic categories of information used to create your score. They are…

  1. Payment History (35 percent): This covers your history of paying your bills. This may come as a surprise, but lenders really like it when you pay your bills on-time.
  2. Amounts Owed (30 percent): This takes into account the amount of money you owe across all your loans and credit cards. With your cards, it also takes into account how much of your total credit limit is being used.
  3. The Length of Your Credit History (15 percent): This covers the length of time that you’ve been borrowing for. A longer history of borrowing–and borrowing responsibly–will help your score.
  4. Credit Mix (10 percent): This category looks at the types of credit you use, like personal loans versus credit cards versus student loans, etc. The more diverse your credit mix, the better.
  5. New Credit Inquiries (10 percent): This final category takes into account any inquiries you’ve made for new credit within the past two years. Too many recent inquiries can make it look like you are desperate for more credit, which will hurt your score.

Your payment history and your amounts owed combine to make up 65 percent of your total score. If you have bad credit, it’s likely because of issues in these categories.

“Generally speaking, most people end up with bad credit because they’ve failed to pay their bills on time,”  says financial expert and award-winning writer, Holly Johnson. “That could mean anything from being late on their credit card bills to skipping a mortgage payment. Those with the worst credit scores have usually defaulted on some type of bill.”

The key to raising your score.

If you know why your score is bad, you’ll also know what you need to do to fix it. Think of it like going to the doctor when they’re sick. Once the physician knows the cause of your illness, they can prescribe you the proper medicine.

“There are lots of things you can do to improve your credit score,” says Johnson, “but because your payment history comprises 35 percent of your score, the most important thing you can do is pay your bills on time. That means getting and staying current on all your bills including your car payment, mortgage, utilities, and more.”

When you pay a bill owed to a lender, like your bank or your credit card company, they report that information to the credit bureaus. The info gets recorded on your credit report and gets used to create your score. If you have a loan with a lender who doesn’t report to the credit bureaus, then the payment info for that loan won’t affect your score.

Here’s where bad credit loans enter the picture.

Here’s how bad credit loans work.

Simply put, a bad credit loan is a loan that you can get even if you don’t have a good credit score. Some lenders will run a soft check on your credit report during the application process, while other lenders won’t run any check at all. (Loans like that are also referred to as “no credit check loans.”)

Bad credit loans come with higher interest rates than traditional loans—some come with annual percentage rates (APRs) as high as 300 to 400 percent or even higher! A number of these bad credit loans also have very short repayment terms, requiring full repayment on a monthly or weekly basis.

Some bad credit loans are predatory; this means that the lender seeks to take advantage of their customers, trapping them into an unending cycle of debt. Payday loans and title loans are two common types of predatory bad credit products, where sky-high interest rates and short repayment terms make the loans incredibly difficult to pay off on-time.

Another thing about these predatory bad credit lenders is that their “no credit check” policies go both ways. They won’t run any kind of credit check when you apply for the loan, but they also won’t report your payments to the credit bureaus.

If you end up having to get one of these loans, that loan will not help raise your credit score–no matter how many payments you make on-time.

Some bad credit loans can help your score.

While there are tons of bad credit lenders that won’t report your payment information to the credit bureaus, there are some out there who do. (We should know. OppLoans is one of them.)

If you’re looking for a bad credit lender that reports to the credit bureaus, it’s best to look for one that offers installment loans. These are loans that are paid off at regular intervals over a period of months or years. Since installment loans involve multiple payments, they give you more opportunities to pay on-time and have that information added to your credit report.

Of course, a loan is only going to help your score if you are responsible with your payments. Raising your credit score is still ultimately about your ability to responsibly manage your debt and your finances. It’s a long process, and it requires dedication. Short of winning the lottery, you aren’t going to find any silver bullets.

And helping your credit score is definitely not the only reason you want to take out a loan. One of the principles of personal finance is that you shouldn’t be spending more money than you have to, and taking out a bad credit loan will mean paying interest on the money you borrow.  That’s extra money that could be put towards paying down your existing debt or building an emergency fund.

Bad credit loans should really only be used for unexpected expenses. Finding one that can raise your score is a pretty great bonus, but it’s not a good enough reason to take one out in the first place.

Further reading.

If you’re looking for a product that can help build your credit score for a relatively low cost (or for no cost at all), then Johnson recommends that you find a good secured credit card. To learn more about how secured cards can improve your payment history, check out this post:

And for other ways to improve your score, check out these related posts and articles from OppLoans:

Have you used a bad credit loan to raise your credit score? We’d love to hear about it! You can email us or you can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

HJ HS croppedHolly Johnson is a financial expert and award-winning writer who is obsessed with frugality, budgeting, and travel. In addition to serving as Contributing Editor for The Simple Dollar, Holly writes for well-known publications such as U.S. News and World Report Travel, Travel Pulse, Lending Tree, and Frugal Travel Guy. Holly also owns two websites of her own – Club Thrifty and Travel Blue Book – and is the co-author of Zero Down Your Debt: Reclaim Your Income and Build a Life You’ll Love. You can follow her on Twitter or Pinterest @ClubThrifty.