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Image 1 Data Source: FTC Study, Five Percent of Consumers Had Errors on Their Credit Reports That Could Result in Less Favorable Terms for Loans | Federal Trade Commission. N.p., 11 Feb. 2013. Web. <https://www.ftc.gov/news-events/press-releases/2013/02/ftc-study-five-percent-consumers-had-errors-their-credit-reports>.


What Should I look for in my Credit Report?

So now that you know what you’re looking at, what are you looking for? Three key things:13

Incorrect information. You’ve already checked to ensure your personal information is accurate. Next you’ll want to go through your report and make sure all of the information reported is also correct. This is not only important to make sure you’re not getting unfairly dinged for a bill you paid on time—your credit report can also serve as an early warning system to alert you to identify theft.13

Expert Advice

Rod Griffin, Director of Education for Experian.

“A credit report is the information about how you pay your debts. So it has info about your credit cards, installment loans, and so on, and whether you paid them on time or not. When a lender asks for a credit report, they can also ask that a credit score be calculated, or they can calculate it themselves, using that information from the credit report. The score is a representation of that information at that moment in time.”

Suspicious information.  Unfamiliar addresses, incorrect social security numbers, new activity on an account you don’t use, new lines of credit that you didn’t open, unfamiliar accounts, “surprise” delinquencies and collections proceedings or overdue notices on accounts that should be current are all potential identity theft red flags. You should also note the appearance of any hard inquiries when you haven’t applied for a new loan or credit card, as this can also signal identity theft.13

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Image 2 Data Source: “Helping Victims of Identity Theft.” Victims of Identity Theft, 2014 (n.d.): n. pag. Bureau of Justice Statistics. Sept. 2015. Web. <https://www.bjs.gov/content/pub/pdf/vit14_sum.pdf>.

Outdated information. As a rule, most reported information stays on your credit report for seven to ten years, depending on the type of information (you can view Equifax’s list here for a complete list). While that’s not exactly a short stay, the good news is that there is an expiration date. You’ll want to make sure that you don’t have any unwanted credit history overstaying its welcome and weighing down your credit score—and if you do, that you request its removal.13

It’s always a good idea to check your credit report from each of the three major credit reporting bureaus each year to guard against incorrect reporting and suspicious activity.  If you do find a mistake on your credit report, never fear. You can report possible identity theft, errors and outdated information to the credit reporting bureau from which you ordered the report.

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Common Credit Mistakes

Now that you know what credit is and the different types available, let’s discuss its uses. Like other forms of money, credit can be used and managed correctly and incorrectly. Let’s start with what NOT to do with your credit.

Paying only the minimum monthly payment. Don’t do this. If you only pay the minimum every month, you’re actually just extending the life of your debt and really only paying off interest—not the principal, which is the important part. If you can’t afford to pay more than your minimum payment (calculated differently by various credit card companies) you can consider taking out a personal loan at a better rate to pay off your total balance.

Taking out cash advances. Definitely don’t do this. Taking out a cash advance on your credit card is an irresponsible way to get cash fast. You’ll be charged a higher-than-normal interest rate and there’s no grace period which means you’ll owe more on the money you take out.7

Spending unnecessarily to accrue points. Sure, some airline miles or basketball tickets would be great, but what are you spending to get them? If you’re desperate to collect rewards points, be sure to stop and ask if you’re collecting debt just to do it. Credit cards are a tool and rewards—as great as they are—can encourage misuse of that tool.

Not using credit cards. If you think credit is big, scary and complex, then you might be tempted to just avoid it all together. But when you do that, you actually handicap yourself. If you have a card and you let it go unused, the lender may close that account which can harm your credit. If you don’t have credit cards and aren’t interested in getting them, you should know that that will make it more difficult for lenders to assess your creditworthiness when you need credit, like when you’re trying to buy a house or car.8

Using only credit cards. Credit, when used correctly, is useful and beneficial. Credit, when used exclusively, is a sure-fire way to rack up unintended debt. Credit isn’t meant to be your primary, everyday form of payment. It’s best used in emergencies, or strategically. If you’re using a credit card for you daily Starbucks—cut out that coffee or cut up your credit card. You’ll be better off!9

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Meet Your Credit Character

The OppLoans Guide to Understanding Your Credit, Credit Report and Credit Score.

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Introduction

If your best friend needed a quick five dollars for a train ticket, you might hand over the money without thinking much about it. If your sister needed fifty bucks for an emergency, you probably wouldn’t hesitate to help her out.

But what if someone you don’t know asks to borrow money? Then it’s a different story, right?

When a stranger asks for money, you’d probably look at them with a healthy amount of skepticism. After all, you don’t know them, how can you say if they’re going to pay you back or just disappear with your money?

This is how banks, lenders and other financial institutions think when everyday consumers ask to take out a personal loan or access credit.

Lenders don’t know us personally, so they must judge our character by the information that’s available to them.

And what information is that?

Lenders look at  a document called your credit report and a number called your credit score to determine your “creditworthiness”—or how likely you are to repay what you owe.

So how can you see your credit report? How can you check your credit score? And when you do, how will you be able to tell what it means?

If you have questions like these, you’re in the right place. This simple and easy-to-use OppLoans guide will help you understand credit, your credit report, and your credit score so you can start living a better, more informed financial life today.

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How to Shop for a No Credit Check Loan

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The lending industry can be confusing and difficult for anyone, but it’s even more painful to navigate if your credit score is low.
There are “no credit check loans” you can find online or from storefronts, but you can practically see some of those predatory lenders salivating at their chance to take advantage of you.
Speaking of salivating, you know what’s simpler than finding a loan? Shopping for food. If only finding a no credit check loan could be as simple as a trip to the grocery store.
Thankfully, there are a lot of similarities. Read on and try not to get too hungry.

Make a List of What you Need

A grocery list allows you to stay focused while shopping, making sure you pick up everything you need and hopefully not buying too many items you don’t.

When you’re looking for the proper “no credit check” loan, it’s also a good idea to have a list of your needs.

You should figure out exactly what you’ll be able to pay, how long you’ll have before you have to pay it back, whether you might have collateral that you’d be willing to put up, and if you have anyone with better credit who might be able to co-sign.

A list is even more important when it comes to loans than when it comes to groceries. The worst thing that might happen if you leave your grocery list at home is your house spends another week banana-less.

The worst thing that’ll happen if you take out a loan you aren’t prepared for is crushing debt and bankruptcy.

Compare Different Brands

When it comes to certain products, you probably have a favorite. You don’t care that “Toasted Wheat Chippers” are cheaper and healthier. You love “Frosty Bran-Os,” and when you choose a cereal, you’re bonded for life.

But when it comes to milk or butter or broccoli? You might as well compare the different options to find out which is the most affordable while still providing everything you need.

For loans, you want to make comparisons too. And just like with food items, it’s important that you’re searching out the most affordable option that will get you what you need.

But here’s where things are a little different. While most items in a grocery store will be clearly labeled for your convenience, a lot of lenders would rather obscure just how much their loan will cost you.

That’s why you should be sure to compare different loans in terms of their APR, or annual percentage rating, which is a number that tells you the total cost of a loan, including fees and interest.

Hopefully, you’ll be able to find a loan that you can afford and still have money left over for those tasty Frosty Bran-Os.

Read Those Labels Closely

One thing lenders and food manufacturers have in common is that they love to hide any negative facts very carefully.

Sure, that tea drink is ORGANIC and ARTISINAL and it has a lovely picture of a sunset on it, but turn the bottle around and you’ll find out that it has approximately 900 grams of sugar (give or take).

Lenders are the same way. They’ll try to tell you the good parts upfront while hiding the bad stuff. They have big flashy signs that tell you NO CREDIT CHECK and INSTANT CASH, but you won’t be seeing SHORT PAYMENT TERMS and HIDDEN FEES shimmering in neon.

That’s why it’s important for you to turn around the (metaphorical) bottle and read the fine print. In this case, that’s asking your lender the right questions and making sure you’ll have a payment plan that you can afford that won’t get you stuck in a cycle of debt.

Get Only What You Need

They say never go to the grocery store hungry, because you don’t want to fill up your cart with more food than you could possibly eat before it expires. If you’re not going to eat it or you won’t have room in the fridge, then you just wasted money you probably can’t afford to waste.

It’s the same idea with no credit check loans. Even the best no credit check loans are going to have higher interest than loans that require good credit to get.

Assuming you aren’t in desperate need of a loan, it’s worth the effort to get your credit score up first. And what’s the best way to do that? According to Miron Lulic (@MironLulic), the founder and CEO of SuperMoney, “There are plenty of strategies anyone with a subprime credit score can take to rapidly increase their score. For example, setting up one or more secured credit cards and using them responsibly is a great way to establish credit.”

Make Sure They’re Making Sure You Can Pay

Imagine that you’ve brought your cart of groceries to the register, and instead of scanning each one, the cashier just tells you to go on and take them. “It’ll all work out,” they say, with a suspicious smirk.

Sure, this seems nice, but you would be correct to wonder just whom “it’ll all work out” for. Unless you won some sort of contest (and then you would have noticed the balloons), they aren’t going to let you just keep those groceries without making sure you can pay for them.

Similarly, it’s suspicious if a no credit check lender seems totally unconcerned about your ability to pay back your loan.

Even without checking your credit score, a lender should require some proof of income or bank information. They could also perform a “soft” credit check, which is a credit check that doesn’t negatively impact your credit score.

If they seem totally unconcerned about your ability to pay back the loan, it probably means they don’t care if you’re able to pay back the loan. And that’s a problem. Because it means they’re likely trying to trap you into paying a rollover fee to extend your loan, which is a surefire way to get stuck in endless debt.

Know Where You’re Shopping

Obviously you can’t go shopping if you don’t know where the supermarket is. It seems almost silly to mention, but yes, you’ll want to find out where it’s located before leaving the home.

Lenders are the same way, but since so many of them allow you to take out a loan through the internet, you could “shop” there without knowing their location. But you shouldn’t!

Sally Elizabeth of PeopleClaim.com (@PeopleClaim) warned us about the danger:

“Check the company’s real location. Companies based overseas or in sovereign Native American territories may not be bound by the same rules as US lenders. One claimant thought she was dealing with a Delaware company, but she wasn’t. She ended up paying 780% interest.”

Elizabeth also points out that finding the location isn’t always easy: “The location of the company may not be obvious; a website might show, for instance, a Delaware address. But drill down into the website’s terms and conditions or privacy policy. If you find an address in the Caymans, the Virgin Islands, or a Native American or First Nations territory, then buyer beware.”

Just be sure to keep all of these things in mind and you’ll have the most delicious… er… painless loan experience possible.


About the Contributors:

Sally Elizabeth, works for online dispute resolution platform PeopleClaim.com, helping people who are normally shut out of the legal system because of time or money. Weeding scams out from common consumer complaints has taught her way more about scammers than she ever wanted to know.

Miron Lulic is Founder and CEO at SuperMoney – a website that helps people compare financial services and get financial advice. Millions of people trust SuperMoney when shopping for loans, investments and other financial services.

Credit Tier Breakdown, Part 1: Great Credit

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Welcome to our ongoing series on credit scores, from the very best to the very worst. We’ll let you know what kind of loans, interest rates, and other perks you can expect with each type of score. Plus, we’ll give you tips about how you can improve your score.
For this first entry, we’ll be looking at Great Credit Scores: 720 – 850.

What Kind of Loans Can You Get?

In short: pretty much any loan you want.

Now, that’s not entirely true. Banks and other traditional lenders will also want to look at things like your income before approving a loan. If you have a great credit score but a low-income, then there are certain loans—especially unsecured personal loans—that you might not qualify for.

Still, having a score of 720 or higher means that pretty much any kind of loan is achievable. If you want to buy a house, you’ll qualify for a good mortgage. If you want to buy a car, you’ll be able to get approved for a car loan. Looking for a credit card? Take. Your. Pick.

This is especially true for folks who have a credit score in the upper part of this range, from 780 to 850. While folks with scores lower than that might occasionally get their applications turned down—especially for really high-end credit cards—people with scores of 780 and above can pretty much get approved for anything—assuming that their income makes repayment of the loan feasible.

What kind of Interest Rates Can You Get?

If you have a score of 720 or above, you’re going to be seeing very low-interest rates across the board.

According to Rod Griffin (@Rod_Griffin), Director of Public Education for the credit bureau Experian, says, “A credit score is a way of grading your creditworthiness–or ‘trustworthiness’ to lenders. It’s a numeric score usually falling in a scale between 350 and 850. The better your credit score, the lower risk you are to lenders. They’ll see you as someone they can trust to repay the money they may lend you. You will also generally qualify for lower interest rates, which will save you money.”

A score above 720 says to lenders that you are very responsible when it comes to borrowing money. You don’t take out more than you can afford and you always make your payments on time.

If you are seen as a low-risk by a lender, they will be willing to give you a lower interest rate. With higher risk borrowers, lenders charge them more in part to guard against the risk that they won’t repay. It’s a bit of a catch-22: The less likely you are to pay your loan back, the more money you get charged, which makes the loan harder to repay, which makes it less likely that you’ll pay it back.

According to the MyFico Loan Savings Calculator, a credit score of 760 could get you a 3.845 percent interest rate on a $300,000, 30-year fixed-rate mortgage. All in all, that could save you almost $25,000 over the rate you’d pay with a credit score of 699.

If you took out a $30,000 48-month auto loan to buy a new car, the MyFico Loan Savings Calculator estimates that a score of 720 or above would net you an interest rate of 3.458 percent. When compared to the 6.88 percent interest rate you would pay with a score of 689, that lower rate would save you well over $2,000 over the life of the loan.

And lastly, there are credit cards. While the rates on these cards can vary greatly from company to company, Credit Karma pegs the interest rates for borrowers with great credit at an average of 14 percent.

What Can I Do to Improve My Score?

Your FICO score is created using information from your credit reports, which are compiled by the three major credit bureaus—Experian, TransUnion, and Equifax. According to Rod, “Your credit report is a document that describes how you use your credit and whether or not you pay your debts. It contains information about your credit cards, any installment loans, and other debts, and whether you’re paying them or not. The credit report is not the same as the credit score. A lender can use your credit report to calculate your score, or they can request that your score be calculated. The score is a snapshot of your creditworthiness at the moment the credit report is requested.”

Your credit score is calculated using these five major categories:

Payment History:

    • 35 percent

Amounts Owed: 30 percent

Length of Credit History: 15 percent

New Credit: 10 percent

Credit Mix: 10 percent

As you can see, your payment history and amounts owed make up a total of 65 percent of your score. If you’re looking to improve your credit rating, those two categories are the best place to start.

Credit expert Chella Diaz (@MoneyIQ901) has two great pieces of advice:

  1. Start making your payments on time. This might seem a little obvious, but making on-time payments is a huge piece of your credit score. If someone’s going to lend you money, they need to be certain that you’ll make your payments on time. Diaz says that you making your payments on time for at least six months should help your credit score increase.
  2. In regards to your credit card balances, Diaz says that your balance should not exceed 30% to 35 percent of the limit on the card. Ideally, you shouldn’t be carrying any balance on your card month to month. You should pay the entire thing off in full to avoid getting charged any interest at all. But paying down your balances until they are below 30 to 35 percent should lead to your credit score increasing.

Want to learn more about how credit scores and credit reports work? Check out our Q&A with Rod Griffin, Education Director for Experian. You can also read our ebook Credit Workbook: The OppLoans Guide to Understanding Your Credit, Credit Report and Credit Score.


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About the Contributors:

Chella Diaz, is a mom, author, speaker and consultant. She empowers parents with young children to set up their kids to be their own bank. She facilitates workshops for college students. One of Chella’s greatest strengths is showing people the ways they can save money so they always have money for the things that are most important. You are the boss and the money is your employee. How are you going to manage it?

Rod Griffin is Director of Public Education for Experian. He leads Experian’s national consumer education programs and supports the company’s community involvement and corporate responsibility efforts. Rod oversees the company’s financial literacy grant program, which awarded more than $850,000 in 2015 to non-profit programs that help people achieve financial success. He works with consumer advocates, financial educators and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft.


 

When Are Bad Credit Loans Dangerous?

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Most people know that you need good credit to get a low interest rate on a personal loan. Fewer people know what to do when they need that personal loan but their credit is… let’s say, imperfect.

If this describes you, then you may find yourself looking for a “bad credit loan.”

Now, maybe you’ve heard that bad credit loans are dangerous. That’s because many of them are! Predatory lenders know that folks with bad or no credit are often desperate for money to cover unexpected expenses like car repairs and medical bills. If you have a financial emergency and no savings or credit to rely on, then you’re more likely to let yourself get walked into a bad loan that will eventually trap you in a cycle of debt.

But not every bad credit loan is the same. While some are predatory and dangerous, there are others that can get you through your financial emergency in a safe and financially responsible way. So how can you tell the difference? The next time you need a bad credit loan, be sure to ask your lender…


IF THEY WANT YOU TO PAY AN “ADVANCE FEE”…

Lenders judge how likely a borrower is to repay a loan based on their credit rating. If a potential borrower has “good credit”, then they’re likely going to pay what they owe. If a potential borrower has “bad credit”, then they’ll be considered a riskier prospect. A lender might be willing to look past a bad credit score if they can verify your income and ability to repay your loan at the end of the term. But if they want you to pay something in advance of the loan, something is definitely up.

Brett Graff (@BrettGraff), writer at The Home Economist and author of Not Buying It: Stop Overspending and Start Raising Happier, Healthier, More Successful Kids explains the risk: “If you have bad credit, you may be tempted by advance-fee loans. Here, the lenders tell you they guarantee the loans and they don’t care about your credit history, but they are total scams. Real, legitimate lenders always care about creditworthiness and scammers tell you what you want to hear, take your fee, and disappear.”

Advance-fee loans are, unfortunately, an increasingly common scam. The “lender” may be an online outfit that looks legitimate at a glance. They tell you your credit score isn’t a problem, so long as you pay an “application” or “processing fee” upfront before they give you the loan. You pay the fee, and the lender disappears with your money.1

IF THEY HAVE SHORT REPAYMENT TERMS….

One reason why payday lenders are so dangerous is because they give you so little time to pay back your loan. You’ll be expected to repay the full principal, with interest and fees, in as little as two weeks.

Can’t pay it back? Well, you’ll have the option to extend the loan for another couple weeks (for a costly fee). And this is where people get trapped. You can end up in the dreaded “cycle of debt,” forever extending your loan and never able to fully pay it back.

There’s a reason payday lenders have gained a bad reputation.

Andrew Fiebart (@AndyFieb), co-owner of the Listen Money Matters (@MoneyMattersMan) podcast and blog, warns that “the APR on payday loans is extremely high, so you’ll pay more each time you extend your loan.”

APR (or annual percentage rate) includes fees and interest, so you can get a full picture of how much a loan will truly cost you. When you compare the average APR of a payday loan (nearly 400%2) with the APR of an average credit card (12%3), you’ll see just how outrageous these predatory fees really are.

IF THEY’RE TRYING TO TAKE YOUR CAR…

Fiebart singled out another dangerous bad credit loan you should steer clear of:

Title loans require you to give your car’s title to the title loan company in exchange for an amount equal to the appraised value of your car. If you can’t pay back the loan, you run the risk of the lender repossessing your car.”

Since the APRs and payment terms of title lenders are similar to those of your bread and butter payday lenders, it’s terrifyingly easy to lose your car.

No matter how sure you might be that you can pay it back, it isn’t worth risking your car over.

WHAT KIND OF CREDIT CHECK ARE THEY PERFORMING?

Not all dangers are major and not all of them are exclusive to bad credit loans.

Before applying for a loan, you should find out if the lender is going to perform a hard or a soft credit check.

As mentioned above, you should expect a legitimate lender to perform a credit check. But a “hard credit check” can negatively affect your credit score.

If you need a loan and you already have bad credit, try to find a lender who will perform a “soft credit check”, which won’t affect your credit score.

We can’t imagine anything less fair than being rejected from a loan you need AND having it further hurt your credit.

IS THERE ANYTHING HIDDEN IN THE CONTRACT?

At the end of the day, the reason why many bad credit loans become dangerous is because lenders aren’t upfront about the risks you’re being asked to take on.

All of the things we’ve mentioned so far are risks that dangerous lenders will try to hide from you.

We touched on some of the major concerns, but it’s important that you read through anything you’re signing very carefully, look at the loan in terms of its APR, and ask as many questions as you need.

A good lender will want to work with you to make sure you’re getting the best loan possible.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


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About the Contributors:

Andrew Fiebert, is the Co-Founder and Chief Nerd at Listen Money Matters, a finance blog and podcast. After working as a data engineer at an investment bank, Andrew realized that there weren’t any good places to learn about personal finance. Often left to his own devices to learn what was needed for finances, Andrew put together Listen Money Matters. Listen Money Matters is a community to help others get their financial situation straight.

Brett Graff, has been seen writing and reporting on money and personal finance in The LA Times, Yahoo! Finance, Cosmopolitan, The New York Times and the Fiscal Policy Institute, to name a few. Brett also provides her insight in the column, The Home Economist, which is nationally syndicated and published in newspapers all over the country. Her book NOT BUYING IT: Raising Happier, Healthier & More Successful Kids is now available!


References:

  1. “Advance-Fee Loan Scams” Michigan.gov. Accessed February 22, 2017 from http://www.michigan.gov/ag/0,4534,7-164-17337-252538–,00.html
  2. “Average Credit Card Interest Rates (APR) – 2017” Valuepenguin.com. Accessed February 22, 2017 from https://www.valuepenguin.com/average-credit-card-interest-rates
  3. “What is a Payday Loan?” ConsumerFinance.gov. Accessed February 22, 2017 from https://www.consumerfinance.gov/askcfpb/1567/what-payday-loan.html

Grading Your Credit Score

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Your credit score might be the most important number in your life. It can have more power than your age, your home address, or even your income.

A great credit score opens up financial opportunities—like being able to afford new house or car—that aren’t as widely available to those with not-so-great scores. It’s a fact of modern life.

Of course, if you have a particularly poor credit score, it might feel less like a fact and more like a cruel joke.

Attorney and best-selling author of The Plastic Effect, Stephen Lesavich (@SLesavich) says, “Like it or not, decades of research have shown that a person’s credit score can be used directly to predict risk in underwriting of both credit and insurance.”

Your credit score determines a lot. So it will help to know…

How do credit scores work?

Your credit scores don’t just magically appear out of nowhere. They’re based on the information in your credit reports, which are compiled by the three major credit bureaus—Experian, TransUnion, and Equifax—and contain data on how much money you’ve borrowed, whether you make your payments on-time, etc.

The best way to explain credit scores is that they’re like a letter grade on your credit report: Just like getting an A is an easy way to tell if you did well on your math test, having a credit score of 780 is a fast way for lenders to see that, yup, you have a great history of using credit responsibly.

While each of the credit bureaus can produce their own version of the credit score, the most common kind of score is the FICO score. According to Lesavich, “About 90 percent of all lenders use FICO credit scores to determine creditworthiness.”

FICO scores are based on scale of 300-850 (300 is the worst score and 850 is the best). And since a credit score is like a grade, we thought it might be nice to translate some of those score ranges into letter grades. So without further ado…

Grade A

If have a credit score of 720 or above, congrats! You have great credit!

A credit score in this range is what everyone should be striving for. These scores mean that you make your payments on time, that you don’t max out your credit cards—it might even mean that you don’t carry any balance on your cards from month to month—and it also means that your debt load is manageable compared to your income.

While having a credit score of 720 might not entitle you to very best interest rates—those are usually reserved for people with scores 760 or higher—it still means that you will be saving thousands of dollars in interest. Plus, a score in this range will likely mean additional credit card rewards and perks.

Grade B

If have a credit score between 680 and 719 you have good credit.

There is nothing wrong with having a score in this range. Sure, you should definitely strive to improve your credit score—higher is always better—but by no means should you be freaking out about your score. It’s still above average.

A score in this range probably means that your credit history isn’t quite as long, or that there were one or two bills you had forgotten to pay. It could mean that your credit card balances are kind of high, or that you’re still dealing with some student loans.

People with scores in this range might be seen as a riskier bet, but they’re still likely to be approved for a personal loan. And no matter what kind of loan they’re taking out, their rates are going to be higher than people who have great credit. Not super high, mind you, but these folks are definitely paying a bit extra to borrow money.

Grade C    

If have a credit score between 630 and 679, you have fair credit.

Here is where things can start getting kind of dicey. Having a score in this range means that you probably have too much debt or more than a few late payments. You might even have a collection notice or two against you. It means you might not qualify for some unsecured personal loans—especially ones from a traditional lender—and that you will have to pay a substantially higher rate for a mortgage, auto loan or credit card.

While people with fair credit can still qualify for most kinds of loans—especially secured loans—this is the point at which the cost of borrowing really starts to add up. Trying to pay down your debt, taking care of your overdue accounts, and getting better about making payments on time are all good places to start if you’re looking to improve your score.

If you have a score in this range, it’s probably a good idea to get a copy of your credit report to see what’s going on. According to author and credit expert, Julie McDonough (@juliemarie0711), “One out of three consumers have errors on their credit report that can be affecting their credit scores. Most people are more interested in knowing their credit score and are not reviewing the source of that score, their credit report.”

McDonough says that you should obtain a free copy of your credit report—available per federal law at AnnualCreditReport.com–and that you should dispute any and all errors you find on the report.

According to McDonough, items to look for in your credit report include…

  1. Variations in data between the three major bureaus
  2. Accurate and timely reporting of payments—especially for accounts that have been paid in full
  3. The accuracy of your full name and social security number
  4. Review the current balances and terms to make sure that they are correct.

Grade D

If have a credit score between 550 and 629, you have subprime credit.

Okay, here is where things start getting really dicey. Folks with credit scores in this range are going to find themselves pretty much shut out from traditional lenders like banks. They are going to have a narrow range of lenders that they can borrow from, and might even find their ability to get hired or get an apartment affected by their credit woes.

If you have a score in this range, it’s likely that you have a history of late payments, have been sent to collections on one or more accounts, and have a debt load that is much too large for how much money you make. Whatever the reason, you should meet with a certified credit counselor to go over your finances; they can help with budgeting, establishing better money habits, and maybe even managing your debt through a debt management plan.

People with a href=”/payday-news/” itemprop=”relatedLink”>subprime credit scores are seen as a pretty risky bet to lend money to. And it makes sense why. Their credit score indicates that they haven’t been great about paying back lenders in the past. But while the higher interest rates lenders charge these borrowers are understandable, the predatory lending practices that many of them use are not. Having a credit score in this range means you are going to be a target for predatory lenders offering products like dangerous payday and title loans. Make sure you don’t become prey!

Grade F    

If have a credit score below 550, you have poor credit.

Take a deep breath. It’s going to be okay. Having a credit score in this range is … so it’s not great. In fact, it’s pretty much the opposite of great. But all credit scores are fixable. Even yours.

A score in this range is most likely the result of defaulting on past loans, or declaring bankruptcy. You likely have a number of collections notices on your report, or you might have a simply massive amount of debt – especially credit card debt. If you haven’t scheduled a meeting with a certified credit counselordo it now.

With a score under 549, you can kiss a loan from a traditional lender goodbye. Most of the loans you will qualify for will come with extremely high interest rates – which is understandable, given what your credit score says about your borrowing habits. And you likely won’t be able to get a credit card unless it’s secured.

Where you want to be careful is in avoiding predatory lenders. With short terms, lump-sum repayments, and a lending strategy focused on high-cost loan rollover, you will want to stay as far away from these lenders as possible. They won’t make your situation any better. They’ll only make it worse.

While the letter grades you received in school were often final, your credit score is not. To learn more about how credit scores do and don’t work, check out our conversation with Rod Griffin, Education Director for Experian. You can also read our ebook Credit Workbook: The OppLoans Guide to Understanding Your Credit, Credit Report and Credit Score.


About the Contributors:

Stephen LesavichPhD, JD, is an attorney, credit card expert, award-winning and best-selling author of “The Plastic Effect How Urban Legends Influence the Use and Misuse of Credit Cards”.

Julie McDonough, has more than 28 years’ experience as a real estate broker, loan broker, and credit consultant. Julie is also the author of How to Make your Credit Score Soar.

The Ultimate Guide to Bad Credit Personal Loans


Your Authoritative Guide to Online Bad Credit Loans

OppLoans  is committed to providing the highest quality bad credit loan information possible. If you have bad credit, there is hope. Take advantage of the many resources out there, speak with experts and make the right decisions for the financial health of yourself and your family. Read on to learn more about the world of Bad Credit Loans and how it may impact you.

Here are the cold hard facts:

This doesn’t paint a very rosy financial picture. The truth is that most of us live on the razor’s edge of financial disaster.

We might seem like we’re doing well — maybe the rent is paid, the kids are fed, and you’ve got enough gas in your car to get to work. But if you’re like most Americans, chances are you’re not saving enough money… Which means when a financial emergency strikes, you could find yourself in a tight spot.

The most common financial emergencies are:

Most Common Emergency ExpensesPercentages
Major household repairs26.4%
Car expenses26.1%
Medical emergencies24.4%
Job loss20.5%
Cost of living increases16.5%
Sudden moves11.3%

Source: JohnHancock.com

If you find yourself in one of these emergency situations, you’ll likely need to dip into your emergency fund to fix that transmission, repair that roof, or whatever the case may be. You do have an emergency fund of six months’ worth of living expenses saved up, right?

Chances are, you don’t. And neither do 55 million other Americans.

In that unfortunate scenario, you may need to borrow money. There are many ways to take out loans and many ways to borrow. Some traditional ways of borrowing money include:

  •       Taking out a bank loan
  •       Putting the expense on a credit card
  •       Borrowing a personal loan from friends and family

As with every financial decision, you’ll want to be very careful and make the right choice for you before you sign up to owe money to a bank, credit card company, or family member.

Every day, average Americans borrow money. Here are the facts about personal loans in America today.

Number of Americans Borrowing Personal Loans:

YearNumber of Personal Loans Accounts (in Millions)Percentage of Americans with a Personal Loan
2019305.311
2018273.310.1
2017245.39.2
20162268.7
2015208.58.4
2009237.510.5

Source: Experian

Snapshot of National Personal Loan Info as of Q4 2018:

Average Personal Loan Balance$15,143
Average Monthly Payment$353
Number of Outstanding Personal Loan Accounts36.8 million
New Personal Loan Accounts6.1 million
Number of Consumers with a Personal Loan34.3 million
Existing Personal Loan Debt$291 billion

Source: Experian

Now, let’s say you’ve decided to borrow money to fund that emergency expense. You go to the bank or call up that rich uncle —but it doesn’t go the way you expect. Your uncle can’t or won’t help, and the bank has decided it’s too risky to lend you money due to your “bad credit.”

What does this mean? And what are you going to do about your financial emergency? You need money now, after all. But your bad credit is holding you back.

Let’s get to the bottom of this “bad credit” mystery.

What Does Bad Credit Mean?

More than half of Americans have “bad credit.”

If you’ve ever used a credit card or borrowed money, then you likely have a history of using credit. This credit history is like a record of your credit usage, debts incurred and paid (or not paid), and other data that describes how well (or poorly) you use credit.

All of this information is collected by the three different credit bureaus and compiled into something called your credit report. Your credit report is a detailed document that itemizes any debts you’ve failed to pay (such as any previous personal loans you may defaulted on). You can get a copy of your credit report here.

Your credit report will then inform a number called your Credit Score. Think of this like a grade that reflects how well you use your credit and how reliably you pay your debts.

Confused yet?

Don’t worry. In simplest terms, the number you’ll need to understand about your own creditworthiness is your credit score. You can learn how to access your credit score here.

Once you know your credit score, compare it to this table to learn how good (or bad) your credit ranks is.

FICO Score Ranges and Corresponding Credit Ratings according to Experian.
Credit ScoreRating
800-850Exceptional Credit
740-799Very Good Credit
670-739Good Credit
580-669Fair Credit
300-579Very Poor Credit

If your score is less than “Good“, don’t panic. You’ve already taken the most important first step of learning what your credit score is. Improving your credit score can be done; i. It will take time and dedication,; but it can be done.

Are you thinking: That sounds hard. Why should I want to improve my credit in the first place?

Good question. Let’s look at…

How Can Bad Credit Impact Your Life?

What’s important to you? Providing a stable life for yourself and your family? Improving your quality of life? Being able to afford the things you want?

If those are concepts you value, then credit is probably important to you too.

If you have good credit, you’ll want to maintain it. If you have bad credit, you’ll want to improve it. Why? Because bad credit can have a major impact on many aspects of your life and it can hold you back in the following ways:

  •       Bad Credit can make it more difficult to get approved for various types of loans including car loans, mortgages, personal loans and more.
  •       The loans you are approved for will likely come at a much higher interest rates than loans offered to those with higher credit scores.
  •       Potential landlords will likely check your credit. A bad credit score can make it difficult to get approved to rent. The more desirable the apartment, the more important your credit score is. If you’re competing with other prospective renters for a property, the potential tenants with the best credit will be the most attractive to the landlord. Will it be you? 
  •       Bad credit could also hinder your ability to get certain jobs. Have you heard that prospective employers can run credit checks on you as part of the job interview process? It’s true.
  •       If the position you’re applying for is in upper management or requires handling of cash, then your credit score could be used to determine if you’re the right candidate for the role. A potential employer must inform you if they’re going to check your credit.

From what you can purchase, to where you live, to certain employment options, and more, credit is an essential element of modern life. 

Okay, so you have “Bad Credit”, and you want to improve it, but you still need money now.

So what options are available?

What are Bad Credit Loans?

If you need to borrow money, then what you need is someone like a bank, credit union, family member or other body, to lend you the money.

If you’re the borrower, you’ll receive an amount of money, called the principal. This is money that you can use now, but will have to pay back later.

Depending on the type of loan you borrow, that loan may:

Now, most loans aren’t free. You need to pay for the privilege of using someone else’s money now. The cost that you’re charged for using someone else’s money is called interest.

Typically, a lender determines how much interest to charge a borrower based on their creditworthiness. This is how a creditor grades a borrower’s risk profile, or how likely it is that the borrower will repay the loan that he or she has borrowed.

The riskier the borrower is perceived to be, the more interest the lender will likely charge. The less risky a borrower is perceived to be, the less he or she can expect to be charged. (It pays to have good credit!)

So back to you…

If you have bad credit, and need a loan, then it’s less likely you’ll be approved by most lenders. The lenders that will provide you a loan will want to charge you more interest to de-risk themselves for the cost of providing you that loan.

A bad credit loan, then, is a loan that’s offered to a borrower with bad credit. The hallmarks of a bad credit loan are typically:

  • Higher interest
  • Shorter Terms
  • Very often they are secured by a piece of collateral, such as a car in the case of a title loan. Which are often considered predatory. 

A bad credit loan is a type of personal loan offered to borrowers with weak, bad, or no credit. There are many different loans and many different types of financial institutions that offer them—banks, credit unions, and online lenders, among others.

One characteristic of bad credit loans is that they will generally be expensive. This is because lenders charge higher interest rates to borrowers with bad credit than they do to borrowers with good credit.

So what is a good credit score and what is a bad one? Generally, a FICO score below 580 is considered bad.  If you don’t know your credit score, you may be able to access it through your online bank account or credit card statement.

Who has Bad Credit?

When you learn that you have bad credit, it can be a scary feeling. You might feel like you did something wrong. You might feel like you’re alone.
But are you alone? Not at all. Check out these numbers:

FICO Score RangePercentage of US Consumers
800—85020.7
750—79919
700—74917.1
650—69913.2
600—64910
550—5998.5
500—5496.8
300—4994.7

Source: The Ascent from The Motley Fool

How do Bad Credit Loans work?

At this point, you may be thinking: Wait a minute! I have bad credit AND I’m broke. And because of that, a lender wants to charge me more interest?

Well the answer, sadly, is yes. Lenders are probably going to charge you more interest.

When you have bad credit, it means you might have a history of paying your debts late or not at all. (You can read more about credit scores and what they mean in our guide to understand your credit score eBook.) This makes it riskier for lenders to let you borrow money. From their perspective, you already have a history of not paying your debts, so why should they expect it to be any different with them? If they lend you a thousand dollars, there’s a very real risk that they’re not going to be repaid.

To compensate themselves for that risk, lenders charge higher interest rates (the cost of borrowing money) to borrowers with bad credit.

Are Bad Credit Loans Safe?

If you have bad credit and need a loan, there is good news and bad news.

First the good news, you can get many loan offers.

The bad: Some of the loans offered can be predatory. Predatory in this instance is a loan that doesn’t really look at the consumer’s ability to repay, offers higher loan amounts than a consumer can likely repay in a short term, and provides very short repayment windows. This can trap a borrower in a cycle of debt.

A bad credit loan may sound like a good idea (You get cash now to deal with your financial emergency. Great, right?) but hold on. Remember what we just covered: Typically bad credit loans are more expensive than normal loans and, depending on the lender and type of loan, they can even be predatory, as we talked about above.

You should always be careful when considering borrowing.

Not all Bad Credit Loans are dangerous. There are many bad credit loans offered by certain banks, credit unions and lending circles that take into consideration a consumer’s needs, income and repayment preferences.

How to Tell if a Lender is Legit

When evaluating potential lenders, here are some of the actions you can take before you start an application:

  1.     Check Google reviews
  2.     Check the BBB rating
  3.     Check payment requirements. (Are advanced payment of a loan required? If so, you’re probably looking at a scam.)

If you have concerns about the business practices of a lender you’re already doing business with, contact your state’s regulatory agency.

Can Bad Credit Loans improve your credit?

As with all loans, this question has many answers (and many caveats). There are cases in which a bad credit loan can help build your credit history. But in order to make this happen, it’s critical that you select a loan that:

  1.     You can afford
  2.     Is from a lender that reports repayment to the credit bureaus.

If you borrow a bad credit loan from a lender that reports your payments to the credit bureaus and you successfully make your payments on time, then that can have a positive impact on your credit report.

The Bottom Line

Bad Credit can hold you back in life—especially if you have a financial emergency. But there are ways get the money you need now. A bad credit loan from a reputable lender is one option you may consider.

Always do your research first and make sure you understand the terms and conditions of any contract you sign.

With diligence, you can overcome bad credit.

Related Resources

Glossary

eBook

Video

Blogs: The Risks of Bad Credit

Blogs: Rebuilding Bad Credit

Payday Loan Rollover: How Short-Term Loans Turn Into Long-Term Debt

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4 out of 5 payday loan borrowers wind up extending their loans and paying much, much more than they expected to than when they originally borrowed.1 How does this happen? Through a harmless-sounding technique called rollover.

 


Why Do People “Need” Payday Loans in the First Place?

People who turn to payday loans often have “bad” credit score—a FICO score of 630 or less.

Not sure what a credit score is? Let Katie Ross, Education and Development Manager for American Consumer Credit Counseling explain. “A credit score is all of the data contained in a credit report, which includes credit history and current account statuses, all compiled into one number using the same method for every consumer so it is standardized. The score is a tool for creditors to quickly assess borrowers to make initial product and interest rate offerings without performing a full credit inquiry.”

If you have a low credit score, then you’ve likely had an experience of getting shut out of from borrowing from traditional institutions like banks or credit unions. And it means that the interest rates you pay on the loans you can get are going to be much higher.

Lenders that serve these “subprime” borrowers—people whose credit scores are below average—charge those higher rates in order to protect themselves from risk. Since subprime borrowers default on their loans at a higher rate than borrowers with prime scores, lenders risk losing too much money if they charged them normal interest rates.

Enter: payday loans.

On paper, these are short-term loans with high-interest rates—the perfect way for someone with poor credit to get cash in a hurry. But in the real word, many payday loans end up trapping borrowers in a cycle of extremely high-cost debt, one from which it can take them years to escape. And the reason for that can be summed up in one simple word: rollover.

How does loan rollover work?

When a person cannot afford to pay their payday loan off by the given date, many lenders will give them the opportunity of “rolling over” their loan. It’s basically giving them an extension on the loan’s due date in return for an additional fee.

The most common form of loan rollover involves the borrower paying off only the interest owed on their loan. So for a 14-day, $300 loan with a 15 percent interest rate, rolling the loan over would mean paying the lender the $45 owed in interest in order to secure a 14-day extension on the due date.

But what about that additional fee? Well, what happens is that the lender then charges the borrower an additional 15 percent in interest on this new, extended term. In one fell swoop, the cost of borrowing for this payday loan jumps from 15 percent to 30 percent. That’s a big jump!

And if the borrower is still unable to pay their loan off after the new 14-day term, the lender might have them roll their loan over again.  That’s an additional $45 paid, and an additional 15 percent interest fee charged. The cost of borrowing has now risen to 45 percent, and the borrower is nowhere closer to paying off the original $300 they borrowed.

That’s how a “short-term” payday loan can so easily turn into a long-term problem.

The cost of rollover

If the main appeal of payday loans is that they can get you out of debt fast, then rolling a loan over and over again would seem entirely unappealing. And yet, it’s a fact that many payday loan customers end up with long-term debt.

According to a 2014 study from the Consumer Financial Protection Bureau (CFPB), 80 percent of all payday loans are the result of rollover or reborrowing—which is the practice of taking out a new payday loan soon after the old one is paid back. (Like rollover, reborrowing is a sign that a given borrower cannot afford to pay back their payday loan.) This begs the question: would the payday loan industry survive if its customers could afford to pay back their loans the first time?

Maybe not. Another study from the CFPB cites an alarming statistic: the average payday loan customer takes out 10 loans per year and spends almost 200 days in debt. Even though payday loans are sold as a “short-term” debt solution, these numbers point to a pattern of long-term indebtedness.

The reason that rollover (and reborrowing) are so common for payday loans likely has something to do with how these loans are structured. Specifically, how they are designed to be paid back all at once. According to a study from the Pew Charitable Trusts, the average payday loan borrower states they can afford about $100 a month towards their loan, even though they owe closer to $430.2 With only a few short weeks to pay back the loan, many payday loan borrowers find that they simply cannot afford to pay the loan back all at once.

How to Avoid Payday Loans

Folks with bad credit who are considering a payday loan should instead do two things.

The first thing they should do is consider out taking a long-term installment loan instead—as these loans designed to be paid off in a series of small, manageable payments (read more in What’s the Difference Between a Payday Loan and an Installment Loan?). Instead of accruing an additional interest fee every two weeks without ever touching the loan’s principal amount, borrowers who take out an installment loan would be paying both off principal and interest with every payment they make.

The second thing these people should do is focus on improving their credit scores. The better their credit, the less likely they are to resort to a payday loan.

“It’s no secret that consumers with excellent credit have access to their best credit cards and lowest interest rates,” says Chris Piper, Director of Market Strategy for DriveTime Automotive Group. “Having subprime credit can negatively affect your ability to finance a vehicle, own a home and even got a job – especially if you will have access to money or its’ in the finance industry. Slowly working on improving your credit is imperative to reducing financial stressors in your life.

Piper stresses that, “Outside of regularly reviewing their credit reports and scores (and knowing that you should never pay to review your credit reports or scores), subprime consumers should understand what element of their credit history is keeping their score low.”

He says that “it might be as simple as an incorrectly reported delinquency, or maybe the utilization on a single credit card is too high and negatively impacting their score. Knowing what the exact reasons why their score is low and practicing good credit hygiene and resolving those issues, when possible, is a sure-fire way to move out of the subprime credit range.”

According to Sacha Ferrandi, founder of Source Capital Funding, Inc., “One of the best ways to avoid payday and predatory lenders is to treat credit cards like debit cards, paying back the credit card loan as soon (or shortly after) you make the purchase. This is a great example of borrowing responsibly, as the credit card simply becomes a way to earn points in addition to making a purchase.

If you have credit card debt, make sure to pay off that debt on time” says Ferrandi. “Missed payments will severely hurt your credit score and if your credit score drops low enough, financing from a bank will become next to impossible, leaving only payday advances to rely on if an emergency arises.”

And even if you still need to take out a loan, choosing a personal installment loan could help you pay your bills and improve your credit at the same time. Certain lenders, like OppLoans, report your payment information to the credit bureaus. Payment history a huge factor in how credit scores are calculated.

While there are no “magic bullets” when it comes to raising your score, making your payments on time is a great place to start. Plus, with an installment loan, you’re more likely to have payments you can actually afford. Unlike payday loans, installments loans are designed to be paid off the first time—no rollover required.

Works Cited

1 “CFPB Finds Four Out Of Five Payday Loans Are Rolled Over Or Renewed.” ConsumerFinance.gov. Accessed on February 10, 2017 from https://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-four-out-of-five-payday-loans-are-rolled-over-or-renewed/.

2 “How Borrowers Choose and Repay Payday Loans.” PewTrusts.org. Accessed on February 10, 2017 from http://www.pewtrusts.org/~/media/assets/2013/02/20/pew_choosing_borrowing_payday_feb2013-%281%29.pdf



About the Contributors:

Sacha Ferrandi, is the Founder of Source Capital Funding, Inc. (HardMoneyFirst.com) and is an expert in finance, entrepreneurship, and real estate. Source Capital Funding, Inc., is based in San Diego and operates across the United States.

Chris Piper, Director of Market Strategy for DriveTime Automotive Group (DriveTime.com), the nation’s largest used car dealership network helping people with less-than-perfect credit find and finance a vehicle.

Katie Ross, joined the American Consumer Credit Counseling (ACCC) 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.

No Credit Check Loans

question


You already know that predatory lenders target those who are financially vulnerable (those with low income, little savings and/or bad credit). So if you have bad credit and need a loan, how can you avoid turning to a predatory payday or title loan?

As with any major financial choice, it pays to do your homework. Work with a lender who will focus on your ability to repay your loan rather than just your credit score. Ask potential lenders if they perform a hard credit check (which can further hurt your credit) or a soft credit check (which does not affect your credit score).

Legitimate “soft credit check” lenders will focus on your ability to repay your personal loan. Instead of concentrating on your credit score, they’ll likely want to verify that you have regular employment, a bank account, and will actually be able to repay what you borrow within the terms and conditions of your loans.

Also be sure to ask any potential lenders if they report on-time payments to the credit bureaus. If they do, that means regular on time repayment of your installment loan will actually help you build credit which will help you save money on interest rates in the future.

Bottom line: if you have bad credit and need to borrow money, be wary of language like “bad credit loans” and “no credit check loans.” Look for “soft credit check” loans from legitimate lenders who are highly rated on sites like Google and Facebook. A soft credit check loan can assist you with your current financial emergency and help you build your credit for tomorrow!

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