The “Interest rate” is the price of money. In other words, an interest rate is the amount that a lender charges to loan out money—it’s designed to be high enough to cover the risk and fees involved in making a loan. Certain loans have very low risk and thus very low interest rates, like mortgages. Personal loans to people with low credit ratings have more risk, so they tend to have higher rates.

Like any price, sometimes the amount you pay is worth the services you receive, and sometimes it is not.

## What is APR?

Interest rates are usually expressed as annual percentage rates (APR). This is the rate you would pay if you borrowed money for an entire year, without paying any of it back.

Let’s look at how it works with a payday loan. You pay \$15 to borrow \$100 for two weeks—an interest rate of 15%. That’s not the annual percentage rate, though. APR is the interest calculated over a full year.

And, if you don’t repay any part of the loan, the amount owed can become huge. Let’s suppose you take out a payday loan with a 15% fee on the first of the year. You roll it over every two weeks without paying off any of the amount borrowed. Look how quickly the total amount grows: in two months, you owe more money than you borrowed.

 Initial Amount Borrowed Fee Total Amount Owed Total Interest Owed January 1, 2016 \$100.00 \$15.00 \$115.00 \$15.00 January 14, 2016 \$17.25 \$132.25 \$32.25 January 28, 2016 \$19.84 \$152.09 \$52.09 February 11, 2016 \$22.81 \$174.90 \$74.90 February 25, 2016 \$26.24 \$201.14 \$101.14 March 10, 2016 \$30.17 \$231.31 \$131.31 March 24, 2016 \$34.70 \$266.00 \$166.00 April 7, 2016 \$39.90 \$305.90 \$205.90

What happens is that you are charged interest on outstanding interest. It’s a phenomenon called compound interest, and it is incredibly powerful. Or, as the bankers like to say, those who do not understand compound interest are doomed to pay it.

In almost all states, the interest rate on a loan must be quoted as the annual percentage rate (APR) to help you compare the rates being offered by different lenders. The equation used to calculate it is:

(1 + r)t = 1 + APR

It’s not as hard to calculate as it might seem. The r in the equation is the interest rate charged each period, written as a decimal, and t is the number of time periods in a year. So, if the interest rate were 3% a month, you would find the APR to be 42.58%.

The problem is that some lenders charge rates that are well above what they need to make to offset their risk. The payday loan, with 15% interest charged every two weeks, has a huge APR:

(1 + .15)26 = 1 + 36.76

That number, by the way, is 3,676%. Yikes!

Usury is the practice of charging excessive rates of interest. It is outlawed in many states, but not all. Even states that regulate interest set a maximum rate, but some lenders charge less. That’s why it’s pays to shop around.

Now, the compound interest calculation assumes that you can roll the loan over every two weeks without paying off even part of the principal, and that’s not going to happen. One way to reduce the total amount of interest paid is to make regular payments of both principal and interest.

## Build a better credit score

The other way to reduce the amount of interest paid is to build a better credit score. That reduces the risk to the lender, which means that the rate charged will be less.

One way to build your credit is to make regular, on-time payments on your debts. If you take out a personal loan, make sure the lender reports on-time payments to credit unions, this can help build (or repair) your credit.

Understanding interest rates can help you make smarter financial decisions in the long run. It’s information that you can use to improve your financial future.

## Why OppLoans

OppLoans is the nation’s leading socially-responsible online lender and one of the fastest-growing organizations in the FinTech space today. Embracing a character-driven approach to modern finance, we emphatically believe all borrowers deserve a dignified alternative to payday lending. Currently rated 5/5 stars on Google and LendingTree, OppLoans is redefining online lending through caring service for our customers.

# A Crash Course in Credit Card Cash Advances (1 of 3): The Basics

## Tough times happen. When money gets tight, some people will turn to credit card cash advances to get by, but the dangers often far outweigh the benefits. Here’s everything you need to know to prep for a financial challenge.

Credit card cash advances can seem helpful because they’re fast, but you’ll often find that the long-term results are dangerous amounts of debt, mounting fees, and worsening spending habits. Protect your money and your credit by taking the OppLoans Crash Course in Credit Card Cash Advances.

## What is a Credit Card Cash Advance?

People regularly use credit cards for daily purchases or big-ticket items like appliances, car repairs, or other big surprise expenses. Knowing how to use a credit card responsibly can provide you with options you might not normally have. For instance, say your computer crashes unexpectedly. You may not have enough cash on hand for a new one right now, but a credit card allows you to make that purchase and pay it off over time.

Making payments on time even helps build your credit score (resulting in a higher credit limit).

You can also use your credit card to withdraw cash. This is similar to taking out cash at the ATM or some retailers using a debit card, but the money doesn’t come from your checking account, it comes out of your credit limit–which is, technically, money you don’t have yet. Essentially, you’re taking out a short-term, small-dollar loan. This is a credit card cash advance.[1] It seems easy … almost too easy.

## How Does It Work?

Well, it may seem obvious, but the first thing you’ll need to obtain a credit card cash advance is … a credit card (crazy, we know). There are a few different methods for obtaining a cash advance from your credit card provider. You can withdraw cash from an ATM the same way you would with a debit or check card. In order to do this, you’ll need to have a PIN number set up through the card provider. If you don’t have a PIN, you’ll need to contact the credit card company to set it up (read more in What You Should Know About Cash Advance Loans: An interview with financial expert Ann Logue).

You can also withdraw money from a bank teller. This may be wiser than using an ATM, as a bank teller can answer any questions you may have about the transaction and the fees. Some banks may even charge less for withdrawing money from a teller. Make sure to ask questions and know what fees and charges you’re agreeing to prior to receiving your advance.

Convenience checks can also be used to collect a cash advance. These are similar to standard checks, but they’re associated with your credit card account instead of your checking or savings account. Companies will occasionally mail these to customers along with special offers like 0% APR for a limited time.[2]

## How Much Can You Get?

The most important thing to remember is to ask questions. If you’re unclear about how something works or how much you should withdraw, even about whether you should even get a credit card cash advance at all—ask questions. Do your research and make sure that you’re making the best decision for your financial future.

## True or False: Credit Card Cash Advances are a Risky Choice

This is an easy one. Borrowing against money you don’t have is always a gamble.

If you’re looking for a safer way to borrow, consider a personal installment loan from OppLoans. Our loans have longer terms (up to 36 months), more flexible repayment plans, and we report on-time repayments to build your credit. Click “Apply Online” below to get started today, and congrats on skipping that dangerous credit card cash advance. We knew you were too smart for that!

References:

[1]Konsko, Lindsay “What is A Cash Advance?”NerdWallet.com Accessed May 13, 2016.

[2]“What is a Credit Card Cash Advance?”ValuePenguin.com Accessed May 13, 2016.

Ah, the joys of summer: grilling in the backyard, watching the world burn in the latest Hollywood blockbuster, and, of course, the beach. It’s the time of year to kick back, put your feet up, and chill the heck out. But if you’re dealing with financial troubles, you might have a hard time relaxing.

Those high credit card payments, past due bills, and denied loan applications can loom over you like a storm cloud. Rather than wallow in doom and gloom, why not tackle those financial problems head on? We’ll even help you out by giving you this simple piece of advice: focus on your credit score. Now might be the time to set aside that light-and-fluffy beach read and check out these five tips for repairing your credit.

## Get a Copy of Your Credit Report

Before you can fix your credit score, you have to know what’s in your credit report. It’s what your credit score is based on, and it tracks your history of credit-use over the past seven years.

A copy of your credit report will help you see what exactly is dragging your score down into the dumps. Plus, credit reports aren’t perfect; some will contain errors. If you find an error on your credit report, you can contact the appropriate credit bureau—Experian, TransUnion, or Equifax—to get it corrected. Learn more in the blog Grading Your Credit Score.

Under federal law, each credit bureau is required to provide you one free credit report per year—but only if you request it. To order a free copy of your credit report, visit www.AnnualCreditReport.com.

## Get Current and Stay Current

This is a two-parter that includes your ongoing bills and your outstanding collection notices.

If you have any outstanding collection notices, you’ll want to get them taken care of ASAP. A closed collection will still show up on your credit report for up to seven years, but it’s much better than an open one.

If you have trouble paying your bills on time, try setting reminders or setting certain bills to auto pay. Paying bills on time is one of the easiest steps you can take towards improving your credit while paying bills late is one of the easiest ways to hurt it.

## Pay Down Your Credit Card Debt

Easier said than done, right? Still, if you’re looking for ways to boost your credit score, focusing on paying down your credit card debt is a great way to go. Having high amounts of credit card debt can really hurt your score. The sooner you can lower those balances, the better.

How exactly are you going to do this? Well, it’s probably going to require some belt-tightening. If you already have a household budget, then give it an honest look and see where you can cut back. If you don’t have a budget: create one. There are a ton of great apps available that make budgeting easier than it’s ever been. Find money where you can and use it to pay off your cards. You might even try increasing your income through a side gig or selling unused valuables.

## Keep Old Accounts Open, Don’t Open New Ones

One measure used to determine your credit score is how much of your available credit you’re actually using. If you have a credit card with \$5,000 limit and you’ve only used \$2,000, that’s seen as more responsible than having a card with a \$2,000 limit that you’ve maxed out.

Once you’ve paid off your old credit cards, you might be tempted to close out the accounts. Don’t! Keep the accounts open and don’t use them. This will help your credit score.

On the other hand, if you’re thinking of opening up a bunch of new cards to take advantage of the extra unused credit, we advise against that. Recent credit inquiries are one of the factors on your score. A bunch of new credit lines could result in your credit score going down.

## Be Patient

There is no one-and-done solution for fixing your credit score. It’s not going to shoot up 100 points overnight. So take a deep breath, settle in, and prepare yourself mentally for the long game. Even if you start making more informed decisions today, it could take up to seven years for your previous not-so-good choices to stop affecting your score.

In the meantime, as long as you’re checking your credit report, making payments on time, paying down your credit card debt, and using less credit than what you have available, you are well on the road to a higher score and sunny financial future.

At OppLoans, we help improve our customers credit scores by reporting their on-time payments to credit bureaus. Taking out a safe, lower-interest, personal loan with OppLoans is one action you can take now to get started on the road to financial recovery. Click “Apply Online” below to get started today.

Now that you’re on your way to improved credit, go ahead and unwind at the beach! You’ve earned it.

# Climb Your Way Out of Debt: 6 Paths You Can Take Today

## If you owe money, you are not alone—in fact, you are part of the overwhelming majority. It’s estimated that eight out of ten Americans are in debt![1]

Whether you’re burdened with credit card debt, student loans, car payments, a mortgage, or any other kind of debt—there are ways to manage it and eventually get out of debt completely. Here are six different strategies you can adopt today to climb out of debt.

### Debt Consolidation Loans

Maybe you’re making monthly payments on several different outstanding debts and it’s becoming too much to manage. A debt consolidation loan might be right for you.

A debt consolidation loan means taking out one loan in order to pay off several debts. This new loan simplifies payments; the borrower will now only have one payment to make each month, rather than several. You’ll then make fixed, monthly payments on the new loan until it’s completely paid off. Ideally, this loan will also provide the borrower with lower monthly payments, a lower interest rate, or both.

A debt consolidation loan should be carefully considered, however, because while it will provide you more convenience, it can end up costing you more money. These loans don’t always mean lower monthly payments and interest rates.

Another way to consolidate debt is through credit card debt consolidation.

Many credit card companies allow customers to transfer debt into one account. Like a debt consolidation loan, this simplifies your payment process. This will likely lower your payments, but there is typically a fee. Additionally, it’s important to read the fine print, because the lower interest rates are often only for a limited time. These low-interest credit cards are typically only available to people with good credit.

### Debt Management Plans

Another way to deal with debt is through a Debt Management Plan (DMP). Basically, DMPs require that the borrower comes to an agreement with the lender. This agreement details how the debt will be repaid. This arrangement is usually for a term longer than the original repayment schedule.[2] Learn more about debt management plans in the article Debt Consolidation: A Small Solution to a Big Problem.

Most debt management plans are reached through credit counseling services or nonprofits. These credit counseling agencies will negotiate with your creditors on your behalf. Their goal is to lower your monthly payments and have your late fees and penalties waived.[3]

Companies that offer debt management plans often have relationships with banks and credit card companies, which will go a long way in making sure that your interest rates will be lowered so that you can repay what you owe.

But there can be drawbacks to using this method. In addition to having you consolidate all of your payments into one, DMPs will often have you close your credit cards which could affect your credit score. You’ll also see a “DMP” notation appear on your credit report.[4] It’s important to do your research before agreeing to a DMP because the Federal Trade Commission has found that some companies that offer DMPs are out to defraud customers.[5] Should you decide on a debt management plan, you will pay money directly to a credit counseling service, they will then make payments to your various creditors.

According to a recent survey, debt management programs cost the average borrower \$24 per month. In addition, most plans require an enrollment fee at the beginning of the plan, but that extra money may be well spent if you save on interest and late fees.[6]

### Debt Snowball Method

The debt snowball method helps you prioritize your debts. Simply put, you start by paying off the debt with the lowest outstanding balance. Once that debt is paid off, you move on to the debt with the next lowest outstanding balance, and so on until all of your debts are paid off.

Any amount that was going toward a minimum monthly payment is applied toward the next debt once the first is paid off.

Creating a budget and cutting back wherever possible is also crucial since it will free up funds that can go toward paying down your debts.

Like a snowball rolling down a mountain, the Debt Snowball builds momentum. Because you pay off your smallest debt relatively quickly, it can give you the psychological boost you need to keep going and pay off all of your debts. The drawback to the debt snowball method, though, is that you may end up paying more in interest over time because it focuses on paying off the outstanding principal rather than taking into account the interest being accrued on that principal.

### Debt Avalanche

Debt avalanche is similar to the debt snowball method, but the difference is you pay off the debt with the highest interest rate first and the debt with the lowest interest rate last. This method will likely take longer, though. However, debt avalanche, or debt stacking as it’s also known, often results in the borrower paying less in interest in the long run. This is because they borrowers are paying off the most costly debt first. With the highest interest debt being paid off first, the debt that is left over is accruing less interest, and therefore costs the borrower less money.

### Bankruptcy

Bankruptcy is often the last resort for people and businesses who are overcome with debt.
There are three kinds of bankruptcies that individuals and businesses in the US can file for: Chapter 7 (lenders seize assets and sell them to recoup their funds), Chapter 11 (usually filed by businesses, and involves them reorganizing business affairs and assets), and Chapter 13 (requires that the debtor submit a plan for repayment, usually within a few years).

Though bankruptcy is an option, it shouldn’t be entered into lightly. Once you file for bankruptcy, it can negatively impact your credit score for 10 years. This can hurt your chances of taking out a loan, getting a job, or even finding a place to live.[7]

### A Better Personal Loan

If you’re one of the millions of Americans with multiple debts and you need to consolidate, consider a personal installment loan with OppLoans. We offer loans that range from \$1,000 to \$10,000 with reasonable interest rates and repayment terms anywhere from 6-36 months.

Consolidate your high interest debts with OppLoans. Our rates are up to 125% lower than other personal lenders and we never charge prepayment fees. Apply online, get approved in minutes, and receive your funds as soon as tomorrow. You can manage your debt and OppLoans can help.

References:

[1] Holland, Kelley. “Eight in Ten American Are in Debt: A Study.” CNBC.com Accessed May 27, 2016.

[2] “Debt Management Plans Explained.” BBC.com Accessed May 27, 2016.

[3] Khalfani-Cox, Lynette. “Debt Management vs. Debt Settlement: Which Is Best?” AARP.org Accessed May 27, 2016.

[4] “What’s the Difference between a Credit Counselor and a Debt Settlement Company.”ConsumerFinance.gov Accessed May 27, 2016.

[5] “For People on Debt Management Plans.” Consumer.FTC.gov Accessed May 27, 2016.

[6] O’Shea, Bev. “How Does Debt Management Work?” NerdWallet.com Accessed May 27, 2016.

[7] “Debt Relief or Bankruptcy?” Consumer.ftc.gov.com Accessed May 27, 2016.

# Credit

Credit
Credit is a method of borrowing that enable you to buy something now and pay for it later. For example, if you make a purchase with a credit card or take out another type of line of credit, you’re required to pay that money back in the future. With almost all forms of credit, the borrower has to pay back more than they were originally lent. Generally, they do this by paying interest on the amount borrowed.

### What is credit?

Credit is a type of borrowing — with most forms of credit, the borrower has to pay back the lender more than they originally borrowed. This ensures that offering credit is profitable for the lender. Generally, the cost of borrowing comes in the form of interest that the lender charges on the amount borrowed.[1]

Credit can be extended to individuals, businesses and governments. Since the rules that govern credit can be very different for governments and businesses, this glossary page will focus primarily on personal credit.

### How does credit work?

The three most common forms of credit are loans, lines of credit and open accounts.[2] Loans involve a lump sum of money that is issued to borrow, while lines of credit involve a pre-determined credit limit that the borrower is able to borrow up to.

Open accounts are used for utilities like electricity, gas and cable. With an open account, there is a balance every month that has to be paid in full. Because the accounts have to be paid off in full and cannot be extended past the due date, there is no interest. The cost of lending is included in the amount that is charged. Charge cards also use an open account model.

A person’s ability to borrow money will often rely on their credit score, which states how likely they are to meet their credit obligations based on past behavior. Many lenders report payment (and nonpayment or late payment) to credit bureaus, which are businesses that track a person’s history of credit usage and put it all into a document called a “credit report“. Credit scores are based off of the information in a person’s credit report, so failure to repay or consistently being late on payments could cause your credit score to suffer. This would then affect the kinds of credit and interest rates that you are able to qualify for in the future.

### What is interest?

Interest is an amount of money that the borrower pays the lender beyond the original amount borrowed. It is the cost the people pay for the privilege of borrowing money.

However, Interest is different from a normal flat fee. More specifically, interest is a percentage of the amount borrowed that is charged over a certain period of time. [3] For instance, a loan could have a monthly interest rate of 1%. This means that, for every \$100 that’s borrowed, the borrower owes \$1 every month until the loan is repaid. Now, this interest rate could also be expressed as a 12% annual interest rate, because getting charged 1% per month for 12 months would come out to 12% per year.

When taking out a loan or line of credit, it is always a good idea to check the interest rate. However, it’s also a good idea to find out the loan’s annual percentage rate, or APR. The APR for a loan or line of credit includes not just the interest rate, but also any additional fees that the lender is charging. It will give you a better idea of the loan’s actual cost.

### What is secured and unsecured credit?

Some credit is secured by collateral, which is a term for any valuable asset that the lender can claim if the borrower does not repay their loan or line of credit. Common forms of collateral are houses, real estate and motor vehicles. Many larger loans and lines of credit are secured by collateral to protect lenders against the risk that the borrower will not repay. Using collateral also allows lenders to charge lower interest rates for these loans. Credit that is backed by collateral is called “secured credit”.

There are also forms of credit that are not secured by collateral. These loans and lines of credit typically have higher interest rates as they are a bigger risk for the lender. Because the lenders cannot count on the collateral in the event of nonpayment, the lenders rely on a person’s credit score to determine whether or not they can repay the loan. Credit that is not backed by collateral is called “unsecured credit”.

### How does a loan work?

With a loan, the borrower is given an amount of money that they then pay back over time plus fees and interest. The amount that they are lent is called “the principal”. Loans usually come with a specified term, or period of time, over which the loan is to be repaid. For instance, a loan with a six-month term would be paid in full within six months, whereas a loan with a 12-month term would be repaid within a year.

Common kinds of loans include mortgages, auto loans, personal installment loans, payday loans and small business loans.

### What is an installment loan?

An installment loan is a loan that comes with a schedule of regular payments through which the loan is repaid over a set period of time. Each payment that is made goes towards paying off both the interest and the principal. The first payments that are made go primarily towards the interest, with each payment paying more and more towards the principal. This process of paying off the interest and the principal according to set schedule us called “amortization”.

Some loans do not come with regularly scheduled payments. These loans simply have a due date, by which time the loan is to be repaid in full. Many of these loans have much shorter terms than installment loans. For instance, payday loans have an average term of just two weeks.

### What is a line of credit?

With a line of credit, a person is given a maximum amount that they can borrow, called a credit limit. A borrower is not given any money up front with a line of credit, rather they receive a limit and they are permitted to borrow as much or as little as they care to up to that limit.[4] Though they are allowed to borrow up to the limit, they are not required to.

With lines of credit, a person only has to pay back what they borrow. Plus, they are only charged fees or interest on what they borrow, not on the maximum credit limit. Unlike loans, which usually come with pre-determined repayment periods and payment amounts, lines of credit have repayment periods and payment amounts that vary depending on how much has been borrowed.

With a standard line of credit, the amount of funds available does not replenish when the borrower pays off what’s already been borrowed. For instance, if a line of credit has a \$5,000 limit, and a person borrows \$1,000, they would only have \$4,000 left that they could borrow even if they paid that \$1,000 off.

A revolving line of credit works differently. In a revolving line of credit, the borrowing limit replenishes when the borrower makes payments on what they’ve already borrowed. In the previous example, if the borrower made a \$500 payment on the \$1,000 that they owed, they would then have \$4,500 that they could borrow against the \$5,000 limit.

Most credit cards are revolving lines of credit. Home equity lines of credit are lines that are secured by the value of the borrower’s home.

### What are different kinds of lenders?

Banks are the most traditional kind of lender. In addition to offering checking and savings accounts (as well as investment opportunities), banks issue many different kinds of loans, including personal loans, mortgages and auto loans. Banks are generally seen as very conservative lenders, which means that a high credit score and a regular income are needed in order to get a loan from a bank. Customers with poor credit histories are unlikely to be approved for a bank loan.

Credit unions are another kind of lender. They operate much like a bank in many ways, with a few key differences. Credit unions are non-profit, member-based institutions. Whereas banks will do business with anyone who is deemed credit-worthy, credit unions have additional criteria for membership. Membership in a credit union might depend on where you live or work, what church you attend or what civic groups you belong to.

Because credit unions are not-for-profit, they turn any profits they earn into benefits for their members. This means that a loan from a credit union will likely come with lower interest rates than a loan from a bank. Many credit unions also offer small-dollar loans that can serve as an alternative to costly payday loans. However, all of their loans are only available to members of the credit union.

There are some lenders that specialize in only one kind of loan. This is most common with mortgages and auto loans. Some of these lenders are associated with other businesses. For instance, an auto lender might work together with a car dealership to secure financing for their customers. Some of these lenders are actually brokers. This means that they arrange the loans and collect a fee, while financing is secured by a separate lending institution. Brokers are very common when it comes to mortgage loans.

There are also peer-to-peer lenders that facilitate loans between private individuals. They pair people who are looking to make an investment through lending money with people who are in need of a loan. The advantage for the investors is that they can earn more from these loans than they could from more traditional investments. The advantage for borrowers is that peer-to-peer lenders will often extend credit to borrowers who would not qualify for a loan from a traditional lender. However, due to this increased risk, peer-to-peer loans often come with higher interest rates than traditional loans.

There are some lenders, like OppLoans, that lend entirely online. It is rare for traditional lenders like banks or even credit unions to lend solely online; many of them still require that their borrowers come and visit a local branch in person. Online lending allows for increased speed and convenience in securing a loan. However, it’s a good idea to do lots of research when taking out a loan online, as there are many online lenders that are considered predatory.

### What are predatory lenders?

Predatory lenders are lenders that take advantage of people in desperate circumstances. They target low-income communities where people have meager savings and not-so-great credit scores. Because these are people that have fewer options when securing a loan, predatory lenders can charge incredibly high interest rates. Oftentimes, the APRs for predatory loans can be 300% or higher.

The two most common types of predatory lenders are payday and title lenders. Payday lenders offer short-term, small-dollar loans with high interest rates that can come out to an APR of 400% or higher.[5] Title lenders offer larger loans that use the borrower’s motor vehicle as collateral. Their average APR is 300%.[6]

Predatory loans can trap borrowers in a cycle of debt. This happens when a person cannot afford to repay their loan on time and the lender offers to “rollover” the loan, extending the due date in return for charging additional fees and interest.[7] When the person cannot afford to pay the additional costs of the loan, the lender offers to rollover the loan again, which means even more fees. Eventually, the person owes far more than they could ever hope to repay. In many instances, they will have their wages garnished in order to pay back what they owe.

Payday and title loans are illegal in some states, but there are many states where they are still permitted. Additionally, there are many predatory mortgage and auto lenders that offer dangerous loans to customers with low credit scores.

### What is a Credit Score?

A credit score is a three digit number that measures a person’s credit-worthiness. The most common kind of credit score is a FICO score, which was created by the Fair, Isaac Company in 1989. The FICO score is so common that “credit score” and “FICO score” are often used interchangeably.

A FICO score is based on a scale from 300 to 850. The higher the score, the more credit-worthy a person is deemed.  A person’s credit score is based off of the information in their credit report.

### What is a Credit Report?

A credit report is a document that tracks a person’s use of credit over the past seven years. These profiles are created and compiled by the three major credit bureaus: Experian, TransUnion, and Equifax. The companies gather information from businesses like lenders, collections agencies, and landlords, as well as from the public record.

The reports contain information such as how much credit a person has taken out, what different kinds of credit they’ve used, whether or not a person paid their bills on time, whether they have any outstanding collections against them, and whether or not they have filed for bankruptcy.

By law, the credit bureaus are required to provide people with one free copy of their credit report per year upon request. To request a free copy of your credit report, visit www.annualcreditreport.com. Credit reports can and do have errors in them. If you find an error in your credit report, please read this helpful guide from the Consumer Financial Protection Bureau.

### How does a FICO Credit Score work?

FICO credit scores not only include information from your credit history, but they also weigh some factors more heavily than others. The scores are weighted like so:

Payment history is 35%. Have you paid your bills on time and in full? If you haven’t, this could have a major effect on lowering your credit score.

Amounts owed are 30%. People who have a lot of debt relative to their income are going to have lower credit scores.

Length of credit history is 15%. The longer you have been responsibly using credit, the better.

Credit mix is 10%. Do you have a mix of student debt, mortgage debt and credit card debt? Or does the majority of your debt originate from one source? For instance, a heavy amount of credit card debt could be a sign of poor credit use.

New credit inquiries are 10%. Have you made other recent credit inquiries? If your record shows that you have been trying to take out a lot of different loans or credit cards in recent months, lenders might take it as a sign that your finances are in trouble.[8]

### What does my FICO credit score mean?

FICO credit scores are based on a scale between 300 and 850. The higher a person’s credit score is, the better their credit. Here are the basic ranges:

720-850 – Great Credit. People with credit scores in this range are able to score better loans that come with lower interest rates and more favorable terms. There are very few loans for which they will not qualify.

680-719 – Good Credit. People with credit scores in this range will qualify for most loans. They might have to pay slightly higher interest rates, but the terms in general are still going to be favorable.

630-679 – Fair Credit. People with credit scores in this range are definitely going to have to pay more in order to borrow and there are many larger loans that they either will not qualify for, or will be too expensive for them to afford.

550-629 – Subprime Credit. People with scores in this range have trouble getting approved for a majority of loans. When they do get approved, the loans are oftentimes going to be very expensive. People with scores in this range should be on the lookout for predatory lenders.

300-549 – Poor Credit. People with credit scores under 550 are going to have trouble securing any loans at all. The only loans they will qualify for are going to be dangerous, high-interest payday and title loans that don’t require a credit check. It is important for people with scores in this range to avoid predatory lenders and to work to improve their credit rating.

### Where can I find my credit score?

It is important that you know your credit score, as it has a massive impact on your ability to borrow money. To obtain a free copy of your credit score, you can always sign up for a website such as CreditKarma.com or CreditSesame.com. These websites are free, but you will also be signing up for a lot of emails and advertisements if you join them. You can also sign up for a paid account with any of the credit bureaus or with FICO.

### How can I improve my credit score?

There is only one real solution to improving your credit score, and that is by making responsible financial decisions moving forward. Paying bills on time, budgeting, making a plan to consolidate and/or pay down debt and not relying on credit to finance everyday expenses; these are all behaviors that can lead to an improved credit score. Remember, a person’s credit score only goes back seven years, which means that poor decisions from the past can fall off your credit report and be replaced by better decisions.

Unfortunately, this solution is going to take some time. There is no quick fix to improving your credit score. For this reason, you should be wary of companies that you see advertising credit repair services.

### What If I have too much debt?

People who have more debt than they can afford would do well to try a credit-counseling service. These are not-for-profit companies that can help with financial and budgeting advice. They can also negotiate with a person’s creditors in order to secure lower interest rates or amounts owed.[9]

If the creditors agree to these new terms, the credit counseling agency can execute a Debt Management Plan (DMP). This is an agreement between all parties that lays out the new terms under which the debts are to be repaid. DMPs should not negatively affect a person’s credit score.

To find a list of HUD-approved credit counseling services, check out the US Department of Housing and Urban Development’s website. Avoid credit counseling agencies that are not HUD-approved. It is also best to avoid debt settlement companies. These provide a similar service to credit counseling agencies, but they are for-profit, run a higher risk of damaging a person’s finances, and are far more likely to take advantage of their customers.

People with too much debt who have no other options can also file for bankruptcy. This is a legal procedure wherein a plan is made to settle their outstanding debts. Bankruptcies, as previously mentioned, can have a very negative affect on a person’s credit score. However, sometimes getting out from under a burden of debt is worth the hit.

References:

1. “Credit.” Investopedia. Accessed April 21, 2016. https://www.investopedia.com/terms/c/credit.asp.
2. Goldstein, Mike. “Types of Credit and Their Influence on Your Score.” CreditKarma.com. July 11, 2014. Accessed April 22, 2016. https://www.creditkarma.com/article/types-of-credit
3. “Interest.” Investopedia. Accessed April 21, 2016. https://www.investopedia.com/terms/i/interest.asp.
4. “What are the differences between revolving credit and a line of credit?” Investopedia. Accessed April 21, 2016. https://www.investopedia.com/ask/answers/110614/what-are-differences-between-revolving-credit-and-line-credit.asp.
5. “How Payday Loans Work.” PayDay Loan Consumer Information. Consumer Federation of America. Accessed April 22, 2016. https://www.paydayloaninfo.org/facts#1
6. “Driven to Disaster: Car-Title Lending and Its Impact on Consumers.” Center for Responsible Lending. February 28, 2013. Accessed April 22, 2016 http://www.responsiblelending.org/other-consumer-loans/car-title-loans/research-analysis/CRL-Car-Title-Report-FINAL.pdf
7. “What does it mean to renew or roll over a payday loan?”  Consumer Financial Protection Bureau. Accessed April 22, 2016. https://www.consumerfinance.gov/askcfpb/1573/what-does-it-mean-renew-or-roll-over-payday-loan.html
8. “What’s in my FICO Scores?” myFICO.com. Accessed March 15, 2016. https://www.myfico.com/crediteducation/whatsinyourscore.aspx
9. Choosing a Credit Counselor.” Consumer Information. Federal Trade Commission. Accessed April 22, 2016. https://www.consumer.ftc.gov/articles/0153-choosing-credit-counselor

# Your OppLoans Road Map to Personal Loans: The Dangers of the Road (Part 2 of 3)

So you’re ready to hit the road and find the best personal loan for you. But are you prepared for the potholes, hazards and detours that may await you on your journey? You’ll save time, money and energy if you know what to watch out for before you set out on your personal loan road trip.
There are many types of personal loans out there to choose from and they all offer different rates, terms and conditions. And there are many lenders who will take advantage of you by trapping you in a cycle of debt. Think of them as those shady mechanics telling you your car needs a brand new engine even though you’re really just low on, say, windshield washer fluid.

Here are the hazards to watch out for on your journey through the world of personal loans:

## High interest rates

Getting a loan with interest rates you can’t afford is like planning a three-month Appalachian Trail hike even though you get winded just looking at a flight of stairs. It’s just not good common sense. And unfortunately, there are a lot of personal loans out there with very high interest rates. One way to avoid this is to have a good credit score, because a good credit score shows lenders that you’re trustworthy and likely to repay the loan on time. The better your score, the lower your interest rate (read more in What You Should Know About Interest Rates).

But what if you don’t have a credit score? If your credit score is your car, a brand new Audi will get you to your destination faster than a 1988 Ford Tempo. But not everyone can go out and get a brand new Audi. They’ll have to save up for one.

And the same is true for your credit score. There are no easy fixes. Paying your bills on time, only taking on as much debt as you can handle and paying off any outstanding balances you have as quickly as possible are the best ways to improve your credit score. But it will still take time.

For people who already have a good credit score, remember that you can definitely qualify for lower interest rates on homes, auto loans, personal loans and more. For people whose credit scores are not-so-good, remember that a better score is within your grasp.

Paying off a loan on time is a great way to raise your credit score. And having a good credit score is definitely worth it. In the long run, it will mean that you’re saving money. Someday, you might even be able to afford a real Audi.

## Unnecessary fees and penalties

You’re cruising along the highway, then BAM! You get a flat tire. That jolt of adrenaline and fear is exactly what it feels like when you discover some hidden fees on your personal loan.

Make sure you read the fine print so you know exactly what you’ll be charged and why. For instance, some lenders will charge you simply for paying off your loan early. They call this a prepayment penalty.

But shouldn’t it be a good thing to pay off a debt early? It’s good for you, but probably means less money for the lender. Other fees to watch out for are application and origination fees. But you can avoid all of these hazards all together by going a different route…

## Payday loans

These are the number one personal loans to avoid. Payday lenders are dangerous hitchhikers on your personal loan journey. They may promise some gas money, but that doesn’t mean that picking one up is a good idea. With payday lenders, their intentions are quite clear: make money off of borrowers through unfair, costly loans.

Getting a payday loan usually involves writing a post-dated check for the amount you’re borrowing, plus additional fees and interest. The lender will then give you cash and deposit your check on the due date to get their money back.

Usually these loans only last a couple weeks, but they come with ridiculously high interest rates that make them difficult to pay back. How ridiculous? Try 400% annually—or even higher! These predatory loans trap many people in a seemingly endless cycle of debt. Like picking up a hitchhiker that just won’t leave. He’s going along for the ride, and there’s nothing you can do about it.

The road to a personal loan can be a dangerous and scary place, so keep your eyes peeled out there. Knowing best practices for personal loans will help keep you safe, keep more money in your pocket and keep you on the road to your destination: financial security.

Part 1: Getting from A to B
Part 2: The Dangers of the Road
Part 3: The Perfect Trip

# Credit Bureau

Credit Bureau
Credit bureaus are businesses that compile your credit history and calculate your credit score. They provide this information to lenders—among others—who use it to decide whether to grant you a loan.

Credit Bureau

## How do Credit Bureaus work?

There are three main credit bureaus in the United States: Experian, TransUnion, and Equifax. They gather your financial information to create your credit report. The information in your credit report dates back seven years and paints a thorough picture of your finances, debt, and payment behavior. The credit bureaus use this information to calculate your credit score, which is also known as a FICO score.

Credit bureaus provide your credit report and credit score upon request to lenders, landlords, employers, and insurance companies, among others. (Basically, anybody with a “permissible purpose” can obtain your credit report.1) Your credit report and score can be sought by many different businesses and used for many different reasons. Lenders might use them to decide whether you receive a loan, an insurance company might use them to determine the rate you pay, and a landlord might use them to decide whether or not to rent to you.

You can view what’s in your report by obtaining a free credit report, which you are entitled to do once a year from each of the three credit bureaus.

Credit bureaus are also known as “credit reporting agencies,” or CRAs.

## What kind of information do Credit Bureaus collect?

Credit bureaus collect four basic categories of information:

Credit: This consists of information about your past and present loans and credit cards. Credit bureaus collect information like the loan amounts, how much of the credit limit you used, and whether you regularly made payments.

Public record: Any bankruptcies, tax liens, or court judgments you might have.

Inquiries: How many times other lenders and credit card companies, among others, have checked your credit report. If they’ve checked it a lot, it probably means you’ve applied for and been denied credit a number of times, and this can lower your credit score by a few points.2

## How do Credit Bureaus calculate my credit score?

Credit Bureaus use the information in your credit report to calculate your credit score. Your credit score is a number between 300 and 850, and the higher it is, the better your credit.

Credit bureaus look at a number of factors to determine your score. Here’s how the FICO score breaks down:

Payment history: This counts for 35 percent of your score. It’s very important to lenders (and others) that you have a history of making payments on time.

Amounts owed: This counts for 30 percent of your score. Owing too much on your loans will negatively affect your score.

Length of credit history: This counts for 15 percent of your score. In general, a longer history of using credit is good. However, a longer history of using credit irresponsibly will lower your score.

Credit mix: This counts for 10 percent of your score. Your credit mix takes into consideration the different kinds of loans and credit accounts you’re currently using.

New credit: This counts for 10 percent of your score. If you have a number of recent credit inquiries, a lender might see that as a potential risk.3

## Do Credit Bureaus determine whether or not I get a loan?

No. They do not. The ultimate decision is up to the businesses that request your credit report. Credit bureaus do not decide whether you are going to get a loan, rent an apartment, or be offered a new job. All they do is compile and distribute your credit report and score.

## Do I have to pay a Credit Bureau to receive a copy of my credit report?

No. All three credit bureaus are required by law to provide one free credit report per person on an annual basis. This means that you can get three free credit reports every calendar year. To get a free copy of your credit report, visit www.annualcreditreport.com.

## Are Credit Bureaus government agencies? Are Credit Bureaus nonprofits?

No. Credit bureaus are not operated by the government and they are not nonprofits. They are private companies that make money by analyzing and selling data. They offer four main products:

Credit services: Credit bureaus sell your credit report to lenders and other businesses that request it. Typically, any application fee you pay—say, when you apply to rent an apartment—is intended to cover this expense.

Decision analytics: Credit bureaus review your credit history and provide lenders with an analysis to aid them in making decisions about granting you a loan, for instance.

Marketing: Credit bureaus sell credit reports to lenders who make pre-approved offers (like a pre-approved credit card, for instance) and want to review them.

Consumer services: Credit bureaus offer consumer services like credit monitoring, identity theft protection, and fraud prevention.4

## How often Credit Bureaus update information in credit reports?

Credit bureaus update the information in your credit report continuously. New information—if there is any—may be added multiple times a day.5

## Where can I file a complaint about a Credit Bureau?

You can file a complaint about a credit bureau with the Consumer Financial Protection Bureau.

If you find errors on your credit report, you can correct them by writing a letter to the credit bureau that produced it as well as the business (your lender, for instance) that provided the inaccurate information. Use a sample dispute letter and follow the instructions that the government provides on how to dispute errors.

## Bottom Line

Credit bureaus play a critical role in the consumer credit system. The information they collect can have a huge impact on your life—whether you receive a loan, what interest rates you pay, and whether a landlord decides to rent to you, for instance. Request a free credit report so you know what’s in your credit report and what information is being shared about you.

References:

1 “Who Can See My Equifax Credit Report?” Equifax, https://help.equifax.com/app/answers/detail/a_id/165/~/person(s)-and-entities-that-have-access-to-your-equifax-credit-report-(us. Accessed 15 March 2017.

2 Lee, Jenna. “The Difference Between Hard and Soft Credit Inquiries.” U.S. News Money, 24 July 2014, http://money.usnews.com/money/blogs/my-money/2014/07/24/the-difference-between-hard-and-soft-credit-inquiries. Accessed 15 March 2017.

3 “What’s In My FICO Scores?” myFICO.com, http://www.myfico.com/credit-education/whats-in-your-credit-score/. Accessed 15 March 2017.

4 “How Do Credit Bureaus Make Money?” Investopedia, 28 Oct. 2014, http://www.investopedia.com/ask/answers/102814/how-do-credit-bureaus-make-money.asp. Accessed 15 March 2017.

5 “Credit Information Is Updated Continuously.” Experian, 15 July 2016, http://www.experian.com/blogs/ask-experian/credit-information-is-updated-continuously/. Accessed 15 March 2017.

“Bad credit” means a borrower has a low credit score. Any score between 300 and 630 is generally considered bad. Late payments, bankruptcy, and maxing out a credit card can all contribute to a lower credit score, and bad credit.

Bad credit is simply a description of a borrower’s credit score. There is no hard-and-fast point at which bad credit occurs, but generally, credit is considered bad if a borrower’s score falls between 300 and 630. The most common type of credit score is called a FICO score, after the Fair Isaac Corporation. FICO scores range from 300 to 850, and the lower the score, the worse a borrower’s credit1.

FICO Score Range

FICO RangeQuality
720-850Great Credit
680-719Good Credit
630-679Fair Credit
550-629Subprime Credit
300-549Poor Credit

## How did I get Bad Credit?

A low credit score—and bad credit—are determined by a mix of factors: payment history, outstanding debt, credit history length, and types of credit used, for instance. Financial troubles like delinquency, default, bankruptcy, and a history of maxing out credit cards can all contribute to a lower credit score.2 Credit bureaus compile this information and use it to create a borrower’s credit report, which is the basis for calculating credit score and whether the borrower has bad credit.

Ultimately, the only person who can fix bad credit is the borrower who has it, and the process isn’t quick. The best way to do it is for borrowers to improve their financial habits: make payments on time, reduce outstanding debt, stop borrowing until debt is paid off. MyFICO.com has a great list of tips and advice on how borrowers can improve their credit score.3 Borrowers should remember to be patient, as repairing credit takes time.

Another option is to contact a credit counseling service. They help borrowers improve their credit by offering financial education and sometimes negotiating with creditors. But not all are reputable, and companies that promise to quickly repair a borrower’s credit are most likely scams. Working with a credit counseling service will not lower a borrower’s FICO score, but certain actions that the service might suggest—like settling debts for less than what the borrower owes—could have a negative impact, even if they’re the best course of action for the borrower to take.

## When does Bad Credit expire?

The negative information that causes bad credit stays on a borrower’s credit report for seven years. It will eventually be erased, but if borrowers continue to miss payments and default, the new information will need another seven years to clear.

Ultimately, bad credit does not go away until borrowers improve their financial habits. Things like making payments on time and paying off delinquent debts will improve their credit score and contribute to good credit.

## How does Bad Credit affect me?

Lenders look at credit scores when reviewing credit applications, and a borrower with bad credit is considered less likely to repay a loan. This means that borrowers with bad credit will have difficulty getting approved for loans or credit cards, and if they do, they’ll almost certainly have to pay higher interest rates.

Bad credit can have an impact on other areas of a borrower’s life as well. Types of insurance like auto insurance and homeowner’s insurance are typically more expensive for people with bad credit. Landlords also usually check the credit history of potential renters and are less likely to offer a home to those with bad credit. And cell phone carriers typically check a customer’s credit history, too, and are less likely to offer a contract to those with bad credit history.4

## How do I know if I have Bad Credit?

The best way to check credit is to order a credit report. There are three nationwide companies that compile the credit history of borrowers: Equifax, Experian, and TransUnion. Each of these companies is required by law to provide a free credit report once every 12 months if a borrower requests it. AnnualCreditReport.com allows borrowers to order a credit report from each of the three companies individually, or all three at the same time.5

Borrowers with bad credit will have a much harder time getting approved for credit, as banks and credit unions will likely turn down loan applications. With limited options, borrowers may be more willing to accept exorbitant interest rates and inflexible terms. Lenders who try to take advantage of borrowers with bad credit are considered “predatory lenders.“

Predatory lenders—like payday loan and car title loan providers—operate online and in storefronts. These lenders offer “no credit check loans” because they don’t care—or even don’t want— the borrower to be able to repay the loan. They’d rather use rollover to walk the borrower into a cycle of debt. Borrowers are always advised to avoid predatory lenders.

## Are Bad Credit loans safe?

Borrowers with bad credit should be very careful when applying for loans. Payday loans and title loans are notorious for trapping borrowers in a cycle. For borrowers with bad credit who need a loan now, a personal installment loan is likely to offer better rates and terms. Unlike payday and title loans that require a single lump-sum payment, installment loans allow borrowers to spread their payments over a period of time. OppLoans offers personal installment loans without a traditional credit check that can hurt a borrower’s credit score. Loan decisions are made quickly, and the money is delivered into a borrower’s bank account as soon as the next business day.

References:

3. How to repair my credit and improve my FICO scores. Retrieved from https://www.myfico.com/crediteducation/improveyourscore.aspx

# Debt Consolidation 101: The Basics (Part 1 of 3)

## When people talk about debt, they often talk about it like it’s one big chunk of money. But that’s rarely the way it works. Most folks don’t just have one source of debt, they have many. They have student loans, plus credit card debt after that Bachelor’s degree in Beyonce Studies didn’t lead to a job, then auto loans to buy a car, and also personal loans to repair the car, and mortgages, and in extreme cases even multiple mortgages.

### What is Debt Consolidation?

People may have debt, but that doesn’t mean that they only have one debt. That is, unless they make the decision to consolidate their debt by taking out one large loan and using it to pay off all their smaller loans.

So what are the basics you should know about Debt Consolidation before deciding if it’s a solution for you? Check out the list below for the fundamental facts about Debt Consolidation.

#### 1. Fewer Payments

This means that you only have one payment to make every month, which makes your finances easier to track and also makes you far less likely to miss a payment. Trying to get a handle on your personal finances is always going to be complicated, but debt consolidation can make it easier.

Keeping track of multiple due dates can be a real hassle, as can keeping track of all your minimum payment amounts. Missing a payment can end up having a negative impact on your credit score, which will make it harder to borrow money at affordable rates later on. And speaking of affordable rates, some of those older loans might carry higher interest rates that make them far more difficult to pay down. Debt consolidation allows people to not only simplify their debt load, but it can also save them money in the long run.

#### 2. More Savings

People frequently take on loans when they’re just starting out on their own. Many of these loans—and this goes double for credit cards—come with higher interest rates since the person doesn’t have a long history of credit use. Banks and credit card companies consider them to be a higher risk and so they charge them a higher rate. Higher interest rates mean more money that you’re paying on what you’ve already borrowed, which means less money that you’re paying towards actually getting out of debt.

With debt consolidation, a person can often score a lower interest rate than what they’re already paying. Using a lower interest loan to pay off a high interest credit card will help you save money in most instances. Oftentimes, it will mean that you’re paying less each month towards your minimum payment. (Pro tip: if you can afford to pay more than the minimum payment, then do it.)

In many cases, the lower interest rate will save you money in the long run as well. Now, getting a loan with a longer term can sometimes mean you end up paying more overall, but if it makes the loan more manageable month to month, it might be worth it (read more in Debt Consolidation Loans – An OppLoans Q&A with Ann Logue, MBA, CFA).

#### 3. Not for Everyone

Of course, this is all going to be partly dependent on your credit score. The higher your score, the lower the rates you’ll be offered. If you’re looking at consolidating your debt and the rates are going to be substantially higher than what you already owe, then don’t consolidate. The increased convenience won’t be worth the higher cost.

If you have questions or are interested in getting started on a single personal loan you can use to attack your consolidated debt today, click below or call us at For more information or to get started on a single personal loan you can use to attack your consolidated debt today, click below or call us at (800) 990-9130. The application process is quick and easy, and does not affect your credit score.

Blog Series: Debt Consolidation 101
Part 1: Debt Consolidation Basics
Part 2: How to Get the Most from Your Loan
Part 3: Three Mistakes to Avoid

# Credit Repair: It’s time to Renovate, Remodel and Rebuild!

## Does the word ‘repair’ get you excited to break out the toolkit, turn up the 80s rock and start busting through walls with a sledge hammer?

Or maybe it makes you think about all the ways to procrastinate until your house falls down and you have to move away. Any repair project can be long, strenuous and intimidating. But in the case of credit repair, it’s always better to start sooner rather than later.

Credit repair simply means fixing your credit to improve your credit score. The better your credit score, the better the interest rates banks and lenders are likely to give you, and then the more money you save. Think of it like home renovations — the better condition your home is in, the higher the resale value. And if lenders know you’re reliable, they’re more likely to give you reasonable terms on your personal loan. But if your credit score is the equivalent of a dilapidated old shack, you’ll have a tough time getting traditional bank loans. In these cases, you might be tempted by predatory lenders offering dangerous “bad credit loans” or “no credit check loans.” Many of these financial products are actually debt traps in disguise, designed to take your bad credit situation and make it much, much worse.

But fear not! No matter how bad your credit may be, there are ways to get it back into shape. And you won’t even have to break a sweat.

The first step to repairing your credit is knowing that it needs to be repaired. You might not see the mold hiding under the sink, but that doesn’t mean it’s not there. To find out, you’ll want to order a credit report. There are three companies that keep track of your credit history — Equifax, Experian and TransUnion — and they’re each required to give you one free credit report every 12 months if you request it.(1) You can request a copy at annualcreditreport.com. Go ahead. We can wait.

Ok great. Now that you found the mold, it’s time to get rid of it. There are a couple different ways to do this.

The second way to repair your credit would be to hire a company to help you. But just like building contractors, there can be frauds. Before choosing a credit repair company, make sure you know the warning signs of a credit repair scam:

• Insisting they receive payment before doing any work for you
• Advising you not to contact the credit reporting companies
• Advising you to dispute info in your credit report, even if it’s correct
• Advising you to give false information on credit/loan applications
• Not explaining your legal rights.(2)