5 Tips to Help You Rebuild a Bad Credit Score

When it comes to fixing bad credit, there are no overnight solutions. More than anything else, you’re going to have to learn to be patient.

When you have bad credit and no savings, you’re stuck relying on no credit check loans and bad credit loans to cover financial shortfalls. And while the right bad credit installment loan could end up being a serviceable way to cover short-term costs, other short-term loans—like payday loans, cash advances, and title loans—might leave you stuck in an even deeper financial hole.

In the long-term, finding the best bad credit loan is not going to be a viable solution. Instead, you should be focused on addressing the root of the problem: your credit score. Improving your credit will help you apply for better personal loans at lower rates, allowing you to leave the world of bad credit storefront and online loans behind you.

Here’s the good news: Rebuilding your credit score is actually pretty simple! Here’s the not-so-good news: That doesn’t mean it’s easy. Much of the advice that we dispense in this article still requires a fair amount of financial discipline; there are no silver bullets. We can provide you with a road map to better credit, but you’ll still have to make the journey yourself.


1. Pay your bills on time.

There are a total of five factors that make up your credit score. There’s your payment history, your total amounts owed, the length of your credit history, your credit mix, and your recent credit inquiries. Out of those five categories, your payment history is by far the most important, comprising 35 percent (over one third!) of your total score.

As such, the best way to rebuild a bad credit score is to start paying your bills on time. And when we say that, we mean all your bills all the time. Given the damage that one late payment can do to your score, a single misstep can partially undo years of patient work. As it turns out, lenders and other companies that check your credit really hate missed or late payments.

If paying your bills on time has been difficult for you, it’s time to make a plan. Set up e-bills and auto-alerts from your various accounts so that you get notified when a bill has been posted or payment is nearly due. Create a billing schedule for yourself to help you properly budget. If your payment dates are causing you headaches, contact your creditor and try to have them changed.

Ultimately, you’ll want to get to a point where bills like utilities, insurance, and loan payments are paid automatically so that you don’t have to worry about them.  And with credit cards, make sure that you stay on top of them. If a bill isn’t something that you can “set and forget,” then create a process whereby forgetting it is virtually impossible. Your credit score requires it.

2. Pay down your debt.

While your payment history makes up 35 percent of your total score—more than any other single factor—your total amounts owed makes up an additional 30 percent. Together, they comprise an astounding 65 percent of your score. The third largest category, length of credit history, meanwhile, only makes up 15 percent.

In case our point isn’t being made clear: The amount of debt you owe is a very important part of your credit score.

If you have bad credit, it’s likely that you have taken out too much debt. And it’s not like all debt is weighed equally either: $10,000 in credit card debt is a problem, for instance, while $10,000 in student loan debt is well below the national average. As such, a lousy credit score probably means you have too much high-interest consumer debt—which is to say, you owe too much on your credit cards.

In order to pay down this debt, you’re going to need a plan. Two of the most popular strategies out there are the Debt Snowball and the Debt Avalanche. Both involve putting all your extra debt repayment funds towards one debt at a time while making only the minimum payments on your other debts. The difference is that the Debt Snowball prioritizes paying off your smallest debt first, while the Debt Avalanche priorities your debt with the highest interest rate.

But no matter what debt repayment strategy you use, you’ll need to create a budget in order to free up the extra funds. Budgeting beginners can check out this handy first-timer’s guide, complete with a free downloadable spreadsheet. You might even consider getting a second job or side gig to earn some extra debt repayment cash.

Lastly, be mindful of your credit utilization ratio: Try to never spend more than 30 percent of your total credit limit on any of your credit cards. Getting your total revolving debt load below 30 percent will help your score, and keeping it below the line moving forward will make sure it sticks. If needed, pay off your cards frequently to prevent your outstanding balances from crossing that 30 percent threshold.

3. Keep your old cards open.

The length of your credit history might pale in comparison to your amounts owed and your payment history, but it still makes up 15 percent of your overall score. Basically, the longer you have had accounts open and in good standing, the more it demonstrates your financial responsibility.

As you are paying down your credit cards, it might seem like a good idea to close those old cards once they’re paid off. But closing older cards could actually hurt your score by shortening the average length of your credit accounts. It might seem counterintuitive, but it’s better to leave those old cards open.

The reverse is true as well: While opening up some new credit cards might help improve your credit utilization ratio, it’s also lowering the average age of your credit accounts, hurting your score. Additionally, opening up a bunch of new cards means applying for a bunch of new cards and incurring a number of hard credit inquiries. This will, likewise, hurt your score.

While it’s good to use those old cards every once in a while just to make sure that the account stays active, keeping those accounts open will mean leaving yourself open to temptation. The worst thing you could do is start using them to rack up unnecessary, expensive, and harmful debt. Don’t keep them in your wallet, and make sure they’re stored somewhere that isn’t easy to access.

One last note: If you have an open credit card on which you also have some late or missed payments recorded, closing that credit card will not make those late/missed payments vanish from your credit report. Even after a credit account is closed, the record of the account is kept for up to seven years. If you want a record struck from your credit report, you’ll have to put in a little more work …

4. Stop dodging debt collectors.

A great way to sink your payment history is to have unpaid bills that get sent to collections. These collection accounts then get recorded on your credit history, dragging down your score. And while it might be tempting to avoid those debt collectors’ oh-so-fun phone calls, doing so isn’t going to help your financial situation. In fact, it could make it even worse.

If you dodge a (legitimate) debt collector’s phone calls, they could end up taking you to court. If the judge then rules against you, the debt collector could have your wages garnished in order to pay back your debt—and sometimes additional court fees, too. All of this information will be recorded on your credit report, making good credit all the more difficult to achieve.

Instead, you should meet these debt collectors head on. Make sure that you know your debt collection rights before engaging with them—and keep an eye out for debt collection scams—but do your best to work with them towards an equitable solution. Debt collectors are used to collecting less than the total amount owed, and they might be happy to settle for a smaller number if it means they get to stop trying to track you down.

Once your debt collection account is paid up, you can talk to the debt collector (very politely) about having the account removed from your report. The debt collector is under no obligation to do this, but there’s absolutely no harm in asking. If they tell you it’s been removed, you can request a free copy of your credit report at AnnualCreditReport.com to double check.

5. Be patient.

Rome wasn’t built in a day, and a bad credit score isn’t going to be fixed in one either. Even winning the lottery wouldn’t necessarily fix your credit overnight. (On the other hand, winning the lottery would also mean not having to worry so much about your credit score, but that’s neither here nor there.)

We mentioned up top the importance of financial discipline in improving your credit score, and a sizeable portion of that discipline will go towards staying patient. While paying down your debt quickly can provide a rather quick boost to your score, building a solid payment history is going to take years to fully pay off.

In the meantime, you should also focus on building up a well-stocked emergency fund to pair with improving your score. Even if your score isn’t yet high enough to qualify for a traditional personal loan, having the funds on-hand to cover an unforeseen bill or other financial shortfalls will mean that you don’t have to borrow any money at all either way!

Improving your credit score is a marathon, not a sprint. But it’s a race well-worth running. In addition to building your score, you’ll be building a set of better financial habits that will benefit you for years to come. To learn more about improving your financial practices, check out these other posts and articles from OppLoans:

Do you have a personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Do You Have Bad Credit and Need a Loan? Here Are 4 Options

Finding the right bad credit loan means doing your research, understanding the pros and cons of each product, and finding the loan that works best for you.

If you have bad credit but you need to get a loan to cover a surprise expense, you’re going to have to make some hard choices. Whereas someone with a good score could borrow that money at fairly low rates, you’ll have to make do with more expensive options.

But that doesn’t mean that all your possible options are bad, either. There are some bad credit loans and no credit check loans out there that can make for reasonable short term financing.

Still, you’ll want to make sure you know exactly what you’re getting into before you borrow. With that in mind, here are four of your primary bad credit loan options. And remember: The smarter you borrow, the better off you’ll be.


1. Payday loans.

Payday loans are one of the most common types of no credit check loans. The idea behind them is that they serve as an advance on your next paycheck. (For this reason, they are also sometimes referred to as “cash advances.”) They are available as online loans and can also be obtained from local brick-and-mortar storefronts.

Payday loans are small-dollar loans, meaning that the most you’ll be able to borrow is usually just a few hundred dollars. They also come with very short terms: The average repayment term for a payday loan is only two weeks, and the loans are repaid in a single lump sum payment.

When you borrow a payday loan, you will oftentimes have to make out a post-dated check for the amount owed or sign an automatic debit agreement. When the loan’s due date arrives, the funds owed will then be automatically removed from your bank account.

Unlike installment loans, payday loans charge interest as a flat fee, with an average rate of $15 per $100 borrowed. If you were to borrow $300 with a payday loan at that rate, you would be charged $45 in interest and owe $345 in total. That flat rate means that early repayment won’t save you any money.

While a 15 percent interest rate might not seem that high, payday loans are much more expensive than traditional personal loans, which calculate interest on an annual basis, not a weekly one. 15 percent interest on a two-week payday loan comes out to an annual percentage rate (APR) of 391 percent!

Due to payday loans’ high interest rates, short terms, and lump sum payment structure, many borrowers have difficulty paying their loan off on-time—or they find themselves having to choose between making their loan payments and paying other important bills.

Payday loan borrowers in this situation are often faced with two options: They can either take out a new payday loan or they can “roll over” their old loan, paying only the interest due and receiving an extension on their due date … in return for a brand new interest charge.

Either way, rolling over and reborrowing a payday loan can end up trapping borrowers into a dangerous cycle of debt. According to a study from the Consumer Financial Protection Bureau (CFPB), the average payday loan user takes out 10 payday loans every year.

2. Title loans.

Title loans are another kind of short-term bad credit loan. But while they are similar to payday loans in many ways, the two products also have some key differences.

While payday loans are unsecured loans—meaning that the borrower doesn’t have to offer any collateral—title loans are secured by the title to the borrower’s car or truck. In order to qualify for a title loan, a person must own their car free and clear—meaning they don’t owe any money on an auto loan.

This collateral means that the average consumer can borrow more with a title loan than they can with a payday loan. It should be noted, however, that title loan amounts rarely equal the full resale value for the vehicle being used as collateral.

And even with that additional collateral providing decreased risk for the lender—which would normally mean lower interest rates—the interest charges for title loans are still extremely high. They have an average repayment term of one month and an average interest charge of 25 percent, which works out to a 300 percent APR.

While the average borrower can expect a larger loan principal with a title loan than they could get with a payday loan, the downside to title loans is also clear: If the borrower cannot repay their loan, the lending company can repossess their car and sell it in order to make up their losses.

And this isn’t just a hypothetical either: According to research from the CFPB, one in five title loans ends with the borrower’s car being repossessed. In some states, title lenders don’t have to recompense borrowers if the car ends up being sold for more than was owed.

3. Pawn shops.

You might not think of pawn shops as a place where you go to borrow money, but that’s exactly how they work. Customers bring in valuable items that are then used to secure small-dollar loans; if the borrower can’t pay the loan back, the pawn shop gets to keep the collateral and sell it.

Similar to title loans, the amount you can borrow with a pawn shop loan will vary depending on the worth of the item being used as collateral. The more valuable the item, the more money you’ll be able to borrow but the more you’ll stand to lose if you default on the loan.

All small-dollar loans are regulated at the state and local level, meaning that loan terms and interest rates will vary depending on where you live. But even compared to payday and title loans, the rates and terms for pawn shop loans vary wildly. Most pawn shop loans are issued on a month-to-month basis.

Pawn shops charge anywhere from 15 to 240 percent interest depending on local and state regulations. Before deciding whether a pawn shop loan fits your bad credit borrowing needs, you should do research on your local laws to see what kinds of rates you’ll be charged.

4. Installment loans.

Unlike the other loans included in this list, installment loans come with repayment terms that are longer than two weeks or a month. Your typical installment loan often comes with repayment terms anywhere from nine to 18 months.

In some ways, bad credit installment loans are the same thing as regular personal loans; they simply come with higher interest rates. Installment loans are paid off in a series of regularly scheduled payments—instead of just one lump sum—and they charge interest as an ongoing rate instead of as a flat fee.

Installment loans are also amortizing, which means that each payment goes towards both the interest and principal loan amount. Early payments mostly go towards interest, while later payments are almost entirely principal. The ratio between the two changes according to the loan’s amortization schedule.

Since installment loan interest is charged as on ongoing rate, paying the loan off early will save you money. Before borrowing, however, you should check to see whether or not the lending company charges prepayment penalties, which penalize you for doing just that.

The rates for installment loans differ from loan to loan, lender to lender, and state to state. Still, the rates for installment loans are oftentimes lower than the rates for title and payday loans. One of the few downsides is that longer loan terms can mean more money paid towards interest overall compared to short-term loans.

Still, the smaller individual payments for installment loans could end up negating that extra cost. If a borrower is unable to pay off their short-term loan, they will be forced to roll it over or reborrow it. And every time they do, their cost of borrowing goes up. Meanwhile, making regular payments on an installment loan keeps costs steady.

With payday loans and title loans, it is rare that a lender will run any sort of check on their customers’ ability to repay the money they’re borrowing. With installment loans, this practice is more common. They often perform their due diligence by verifying an applicant’s income or running a soft check on their credit history—one that won’t affect their score.

Lastly, some installment lenders—like OppLoans—report their customers’ payment information to the credit bureaus. This means that on-time loan payments will be reflected in customers’ credit history and can help them build their credit scores.

Borrow now, plan for later.

Even the best bad credit loan is no match for a well-stocked emergency fund. Instead of paying money towards interest, your long-term financial plan needs to involve money that’s been set aside to deal with surprise bills and other unforeseen expenses.

While you’re building those savings, it wouldn’t hurt to tackle your credit score as well. Even if you end up needing to borrow money to pay for a car repair bill or a medical expense, a good credit score will mean you can take out a loan with much lower interest rates to do so.

If you have bad credit, you should focus on paying your bills on time and paying down your debt, as those two factors make up 65 percent of your overall score. For debt repayment, you should try either the Debt Snowball or the Debt Avalanche methods.

And no matter what steps you take to improve your financial situation, one of those steps needs to be building a budget and then sticking to it. Without that, all your other efforts to pay down debt, improve your credit, and build up your savings will fall flat on their faces. To learn more, check out these other posts and articles from OppLoans:

Do you have a personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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What is a Soft Credit Check?

Unlike hard credit inquiries, a soft inquiry made on your credit won’t show up on your credit report and isn’t reflected in your FICO score!

You’ve probably heard of blank checks: That’s a check without any amount written on it, so the person who is going to cash it can put down any number they want. It’s commonly used in the film business to indicate that a director was allowed to make a very expensive passion project.

But have you heard of credit checks?

Oh, you have? Well, do you know the difference between hard credit checks and soft credit checks?

You don’t? What do you want?

You want to see a GIF of a dog watching Youtube videos? OK, fine.

Satisfied? Good, because there are other readers who do want to learn about credit checks. Get out of here. Shoo!

Great, now that it’s just the readers interested in learning about credit checks, we can get to it.


Credit checks: what are they?

When you apply for a personal loan or credit card, your potential creditors will want to know how likely you are to actually pay that loan back. That’s why they’ll perform a credit check before deciding whether you qualify for a loan.

When a company or an individual performs a credit check, they’ll get a copy of your credit report. Your credit report has information about your previous credit history, your current amounts owed, accounts that have been turned over to collections, and previous credit checks.

These reports are compiled by the three major credit bureaus: TransUnion, Experian, and Equifax. The information on those reports is also how your credit score is compiled.

In addition to potential creditors, you may have to undergo a credit check when interviewing for a new job or applying for an apartment. It’s important to be aware of all of this because a credit check can temporarily ding your credit score.

Credit checks: What are the two kinds?

While some credit checks will have a negative effect on your credit, not all of them will.

“Soft credit checks are also known as passive credit checks,” explained Todd Christensen, education manager for Money Fit by DRS, Inc. (@MoneyFitbyDRS). “On your credit history, they might be listed under the ‘Account Reviews’ or the ‘Promotional Inquiries’ sections, depending upon the consumer reporting agency.

“Whereas a hard inquiry is generated when a creditor checks your credit report as part of a credit application process you have begun, a soft inquiry often happens without your knowledge, at least until you check your credit. Soft inquiries, like hard inquiries, remain on your credit for about two years. Soft inquiries have absolutely no effect on your credit rating.”

Because hard credit checks, especially many in a row, can drag down your credit, it’s important not to go applying for things that will trigger a hard credit check without putting some thought behind it. If it involves a soft credit check, on the other hand, then you don’t really need to worry. So it’s worth figuring out what kind of credit check you’d be dealing with before undergoing one.

Credit checks: Can you avoid them?

Legally, a potential creditor, landlord, or employer can not perform a credit check without your agreement. Of course, sometimes illegal things happen, so it’s a good idea to keep an eye on your own credit report so you can dispute any hard credit checks that might show up that you did not agree to.

Not sure how you can check your credit report? You can go to AnnualCreditReport.com once a year to get one free copy of your credit report from each credit bureau. (That’s a total of three free reports per year!) Don’t use any other site, as it could be a scam. And looking for errors is an important reason to check your credit report, but it isn’t the only one.

While you theoretically can avoid ever going through a credit check, it would be difficult to live your life that way. Unless you’re okay with paying for everything in cash, you’ll probably be more or less forced into undergoing a credit check at some point.

However, if you’re applying for bad credit loans—like installment loans—there’s a good chance that the lender will only be running a soft credit check. Meanwhile, many no credit check loans—like payday loans, title loans, and cash advances—don’t require any kind of credit check at all.

(And while that might seem like a good thing, there are certain risks to taking out a storefront or online loan from a lender who doesn’t check your ability to repay.)

If you don’t want any credit checks—even soft ones—being run on your history unless you expressly consent to them, there’s a way to address that.

“You can opt out of all promotional inquiries for five years at OptOutPreScreen.com or by calling 888-567-8688,” advised Christensen. “If you want to opt out permanently, you can use the online form at the same website but will need to send it by mail.”

Hopefully, this has given you a better understanding of what credit checks are and how hard credit checks and soft credit checks work. Now you can go join the dog GIF watchers who left earlier. Seems like a fun time!

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

Do you have a  personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Contributors

Author and Accredited Financial Counselor®, Todd R. Christensen, MIM, MA, is Education Manager at Money Fit by DRS, Inc. (@MoneyFitbyDRS), a nationwide nonprofit financial wellness and credit counseling agency. Todd develops educational programs and produces materials that teach personal financial skills and responsibilities to all ages. Having facilitated nearly two thousand workshops since 2004 on the fundamentals of effective money management, he based his first book, Everyday Money for Everyday People (2014), on the discussions, tips, stories and ideas shared by the tens of thousands of individuals and couples in attendance.

Have Bad Credit? Here Are Two Things You Should Do

There are five factors that make up your credit score, but two of them are responsible for a whopping 65 percent all by themselves.

Bad credit loans can be a serviceable way to bridge financial gaps when you encounter a surprise expense, but they don’t make for a great long term solution. In fact, regularly relying on short-term no credit check loans like payday loans or title loans pretty much means that you’re stuck in an ongoing cycle of debt.

Instead, you should look for long term fixes. (And no, we don’t mean opting for bad credit installment loans, although they can be a better option than two-week cash advances.) If you build up your credit score, you’ll be able to rely on better, more affordable kinds of personal loans when times get tough.

Fixing your credit score may not be easy—it’s going to require a lot of work and financial discipline—but the way to do it is fairly simple: There are two main reasons that people have poor credit, which also means that there are main ways for them to fix their scores!


Here’s how your credit score works.

The most common kind of credit score is the FICO score, which grades your creditworthiness on a scale from 300 to 850. The higher your score, the better your credit, with 680 being the rough cut-off point between “good” and “fair” credit.

Your credit score is based on the information contained in your credit reports, which are compiled by the three major credit bureaus: Experian, TransUnion, and Equifax. To order a free copy of your credit report—and you’re entitled to one free report annually from each bureau—just visit AnnualCreditReport.com.

These reports track your history as a credit user over the past seven years. However, some pieces of information, like whether you’ve ever filed for bankruptcy, can stick on your report for longer than that.

Information can also vary from report to report, as some lenders and landlords only report information to one or two credit bureaus, not all three. This means that you could actually have three slightly different versions of your credit score.

Your FICO score is comprised of five main categories: Your payment history (35 percent), your amounts owed (30 percent), your length of credit history (15 percent), your credit mix (10 percent), and your recent credit inquiries (10 percent).

Since your payment history and your amounts owed together make up 65 percent of your total score, it is these two categories that are most critical to fixing bad credit.

1. Start paying your bills on time.

Your payment history is pretty simple: It measures your history of paying your bills on time. In order to have good credit, lenders like to see a pretty spotless history of on-time payment. Even one late payment could cause your score to take a serious drop.

So if you’re trying to fix your credit score, you’re going to need to start paying your bills on time. And then once you start, you shouldn’t stop. Ever.

Build a schedule for all your bills and compare them to your monthly budget. And if you don’t have a budget, here’s a free template and instructions to get you started.

Are all your bills clumped together in such a way that it makes paying them on time difficult? Contact your creditors and see what you can do about switching your due dates to make payment a little bit smoother.

Put as many of your bills as possible on auto-pay. but make sure that you have the proper funds in your account to pay for them’ otherwise, you’ll end up incurring expensive overdraft fees.

And if you still end up paying a bill late, pay it anyway and then contact your creditor, as many have a grace period before they report late payments to the bureaus. If you have a history of on-time payments with them, calling and talking with them should help your case.

If you have any old unpaid bills that have been sent to collections, do something similar. Contact the collection agency and create a plan for repayment. Once the bill is paid, talk to them about having the account removed from your report. It might not work, but it’s worth a shot!

Paying your bills on time is crucial to building and maintaining good credit, but it’s also not a quick fix. It will take a while before all those on-time payments really start helping your score. This isn’t a sprint, it’s a marathon, and its one you’ll have to run if you want to put bad credit behind you.

2. Pay down your outstanding debt.

While your outstanding debts count slightly less towards your credit score than your payment history, they’re also a problem that you can tackle a bit more directly. In short: The faster you pay them off, the sooner your score will rise.

Potential creditors like personal lenders and landlords are wary of lending to people with too much outstanding debt, especially if it’s high-interest consumer debt like credit cards, personal and online loans, etc. So when you’re making a repayment plan, that’s where you should focus.

There are two popular methods for paying down debt: the Debt Snowball and the Debt Avalanche. Pick whichever method works best, and then stick to it.

With the Debt Snowball, you put all your extra debt repayment funds towards your smallest debt, while only making the minimum payments on all your other debts. When that smallest debt is paid off, you roll over its minimum payment towards your next largest debt and continue. With each debt you retire, you have more money to put towards your larger debts!

The Debt Avalanche works in much the same way as the Debt Snowball, but with one key difference. Instead of paying off your smallest debt first, you pay off the debt with the highest interest rate first.

With the Debt Avalanche, you’ll save more money over time, but it can also mean having to wait a while before your first debt is entirely zeroed out, which can leave some people discouraged. This is why the Debt Snowball is structured to prioritized encouraging early victories.

If you don’t have a lot of money to spare in your budget for debt repayment, try looking for a part-time job or side hustle that you can use to earn some extra cash. Like we said up top, the faster you pay off your high-interest consumer debt, the sooner your score will go up!

A better credit score is worth the work.

With a good credit score, you’ll be able to apply for better loans and housing. Instead of getting stuck with high-interest bad credit loans, you’ll be able to apply for an awesome credit card that offers sweet rewards—so long as you make sure to use that card responsibly.

And while you should make sure to balance your credit score with other important financial priorities—like saving for retirement or building up your emergency fund—good credit will help you out in pretty much every facet of your financial life.

To learn more about building a brighter financial future for you and your loved ones, check out these other posts and articles from OppLoans:

Do you have a personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN |Instagram

The Pros and Cons of No Credit Check Loans

Taking out a loan with no credit check means taking on some fairly sizeable risks. Make sure you’re informed before you borrow one!

No credit check loans might seem like a great way to cover a surprise car repair or other unforeseen expense, but these loans can come with serious risks and downsides. Before you borrow, make sure you know everything there is to know about the good and the bad of no credit check loans.


Pro: You don’t need good credit

If you have good credit—with a score that’s roughly 680 or above—then you probably don’t need to turn to a no credit check loan. Another name for these loans is “bad credit loans” because they are generally aimed at folks whose low FICO scores lock them out from working with traditional lenders.

But if you do have bad credit, then a no credit check loan could provide some much-needed bridge financing during a time of great financial need. When your car breaks down or you have a surprise medical expense, a no credit check loan could be the thing that gets you out of a jam.

Traditional lenders like banks won’t lend to people with poor credit scores because they are seen as being at a higher risk of default. No credit check lenders, on the other hand, fill this gap in the financial services sector by lending to folks who don’t have a great history of using credit.

Some bad credit lenders still have approval processes that might lead someone with a very low score to be turned down for a loan. But many no credit check lenders don’t perform any kind of underwriting procedures. This means that you can get a loan, no matter how bad your credit.

Con: They’re very expensive.

This is the downside to no credit check loans enjoying wide accessibility. Since lenders are issuing loans to people with a higher risk of defaulting, the rates they charge necessarily have to be higher than the rates charged by traditional lenders.

How high are these rates? It varies from loan to loan, customer to customer, and even from state to state, as these loans are regulated at the state level. But across the board, the rates for no credit check loans are much higher than the rates for standard personal loans.

Short-term payday loans, for instance, have an average annual percentage rate (APR) of almost 400 percent, while title loans—which are secured by the title to the borrower’s car or truck—have an average APR of 300 percent.

But since most no credit check loans are short-term loans, wouldn’t that mean that their annual rates are beside the point? Not so fast. Later on in this article, we’ll cover how short-term cash advances can end up trapping borrowers in a long-term cycle of debt.

In the meantime, you should try shopping around for a soft credit check loan. These are lenders that examine a borrower’s ability to repay the money they’re borrowing before they lend to them with running a hard credit check. Not only does this help customers avoid predatory debt cycles, but it often means lower interest rates too.

Pro: They’re fast.

No credit check loans are designed as a form of bridge financing, which means that they are designed to bridge the gap between one paycheck and the next. As such, most no credit check lenders are good at getting you your money when you need it: fast.

With your typical storefront lender, you can likely walk out the door with the cash you need in hand. And even most online loans that don’t perform hard credit checks can get borrowers their money by the next business day, even when they can’t get them their funds the same day.

Con: They won’t help your credit score.

This might seem like it’s a pro, but it’s not. If you have bad credit, it’s likely that you have a poor payment history. Out of the five factors that make up your FICO score, your history of paying your bills on time is the most important, comprising 35 percent of your total score.

So when you borrow money and you pay it back on time, you want it to count! But most no credit check lenders don’t report your payment information to the credit bureaus, meaning that you won’t get credit for making your payments on time!

What’s more, failing to pay back your no credit check loan on time could still end up hurting your score! If the debt gets sent to a collection agency, they will report the account to the credit bureaus, causing further damage to your credit.

If you want a bad credit loan that can help your score, you should try looking shopping around for a bad credit installment loan. Many companies that offer these loans (like OppLoans) report payments to the credit bureaus, so paying your loan off on time could help improve your score.

Pro: We’re out of pros.

No credit check loans are a handy form of short-term bridge financing for people who absolutely need it. But between their interest rates (high) and their chances of positively affecting your score (low), there aren’t many arguments that one can make in their favor.

Con: You could get stuck in a cycle of debt.

Due to a combination of high interest rates, short terms, and lump sum repayment terms (meaning that you pay the loan off all at once), many no credit check cash advance loans can leave borrowers trapped in a predatory cycle of debt.

How does this cycle work? It’s pretty simple: A person takes out a $300 two-week payday loan to cover a surprise expense, then pays the loan back—plus interest—14 days later, for a total repayment of $345.

However, that $345 payment is so large that the borrower finds themselves needing another loan to cover future bills. Think about it: Subtract $345 from your paycheck and see how many financial sacrifices you would have to make in order to cover all your other costs.

The borrower then has two options: They can roll over their original loan—paying only the interest owed and receiving another two weeks to pay off what they originally borrowed plus another round of interest—or they can take out a brand new payday loan.

Either way, they end up in a cycle where every repayment leaves them just as far behind as they were in the first place, with interest charges accumulating but the principal loan amount remaining stubbornly unreduced.

According to research from the Pew Charitable Trusts, over 80 percent of payday loan borrowers don’t have enough money in their monthly budgets to cover their payday loan payments. And the Consumer Financial Protection Bureau found that the average payday loan user borrows 10 loans per year.

Pro move: avoiding these loans altogether.

While borrowing a safer, more affordable installment loan—reports payment information to the credit bureaus—can be a great way to avoid predatory no credit check loans. But the best way to avoid them is … to never need one in the first place.

This means building up your savings and improving your credit score. Aim for building a $1,000 emergency fund to protect yourself from future unforeseen expenses, and try to build your credit score up past 680, putting you in a better spot to borrow from traditional lenders.

Both of these solutions require hard work and a fair amount of financial discipline, but they are totally worth it in the long run. To learn more about how you can build your savings and your credit, check out these other posts and articles from OppLoans:

Do you have a personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Can Renting a Car Affect Your Credit?

Has anyone ever told you that you should always use a credit card to rent a car instead of a debit card? Your credit score is one of the reasons why.

Sometimes, it can feel like just looking at someone the wrong way could end up dinging your credit score. And while that’s obviously an exaggeration, it is true that all manner of financial transactions and general behaviors can end up affecting your credit.

But is renting a car one of them? Well, if you thought this was one of those urban credit score myths, we have some news for you …


Yes, renting a car can affect your credit score.

In short: Yeah. And what’s more, the effect will probably be negative.

But here’s the good news: The damage to your score will be minimal. Only in rare circumstances would renting a car cause significant harm to your score. (More on that later in the post.)

Here’s more good news: Any effect on your score can be easily avoided using this one simple trick (that isn’t actually a trick at all). All you need to do is … use your credit card to rent the car instead of a debit card.

Why you should rent cars with credit, not debit.

“Most rental car agencies want a credit card for the method of payment,” explained Todd Christensen, education manager for Money Fit by DRS, Inc. (@MoneyFitbyDRS). “It provides additional security in case of accidents or incidental damage to the vehicle.”

“They may think that because you aren’t using a credit card you may not even have one—perhaps because your credit is too low,” added Jake McKenzie, content manager at Auto Accessories Garage (@aagarage).

“This may cause the rental company to check your credit via what FICO calls a ‘hard inquiry.’ This inquiry can, in fact, ding your credit by five points or more.”

If you have good credit, then a temporary “ding” of five points or so won’t be much to worry about. Then again, folks with good credit probably have plenty of room on their credit cards to rent the car in the first place. They don’t need to use a debit card!

For people with bad credit, things can get a bit dicier. Not only will they end up with a hard inquiry docking their already lousy score, but there’s the chance that their rental application could be denied—meaning they dinged their score for nothing!

If you have a credit card (that’s not maxed out), and you are renting a car, you should use that card to rent it instead of using a debit card. It’s really just that simple.

Except that it’s not. After all, bad credit renters are also less likely to have a credit card that they can use to rent a car, leaving with little-to-no choice in the matter. Living with a bad credit score can be tough in any number of ways. It’s not surprising, then, that renting a car is one of them!

Here’s how credit scores work.

When you rent a car with a debit card and the rental company runs a “hard check” on your credit, that check is recorded on your credit report and ends up getting factored into your score.

Credit reports are documents compiled by the three major credit bureaus—Experian, TransUnion, and Equifax—that track your history as a credit user. Most information stays on your report for seven years, but some information can stay on your report for longer.

Your credit score is based on the information in those reports. And since information can vary between your different credit reports, that means that your credit score can vary depending on which report is used to calculate it.

The most common type of credit score is also the oldest: Your FICO score. This is a three digit number ranging from 300 to 850. The higher your score the better, with 680 being the rough cut off for “good” credit.

There are other types of credit scores. The three credit bureaus, for instance, got together to create a score called VantageScore. But since this score is also based on the info contained in your credit reports, it won’t often vary widely from your FICO score.

One way that renting a car could really hurt your score.

Recent credit inquiries are one of five major factors in how your credit score is calculated. This is the category that hard credit checks fall into. However, it’s one of the least important factors, which is why renting a car with a debit card will only ding your score.

The two most important factors are your payment history and your amounts owed. Your payment history makes up 35 percent of your total score and your payment history makes up an additional 30 percent. Together, they comprise a whopping 65 percent of your credit score.

Which brings us to the other way that renting a car could affect your credit.

“As with most accounts, if any fees or charges from the car rental agency are not paid, they may end up being sold to a collection agency, which would then show up on your credit report as a negative,” explained Christensen.

If you have a good credit score, then the odds are good that you don’t have any accounts that have been sent to collections. That’s because having a collection account added to your credit report can really hurt your score.

The reason that payment history is the number one factor in determining your score is that, well, businesses really like working with people who will pay their bills on time. So if you rent a car, it’s critically important that you pay all the related fees and expenses on time. Otherwise, your score could end up taking a major hit.

And if that news comes as a surprise to you, well, we have some other posts and articles from OppLoans that you should probably read:

Do you have a  personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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Contributors

Author and Accredited Financial Counselor®, Todd R. Christensen, MIM, MA, is Education Manager at Money Fit by DRS, Inc. (@MoneyFitbyDRS), a nationwide nonprofit financial wellness and credit counseling agency. Todd develops educational programs and produces materials that teach personal financial skills and responsibilities to all ages. Having facilitated nearly two thousand workshops since 2004 on the fundamentals of effective money management, he based his first book, Everyday Money for Everyday People (2014), on the discussions, tips, stories and ideas shared by the tens of thousands of individuals and couples in attendance.
Jake McKenzie is the Content Manager at Auto Accessories Garage (@aagarage), a fast-growing, family-owned online retailer of automotive parts and accessories. He manages all written content for the website including research guides, product descriptions, and other informative articles. He also enjoys attending the annual SEMA Show, the premier automotive specialty products trade event held every November in Las Vegas. Jake often lends his opinions and expertise to a variety of online blogs, websites, and news sources.

What Is Your Debt-to-Income Ratio?

If you’re applying for a mortgage loan, an auto loan, or even just a regular personal loan, lenders will be looking at your DTI to see whether or not you can afford it.

When it comes to the numbers that rule your financial life, you’re probably familiar with the big ones like your credit score: Even if you don’t have good credit, you still know that you should try to keep your score as high as possible.

But there’s another important number that you might not be so familiar with: your debt-to-income ratio. And while it’s luckily one of the simpler money metrics out there—unlike, say, your credit score—it can have massively important implications for your financial future.


What is the debt-to-income ratio?

“Your debt-to-income ratio (known as DTI) is an important financial metric that you really do need to understand,” explained CFP Patricia Russell, founder personal finance blog, FinanceMarvel. And while some financial terms—like “amortization” for instance—can be slightly opaque, your debt-to-income ration is not one of them.

“In simple terms, your DTI ratio is all of your monthly debt payments divided by your gross monthly income (expressed as a percentage),” said Russell. “This metric or ratio is heavily scrutinized by lenders to assess your ability to service your monthly repayments on the money you have borrowed.”

It’s important to emphasize that your DTI doesn’t measure your total debt load to your total yearly income. Instead, as Russell laid out, it measures the amount of money you’re obligated to pay towards that debt every month against your monthly income.

“It’s a ratio that affects your ability to access a loan,” said millennial money expert Robert Farrington, founder of TheCollegeInvestor.com (@CollegeInvestin). “The basic idea is if you have too much debt relative to your income, lenders might hesitate or refuse to give you the credit you need for a large purchase.”

“Your debt-to-income ratio (DTI) most often comes up when buying a house,” he continued, “but it is also considered by potential landlords or lessors of cars. By pulling your credit report, someone can calculate your DTI and decide whether to loan, rent, or lease to you.”

What kind of debts and income count?

According to Farrington, the debt obligations factored into your DTI are those that fall under the category of “recurring” debt, or debts that you can’t simply cancel at any time.

“This includes mortgage, rent, car loans, personal loans, monthly minimum credit card payments, alimony, child support, and, of course, student loans. These are debts that are not going to go away until you’ve fully repaid them,” he said.

And which debts do not count towards your DTI?

“Despite the fact that you may have contracts with your internet, cable, or phone provider, you can technically pull the plug on these services any time, so they do not count. Nor do other kinds of utilities like electricity and water,” said Farrington.

He also went to explain which sources of income count towards the other half of the ratio. In short, it doesn’t just have to money that you earn from a job. “Your income can include not just wages, salary, and tips, but also alimony and child support, Social Security benefits, and pension,” he said. “Pretty much any money you take in on a monthly basis on the books can be considered income.”

How can you calculate your DTI?

Knowing what a DTI is won’t do you a ton of good if you can’t figure out how to calculate it. Luckily, figuring out your DTI is pretty simple and doesn’t require a financial advisor.

“To calculate, one simply takes all debt payments and divides by gross monthly income,” said Robert R. Johnson, Professor of Finance in the Heider College of Business, Creighton University (@CreightonBiz). “This includes all debt payments—mortgages, student loans, auto loans, credit cards, etc.”

To give you an idea of what this process looks like, Farrington helpfully provided the following example: “If you have $1,000 per month in debt obligations and $3,200 per month in income, divide 1,000 by 3,200 and your answer is .3125. Round that to .31, multiply by 100, and you have a 31 percent DTI ratio—Meaning that 31 percent of your income is taken by debt obligations per month.”

What is a good debt-to-income ratio?

When lenders are looking at your DTI, it’s to help them determine whether or not you can pay back the loan you’re applying for—the same goes for landlords. As such, you want to try and keep your DTI fairly low. But the thresholds for what is an acceptable ratio can change depending on what kind of loan (or lease) you are applying for.

When it comes to applying for a mortgage loan, Farrington cites Fannie Mae guidelines that say 50 percent is the acceptable DTI ceiling for prospective homebuyers. But just because 50 percent is the ceiling, doesn’t mean you shouldn’t aim lower. And the data backs that up.

“According to the Consumer Financial Protection Bureau (CFPB), the highest ratio a borrower can have and still be eligible for a Qualified Mortgage is 43 percent,” said Johnson. “And, a Qualified Mortgage is a category of loans that have certain, more stable features that help make it more likely that the borrower will be able to afford the loan.”

“According to the CFPB, evidence from studies of mortgage loans suggests that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments,” he added.”

If you’re looking to take out an auto loan, Farrington says that a DTI of 36 percent or below is ideal to get a reasonable deal. Meanwhile, if you’re applying to rent a house or an apartment, he cautioned that DTI will vary, largely by location and property owner.

“Many landlords will require that the rent will amount to no more than 33 percent of your income. Some may be more lenient and go up to 45 percent or 50 percent,” he said.

If you’re looking for a good overall ratio to set as your goal, aim for something just south of 30 percent. “An ideal ratio is generally around 28 percent although as mentioned above lenders will accept a higher ratio depending on other factors including your credit score, your savings levels, other assets you own,” advised Russell.

But she also warned that folks shouldn’t necessarily count on a good credit score saving you from a high DTI: “Whilst credit bureaus don’t look at your DTI ratio, often a borrower who has a DTI ratio also has a high credit utilization ratio which does count for around 30 percent of your credit score.”.

Johnson agreed with 28 percent figure, while also reiterating that the lower your ratio was, the better off you’ll be.

How can you improve your DTI?

If you’re looking to take out a big loan and you have a high debt-to-income ratio, it’s probably best to wait. In the meantime, Russell shared three ways that people can tackle their debt and improve their DTI.

  • Create a budget to track your spending: By keeping track of exactly where your money is going, you will often find unnecessary and extravagant daily expenses. This could be something as simple as a daily $5 coffee, which over a year is $1,825 that could go towards paying down your debts.”
  • Prepared a strategy to pay off your debt: My two favorite methods are the snowball and avalanche methods. How the snowball method works is that you start by paying off your smallest debt first whilst making the minimum payments on your other loans. Once you have paid off the smallest you then work your way onto the next one etc. With the Avalanche method, you focus on paying off the loan with the highest interest rate first. Whichever method you choose it’s important to stick with it.”
  • Don’t take on more debt: In order to get your debts under control, you need to avoid the temptation of taking on more debts. Don’t rack up unnecessary credit card debts and avoid major purchases like a new car on finance. New loans will really hurt your DTI ratio and won’t help your credit rating either.”

Paying down your debt is important for your financial health. But it might not be wise to throw yourself into debt repayment if it means foregoing other important financial priorities.

“Achieving financial security is not a linear process,” said Johnson. “By that, I mean that you often have to work on several competing goals at once. For instance, some people are so intent on extinguishing their credit card debt—certainly a worthy goal—that they choose not to participate in a workplace 401k plan.

“A 401k plan affords the participant many advantages,” he continued. “First, the contributions made reduce your income tax bill by reducing taxable income.  Second, if the employer matches contributions—essentially you receive an immediate 100 percent return on investment. When one doesn’t participate in an employee matching plan, one is essentially turning down free money.”

Your DTI is important, but so is saving for retirement, building an emergency fund, and a whole host of other financial priorities. Take things slow and steady, and you should come out a winner on the other end. And to learn more about how you can build a brighter financial future, check out these other posts and articles from OppLoans:

Do you have a  personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN | Instagram


Contributors

​​​​​​​Robert Farrington is a Millennial Money Expert and Founder of TheCollegeInvestor.com (@CollegeInvestin). He focuses on helping people get out of student loan debt to start investing and building wealth early.
Robert R. Johnson, PhD, CFA, CAIA is a Professor of Finance in the Heider College of Business, Creighton University (@CreightonBiz). He is also Chairman and CEO of Economic Index Associates, home to a new paradigm in Index investing. Dr. Johnson is the co-author of the books Invest With the Fed, Strategic Value Investing, Investment Banking for Dummies, and The Tools and Techniques of Investment Planning.
Patricia Russell is a Certified Financial Planner (CFP) and the founder of the personal finance blog, FinanceMarvel, which provides free financial advice on managing credit, debit and savings. Patricia has more than 10 years experience in helping families and individuals take control of their personal finances and achieve financial independence.

Spring Clean Your Finances With These 5 Expert Tips

In the spirit of Marie Kondo: Do your finances spark joy? If not, it’s time to get organized.

Spring is a perfect time for fresh starts. That’s why over 77 percent of people use the season to declutter their homes—tossing papers, donating clothes, and organizing their remaining belongings.

But houses aren’t the only thing that might need a deep clean—finances may, too.

Recently, a new method of home organization has won over devotees across the country and around the world. The KonMari Method, developed by Marie Kondo and popularized through her Netflix show “Tidying Up with Marie Kondo,” encourages the pursuit of happier, cleaner, and more mindful lives through a careful purging of items that no longer bring the owner joy.

Were you one of the many inspired to give their homes a thorough scrub? Ready to do the same with your money? Here are five expert tips to help you declutter your finances.

Tip #1 Know Your Financial Standing

The first step in cleaning up your finances is to get an overview of where you stand. So, much like organizing your home, take all of your finances and lay them out. Instead of a mountain of clothes, this might be financial papers, digital receipts, and monthly bills.

According to financial planner Tess Zigo, “[s]pring cleaning starts with understanding your cash flow.”

Tess Zigo, Certified Financial Planner

Why? Because cash is king. The cash flow is a window into all your income versus expenses and as you do this exercise you can collect all documents relating to your personal finances and put the “puzzle together.” Paper or electronic, it doesn’t matter.

I am a big proponent of New Year’s resolutions, and so every year I sit my reluctant husband down and we go through last year’s spending to make sure we understand where our money is going. Right now I am really into Marie Kondo’s organizational show where she helps families organize their belongings and really review every item/possession to make sure you only keep things that bring you joy.* I’ve implemented that into my family’s budget review process and with clients’ budgets also, so when we review our spend for the prior year we analyze the highest spend categories first to make sure it aligns with our family’s goals and values. In order to make the process fun and simple, since we are busy parents of two toddlers and don’t have all the time in the world to spend tracking receipts and expenses, we use a tool that links to our credit cards so it puts together an annual summary for us and categorizes our expenses. This makes it easy and quick so we have no excuse not to do it!

So for example, looking at our last year’s spending our biggest categories:

  • Education for our kids which comprises 20 percent of our gross income. This is in perfect harmony with our values, since we believe education helps build a solid foundation for our children’s future so they are comfortable in social settings and develop a passion for learning. Nobody knows what the future holds, and what the jobs of tomorrow will look like but I’m pretty sure that if you are comfortable interacting with others and love learning new skills you will be able to adapt to whatever that future looks like.
  • Food expenses account for 10 percent of our gross, and this is a necessity of life because eating healthy, organic, mostly whole foods is good for our family. We are always conscious of how much we eat out and try to limit ourselves not only to save money but knowing what we put into our meals we feel is better for our health too.
  • I have a lot of clients who have health issues and weight issues, which go hand in hand oftentimes. As part of financial planning I recognize the need to invest in our health and try to eat well to maintain a healthy weight, reduce health conditions in the future which would cost more in the long run and we both agree that we want to be around for our grandkids one day.
  • Shelter is another 20 percent. This includes our mortgage and utilities. This is really a basic necessity, but it’s one category that really trips up a lot of my clients. A good “benchmark” for your mortgage is no more than 28% of your gross income. I find that the higher this number gets, the closer you become to being “house poor/living paycheck to paycheck” which just limits your overall options because the more you spend on a home, the higher your utilities, typically, the higher the furnishing cost and so on, which just means less money available to spend on other things you enjoy—so less money to eat out, less money to save for future goals and needs, and so on.
  • Auto and transport is another big category for us: My husband enjoys having a new car, so we are always stuck with a car payment and typically the gas guzzler he picks requires a lot of money spent on gas. This is something we talk about and discuss, but ultimately if it brings you joy and it doesn’t affect your finances significantly I say live your life, because ultimately you have to strike a balance between your future needs and being happy today! Otherwise, what is the point of life anyway?
  • Saving is on auto pilot for us, and this is a combination of 401(k) contributions and Roth contributions to max out our retirement savings since we have a goal of reaching “financial independence” at age 55 and not have to work past that point. Knowing how much I love my work with my clients, I don’t plan to actually retire and quit at 55. It’s just an important milestone for us because it would be a great privilege to go to work for the pure joy of doing what we love but knowing financially we don’t have to make a living.
  • And lastly, all the other miscellaneous stuff that adds up, including travel which is what we live for and we enjoy exploring different parts of the world together and exposing our children to different cultures, languages, and different lifestyles around the world. We value these experiences as a family much more than material possessions, and this is a constant struggle to make sure we don’t spend a lot of money on the newest iPad, and other advertised consumerist possessions and instead take a trip somewhere as a family.

So what are my tips for spring cleaning?

You guessed it! In order to make a change, you need to know where you stand today. So, pick a tool that helps you figure out how 2018 went for you financially. There is a whole lineup of apps that help you budget, so pick any one and just go for it! I’ve used Mint and currently use eMoney and love both, but eMoney is smarter and lets you save categories.

Once you categorize your spending for 2018 you can see how much you spent versus your income and this will give you a picture of all your expense: consumer debt, credit cards, taxes, retirement contributions, and living expense. You should also pull an annual credit report to make sure you aren’t missing any open accounts and should know your credit score which affects more than loans (including your home and auto insurance premiums).

This is the hardest part of spring cleaning. Knowing your current standing and financial standing helps you plan ahead so you can decide on what is most important and start taking small steps in that direction.

Tip #2 Create a Financial Plan

We spoke with Drew Parker, the creator of The Complete Retirement Planner, about the importance of creating a comprehensive financial plan that details your goals for the coming years. Similar to the sorting of belongings, this requires you to review the individual components of your finances and create a plan that’s tailored to your unique circumstances.

Drew Parker, creator of The Complete Retirement Planner

The most critical step in getting your finances in order is to create a comprehensive, completely individualized (no generic assumptions) financial plan showing year-by-year results.

Seeing exactly where you stand in black and white, along with a thorough forecast of what your financial future looks like year by year is eye-opening.

A financial plan helps you to establish realistic goals, understand the steps you can take to achieve those goals, and enables you to track your progress.

It’s important to note that a financial plan is very different than a budgeting/saving app. This is a detailed long-range planning tool that accounts for all of your personal variables, year by year, including a budget that varies over time (life is not static), tax liability, debt as a percentage of your income, retirement savings goals, a plan for savings withdrawals during retirement, Social Security income based on your claiming age, and much more. It helps you to make more informed decisions by clearly illustrating how your current behavior directly affects your long-term results and by allowing you to quickly model what-if scenarios. Having this detailed information at your finger-tips eliminates guessing, keeps you organized, and can be updated each year (think financial spring cleaning) in less than an hour. Your financial well-being is too important to rely on guessing or generic benchmarks and assumptions that don’t apply to you. Create a financial plan using only your personal information to know exactly where you stand, and where you are likely to end up.

Taking control of your financial destiny will help you to sleep better—and Marie Kondo would be proud!

Shelby Ring, CEO at Ruby Riot Creatives

Shelby Ring, CEO at Ruby Riot Creatives, suggested taking a deep dive into your bank accounts to create a solid monthly expense plan.

Take a deep dive into your bank accounts. It is terrifying—yes—but knowledge and clarity is POWER! Set up a spreadsheet with all of your recurring business or personal expenses every month. A key thing is to look through your credit card charges and bank transactions, rather than relying on email receipts or bills. You would be amazed at the number of auto recurring services we pay for without even realizing it! So taking a fine-tooth comb and brushing through your statements is a really powerful move for getting clear on how much money you have going out every month.

Take the same step for accounting for money coming in. You might be surprised! Getting clear on your true metrics for what you’re working with is the key to taking back your power and seeing the full picture of where your money is going and how to make your money work for you.

 

Tip #3 Part Ways with Paperwork

In some sense, financial paperwork is an easier category to get organized. It exists materially—as paper, if you print it out—and tidying it up consists of the relatively simple task of tossing what you don’t need and straightening out what you do. Create a pile. Sort into ‘keep’ or ‘discard.’ Then organize.

Deborah Sweeney, CEO of MyCorportation.com

Deborah Sweeney, CEO of MyCorportation.com, suggested organizing the physical remnants of your personal finances. If you have a huge pile of paperwork, bills, and receipts that are out of hand, you’ll need her tips.

Begin organizing any and all paperwork now. If you just filed your taxes, set them aside in a space ideally with past returns and their information. Create a space for receipts as well.

Do not let any of this paperwork get buried. Buy a special container or filing cabinet strictly for all personal finance paperwork that you can safely store and organize it in.

Color code, if necessary! You may organize your personal financial documents by certain color coded tabs on their files.

If you are storing certain personal financial matters via email or through the cloud, use specific labels (as opposed to vague ones) to make it easy to find everything.

 

Tip #4 Tackle Bills and Debts

We talked to Alissa Todd, a financial advisor at the Wealth Consulting Group about organizing bills and debts. It’s crucial to know where your money is coming from and where it’s going before creating a repayment strategy. This step will help to ensure that everything you organized will remain organized going forward. Creating systems that work for you is your best weapon against falling back into financial messiness.

Alissa Todd, Wealth Consulting Group

Money can be a major source of stress but only if you let it! Here are three ways to declutter your financial house and gain control of your money so that you can live the life you love.

  1. Understand your expenses. Take inventory of all your bills, which generally fall into three categories:Fixed: Require the same amount of payment on a consistent basis. Some examples include rent or mortgage, insurance, gym membership, Netflix, or Spotify, etc.Variable: Vary from week to week or month to month. You still have these expenses consistently but the cost varies. Some examples include groceries, utility bills, dining out costs, and gas.Periodic: Can be fixed or varying amounts that don’t occur on a regular basis. Some examples include car maintenance costs, taxes, gifts, clothing, and concerts.
  2. Use the budget you created earlier with these different types of expenses to hone in on any outstanding bills, such as credit card debt, student loans, mortgage payments, etc. Know which ones should be paid when. Then, allocate extra money to the bills with the highest interest payments in order to pay those off first. Hint: it’s most likely your credit cards.
  3. Make a plan for paying off debt. To pay down debt, you must first have a very clear picture of your overall debt situation. Write a list of each type of debt (credit card, student loans, etc), amount owed, interest rate, length of the term, payment due date. Decide whether you will use the avalanche or snowball method. Take action by making additional payments to the debt that you have decided to pay off first while paying the minimum on your other debts. Celebrate every accomplishment and win in your debt reduction journey!

Tip #5 Treat Yourself and Your Finances With Love

Perhaps our favorite trait that Marie Kondo embodies is her kindness and patience throughout the entire cleaning process. Honestly, cleaning is stressful. It’s time-consuming, energy-depleting, and maybe even emotionally draining. So treat your finances, but most importantly yourself, with love.

Shelby Ring, CEO at Ruby Riot Creatives

Another great tip worth mentioning is adding positive affirmations through this process. Having a mantra affirming why you are looking at things you are afraid of or feel powerless about can be really motivating and get you through discouragement. Money is working for me, money is attracted to me! I can’t help but attract prosperity and great money into my life! Write something that resonates with you and repeat it through the process of getting clear on your financial health.

Bottom Line

Spring cleaning isn’t just a good idea for your home—it’s good for your money, too. So toss old mindsets, documents, and debt, and dust off your finances with these five tips:

  1. Take stock of your financial standing.
  2. Create a short-term budget and long-term financial plan.
  3. Declutter physical documents, files, and papers.
  4. Make a plan to tackle bills and debt.
  5. Use an uplifting motto to stay motivated.

Remember, your finances should bring you joy. Hopefully, with these expert tips, they will!

Contributors

Drew ParkerDrew Parker is a former Business Financial Planner and Financial Manager for a $4B company, with extensive experience in building financial planning tools. In 2017, he created The Complete Retirement Planner (TCRP) to help the 74 percent of households who have no written financial plan, and who are unsure of how to create one. TCRP makes it easy for anyone to create a comprehensive and completely individualized (no assumptions) year-by-year financial plan, with advanced educational and technical features not found anywhere else. Parker also enjoys writing a blog about personal financial planning and has been quoted in articles by U.S. News & World Report, Kiplinger’s, GlassDoor.com, and Quicken Loans.
Shelby RingShelby Ring is the chief cat herder at Ruby Riot Creatives; a digital marketing firm based out of Charleston, South Carolina, that specializes in video production, photography, and SEO content and branding strategy. When Shelby’s not filming or coaching clients, you might find her teaching Buti yoga, stuffing her face with oysters, or chronicling her recent personal travels on her passion project blog, Travels With Shelby.
Deborah SweeneyDeborah Sweeney is the CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services.
Alissa ToddAlissa Todd is a Wealth Advisor at The Wealth Consulting Group where her team helps clients simplify their financial life and use money to live a life they love. Todd learns what is most important to you and then creates an implementable action plan to help you pursue financial independence so that you can live your life by design, not default. She also shares weekly money tips on her YouTube channel. Alissa grew up in Europe prior to moving to California in 2008. Growing up in a bilingual household of English and Japanese, Alissa stays involved in the community by being a board member of the Japanese American Citizens League San Diego chapter. Outside of work, you can catch her on one of many hikes in San Diego or practicing yoga.
Tess Zigo studied finance and accounting at Northern Illinois University and spent several years working in treasury management. Over that period, Zigo developed a passion for personal finance and investing, but quickly learned that she loved people more than spreadsheets. She decided to get in front of real people dealing with the same real money issues that she struggled with—balancing the need to enjoy life today, while also being responsible for the future. As a mother of two toddlers and a business owner, she understands the challenges her clients face with the never-ending demands on their time and energy. When she is not meeting with clients, you can find her traveling, hosting casual dinner parties with friends, or simply building legos with her little loves and spouse. Find her on LinkedIn.

This article is meant to be general, and it is not investment or financial advice or a recommendation of any kind. Please consult your financial advisor before making financial decisions. For more detailed information, contact Tess Zigo, a Financial Advisor with Waddell & Reed, Inc. at 6308641068. Investing involves risk and the potential to lose principal. Waddell & Reed, Inc. Member FINRA/SIPC.

*Waddell & Reed is not affiliated with Marie Kondo.


What’s your technique for a spring finances clean? Tell us over on Twitter at @OppUniversity.

5 Benefits of Soft Credit Check Loans

With a soft credit check loan, you’re likely to see lower rates than you would with a no credit check loan—and it might even help your credit score!

​​​​​​​If you have bad credit, then you’re probably familiar with no credit check loans. These are a type of bad credit loan that doesn’t perform any sort of credit check when you apply. The most common kinds of no credit check loans include payday loans, title loans, and cash advances.

But there’s another kind of bad credit loan you should know: Soft credit check loans. This is a category that includes many of the bad credit installment loans available to folks whose low scores lock them out from traditional lenders.

There are many benefits to soft credit check loans, some of which they share with no credit check loans, but also some that make them an improvement on their no credit check cousins. If you have bad credit and need money to cover a surprise expense, here’s what you need to know.


1. They’re easy and fast!

If you’ve ever applied for a personal loan from a bank or other traditional lender, you know that the process is not speedy. Once you’ve entered in all your information—and they’ll ask for a lot it—you’ll still have to wait days before you receive a decision.

Soft credit check loans, on the other hand, are easy to apply for. While performing a soft credit check—and sometimes an income verification—requires more information than a no credit check application, it’s still something that you can complete very quickly.

And once you submit your application, you’re likely to get a decision in a matter of minutes or hours, not days. When you’re dealing with something like an unexpected car repair or medical bill, this sort of easy application lets you get back to focusing on what really matters.

And if you’re approved, you’ll get your funds quickly. Sometimes you can even receive your funds the same day, but oftentimes you’ll receive them by the next business day. Still, that’s much faster than traditional lenders and gets you the money you need when you need it: Now.

2. Applying won’t affect your credit.

When you apply for a traditional personal loan, the lender is going to run a hard check on your credit. This returns them a full copy of your credit report and lets them do a deep dive on your history as a borrower. Hard checks are recorded on your report and they’ll temporarily lower your score.

Soft credit checks, on the other hand, are not recorded on your credit report and do not affect your score. This is because they return less information than a hard check, giving lenders a broad overview of your credit history instead of a comprehensive reporting.

With traditional loans, getting your application denied is doubly frustrating: Not only do you not get the money you need, but your score has been lowered. With soft credit check loans, however, there is no downside. Even if your application for credit is denied, your score won’t take a hit!

3. They come with lower rates.

Soft credit check loans are still a type of bad credit loan, so their rates are going to be higher than standard personal loans. There’s really no way around it. Borrowers with bad credit default at higher rates, so these lenders have to charge higher interest rates in return to protect against potential loss.

But since soft credit check loans do their due diligence on applicants and turn down borrowers who can’t afford to repay (more on why that’s a good thing in the next section), their default rates are naturally lower than no credit check lenders.

What this means for you is simple: Soft credit check lenders often charge lower rates than no credit check lenders! Lower rates mean that you save money over the life of the loan, and they also lower your risk of getting trapped in an ongoing cycle of debt.

4. They check your ability to repay.

When you take out a loan—no matter if it’s an online loan or one from a brick-and-mortar institution—you want to be able to pay it back. Otherwise, you’ll end up with negative marks on your score and a debt collector hounding you for payments. You could even end up in court with your wages getting garnished!

With no credit check loans, the likelihood of this happening is much higher because the lender doesn’t do anything to check whether or not you can afford the loan you’re trying to borrow.

In many cases, no credit check lenders stand to make more money from their customers not paying their loans off the first time. When borrowers are forced to roll over their loan or take out another loan immediately after paying off their old one, that means more money for the lender.

But with soft credit check loans, lenders will not loan money to someone that they estimate can’t afford the loan. This is why these loans are less likely to trap borrowers in an ongoing cycle of debt: Because these lenders care about their customers paying off their loan the first time, not the fifth.

5. Some can help your credit.

With a no credit check loan, the only way you’re going to see your credit score affected is if you default on the loan and it ends up as a collections account. In other words, the only way for your score to go with a loan like this is down.

But some soft credit check lenders (including OppLoans) actually report payment information to the credit bureaus that create your credit reports. This means that on-time payments will go on your report and could help improve your score.

Your payment history is the most important part of your credit score, making up 35 percent of your total. As such, good payment history is critical to maintaining a  good credit score or fixing a lousy one. And these soft credit check loans give you the opportunity to build better credit.

Soft credit check loans aren’t a silver bullet by any means. But the right loan can be a great tool to help you address a financial shortfall. And the best soft credit check loans can even help you to start building a brighter financial future.

To learn more about improving your credit and your financial outlook, check out these other posts and articles from OppLoans:

Do you have a personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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5 Tips for Borrowing Money When You Have Bad Credit

Bad credit borrowers have more options than you might think—you just have to make sure you find the right bad credit loan for you.

bad credit loans can help you out when you’re in a financial bind and need money now. Unlike personal loans from traditional lenders that require stellar credit history, the right bad credit loan can get you the money you need when you need it—even if your credit history is … less than stellar.

Notice that we said “the right” bad credit loan. That’s because certain bad credit loans—also known as no credit check loans—can come with significant downsides and can possibly even trap into a dangerous cycle of debt, taking your financial situation from bad to worse.

Most often, these sorts of loans fall into the category of short-term loans like payday loans, cash advances, and title loans. More on that in a bit. If you have bad credit and you need to borrow money, here are five tips to make help you make the right decision.


Watch out for payday loans.

Let’s get down to brass tacks: Short-term no credit check loans like payday loans are a bad credit borrowing option that you should do your best to avoid. These loans come with extraordinarily high interest rates and large payments that can be difficult for many borrowers to repay.

Payday loans are small-dollar products with average repayment terms around two weeks. The idea behind them is that you take one out to cover a financial shortfall and then you pay the loan back on your next payday, getting yourself out of debt and back to normal fairly quickly.

But the reality of payday loans looks quite different. For one thing, their interest rates are out of this world: According to the Consumer Financial Protection Bureau, payday loans have an average annual percentage rate of almost 400 percent!

Beyond those interest rates, its payday loans’  lump sum repayment terms that can really cause borrowers trouble. Simply put: When borrowers have to pay a loan back in one fell sweep instead of gradually over time, a vast majority of them struggle to afford it.

In a payday lending study conducted by the Pew Charitable Trusts, over 80 percent of borrowers didn’t have enough money in their budgets to cover their loan payments. This is how borrowers end up rolling over or reborrowing their loans, racking up interest without getting any closer to being debt free.

If you need a bad credit loan to cover unforeseen expenses, do everything in your power to avoid making that loan a payday loan.

Look for soft credit check loans.

The terms “no credit check loan” and “bad credit loan” might seem like they’re interchangeable, but they’re not. Sure, there’s a lot of overlap between the two, but the differences between them are important.

No credit check lenders don’t perform any kind of credit check when a person applies for a loan. While a hard credit check risks lowering your score, a soft credit check won’t affect your score at all, and it gives the lender a snapshot of whether or not you can actually afford the loan you’re applying for.

Many bad credit lenders, on the other hand, do perform a soft credit check on their applicants.  In addition, some others will take steps like verifying your income, all to help determine whether or not you can afford the loan you’re trying to borrow.

Here’s why that matters: Lenders that performs these kinds of checks actually care whether or not you can repay, which means these loans are less likely to drive you into an ongoing cycle of debt. When you can pay your loan off the first time—instead of rolling it over or reborrowing—that’s a good thing.

To the best of your ability, try to choose a lender that performs a soft credit check. You won’t regret it.

Read their reviews.

If you were buying a new microwave on Amazon, would you do so without first reading the customer reviews to see what other people thought? No, you probably wouldn’t!

The same is true when looking at a potential lender. Check the company’s reviews on Google and on sites like LendingTree to see what kind of experiences other customers have had.

And don’t stop there. Check out the company’s social media pages to see what kind of comments and complaints people are registering, and also visit their BBB page look for their overall grade. And if they don’t have a BBB page, that right there is a sign to look elsewhere!

When shopping around for a bad credit loan, don’t just take the company’s word for it. See what other people have to say. While you should make sure you take the good comments along with the bad, those reviews will give a better picture of what this lender is really like.

Ask friends and family.

Sure, this might be a little uncomfortable, but borrowing money from a friend or family member is likely to be a much better option than even the best bad credit loan you can find.

For one, friends and family are much less likely to charge you interest. And even if they do, the rate they charge is going to be much less than the rate for a bad credit loan.

But you want to make sure you aren’t taking advantage of their generosity either. The two of you should come up with a plan at the outset for how the loan is going to be repaid, and you should treat the obligation the way you’d treat a regular loan.

In fact, one of the best things you can do is create an actual loan agreement between you and the person lending you money. Don’t know what that would look like? No worries. We created a free personal loan agreement template that folks can use for just such an occasion.

Asking friends and family for money can be a tricky business. And it’s one you shouldn’t go into without a plan. For more, check out these five tips we recently offered to help people ask for financial assistance.

Consider an installment loan.

Unlike a short-term payday loan or cash advance, bad credit installment loans are structured like a traditional loan. They are paid off over time through a series of regularly scheduled payments. And the right installment loan will have payments that fit neatly into your monthly budget.

In addition to generally charging lower interest rates than payday lenders, installment loans charge that interest as an ongoing rate instead of as a flat fee. This means that paying off your installment loan ahead of schedule will save you money. Just make sure there are no prepayment penalties!

Lastly, some companies that offer installment loans (including OppLoans) report your payments to the credit bureaus. This means that paying your loan off on-time can help you build a better credit history. In the long run, a better credit score will score even lower interest rates!

When you need money in a hurry, it’s easy to settle for the first online loan you see. Take the time to do your research and consider all the factors mentioned in this article. Finding the right bad credit loan isn’t hard. You just need to make sure you actually look for it.

Prepare for next time.

The best way to address an unforeseen expense or financial shortfall is to already have the money in your savings to cover it. For people who need a bad credit loan, this advice isn’t helpful, but that doesn’t mean they can’t start planning ahead for next time.

If you want to make bad credit loans a thing of the past, you should start building an emergency fund. Unlike retirement savings, an emergency fund should be easily accessible; and unlike a vacation fund, this is money that you shouldn’t touch until an actual emergency arises.

Eventually, your emergency fund should be large enough to cover many months of living expenses in case you or a partner loses their job. But you can start small. Saving up $1,000 in emergency savings will put you in a better position to handle future surprises.

To learn more about saving money and improving your financial situation long-term, check out these other posts and articles from OppLoans:

Do you have a personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

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