What’s the Quickest Way to Fix Bad Credit?

In order to find the best—or the fastest—way to fix your credit score, you’ll have to reckon with why your score is bad in the first place.

The annoying thing about your credit score (other than the immense power it wields over your financial life) is that it’s much easier to screw up than it is to fix. Heck, one late payment can partially undo years of good behavior. And the same goes for one unexpected bill or medical emergency, especially when you don’t have a well-stocked emergency fund to handle it.

Still, there are numerous ways to fix your credit score, some of which work faster than others. Fixing your score is about practicing good financial habits over time; it’s a marathon, not a sprint. Still, if you’re looking for the quickest way to fix your bad credit score, there’s one method that stands out.

But first, a quick refresher on credit scores.

In order to understand how to fix your credit score, you first need to understand how your score works, and how it got so low in the first place. To begin with, credit scores are based on information from your credit reports, which are compiled by the three major credit bureaus: Equifax, TransUnion, and Experian.

The most common type of credit score is the FICO score, which takes all the credit history info from your reports, feeds it through a semi-secret algorithm, and spits out a number on a scale from 300 to 850. The higher your score, the better your credit. Scores above 720 are generally considered great, while scores below 630 are bad. (With scores between 720 and 630, the quality of your credit can get a little murky.)

Your FICO score is made up of five primary components from your credit history. At 35 percent, your payment history is the most important part of your score, followed closely by your amounts owed, which makes up 30 percent. The length of your credit history comprises 15 percent of your score, while your credit mix and recent credit inquiries each make up 10 percent.

How was your credit score damaged?

Since your payment history and your amounts owed are the two most vital parts of your credit score, it’s likely that the source of your poor credit rating lies in one of these categories—or in both of them.

When it comes to your payment history, it doesn’t take much to lower your score. While late payments that are paid up within 30 days won’t generally hurt your score, payments that more than 30 days late or are missed altogether are going to be reported to the credit bureaus.

Once that happens, your score will take a hit. And the thinner your credit history, the more damage that late or missed payment will do.

With your amounts owed, it will depend more on the specifics of your situation. For instance, too much credit card debt or other consumer debt (like personal loans) is never a good sign, but hundreds of thousands of dollars in mortgage debt is generally seen as fine.

One thing that’s very important your amounts owed is your credit utilization ratio, which measures what percentage of your open credit card balances you’re actually using. So if you have a card with a $3,000 limit and you never spend more than $300 on it before paying it down, your credit utilization ratio will be 10 percent.

If you have bad credit, this ratio may very well have something to do with it. It’s recommended that you never use more than 30 percent of your available credit, so a bunch of maxed out cards will hurt your score, regardless of their credit limits.

And this is also why you shouldn’t close out old cards, even if you don’t plan on using them anymore—especially if you’re not using them! The higher your total available credit, the better your ratio! Not to mention that older credit accounts also help boost the length of your credit history.

The quickest way to fix your credit is …

If you have bad credit because you routinely pay your bills late, we have some bad news: There’s no quick fix to your credit. All you can do is make sure all that outstanding bills and collections accounts are paid up and start paying everything on time moving forward. It could a few years, but your score will eventually recover.

However, if your bad credit is more due to a large amount of consumer debt—and a large amount of a credit card debt in particular—then you’re in luck. There is a relatively speedy way to fix your credit and it’s … to pay off all that debt! Easier said than done, sure, but there are things you can do to speed up the process.

First things first, you’ll want to decrease your spending and increase your income. The former can be achieved by creating a tight budget and sticking to it. Similar to the principle of “pay yourself first,” you should start with the amount you want to put towards debt repayment and then build the rest of your budget from there. You’ll be surprised by how many expenses you can cut when you shift your financial priorities.

Second, increasing your income will mean picking up a side gig, getting a new job, or asking for a raise or promotion. A side hustle is probably the easiest one to achieve in the short-term, although the other two options are a bit more sustainable in the long run.

If you’re wondering what kind of hustle would suit you best, check out this list of 10 great side hustles. For advice on getting started, here are six expert tips to help you out.

Pay off your debt with a Debt Snowball.

Once you have a chunk of money set aside each month for paying down your debts, now it’s time to get serious. The more strategic you get, the more successful you’ll be. We recommend that you choose one of two popular debt repayment strategies: the Debt Snowball or the Debt Avalanche.

With the Debt Snowball method, you put your debts (including credit cards and installment loans) in order from the largest balance to the smallest. With all your larger debts, you continue to pay only the minimum balance and you put all your extra debt repayment funds towards the debt with the smallest balance.

You keep doing this until the debt is paid off. Once that’s done, you then take those extra debt repayment funds plus the money you were paying towards that debt’s minimum payment and you add them towards your next largest debt.

This is where the Snowball part of the name comes into play: Every time a debt is paid off, you roll its monthly minimum payment into the next largest debt. With every debt you pay down, you have more money to pay off your remaining debts.

Or you could try the Debt Avalanche.

The Debt Snowball method is designed to give you early victories, an important jolt of encouragement that many will need to keep going. The Debt Avalanche, on the other hand, sacrifices those early victories in the name of paying less money overall.

The method is almost exactly the same as the Debt Snowball, but with one key difference: Instead of paying off your debt with the smallest balance first, you pay off the debt with the highest interest rate first and then move on down the line, saving your lowest-rate debt for last.

In terms of your credit, there’s a simple tweak you can make to these strategies to maximize the effect on your score. First, focus on paying down your credit cards first. Next, don’t focus on fully paying off your cards entirely—at least at the beginning.

Instead, pay them down until their balances are under 30 percent of their total credit limits. Once your overall credit utilization ratio dips below 30 percent, you should see a jump in your score.

That doesn’t mean you should stop there, it’s just a way to frontload the positive effects for your credit. And while paying down a substantial amount of credit card and consumer debt isn’t exactly a “quick fix” solution, it’s still the fastest way to improve your score.

Short of winning the lottery, even the quickest solution to fix your bad credit will still require a good deal of dedication and perseverance. There’s simply no way around it.

Here on the OppLoans Financial Sense blog, we cover how people with bad credit can borrow better by avoiding predatory no credit check loans and bad credit loans like cash advances, payday loans, and title loans. Still, the best way to deal with a bad credit score is to fix it up. To learn more about how credit scores work, check out these other great posts and articles from OppLoans:

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

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What Happens When You Can’t Pay Back Your Personal Loan

If you default on your personal loan, you’re going to enter a world of debt collectors and garnished wages. Instead, try talking to your lender first.

Nobody (okay, very few people) take out a personal loan with no intention of paying it back. Doing so can mean piling up late fees, getting hounded by debt collectors, or even ending up in front of a judge and having your wages garnished. Does that sound like something you want to sign up for? No, us neither.

And yet, it still can happen. Maybe you lose a job or have an unexpected medical emergency or car repair that ends up capsizing your budget. Whatever the reason, you might end up in a position where you’re not just behind on your loan payments, you aren’t able to pay the loan back at all.

Here’s what happens if you can’t pay back your personal loan …

Racking up late fees.

The first thing that will happen if you miss your due date for a loan payment is a late fee. This will be extra money added onto what you already owe. The size of the fee will vary, but that information should be pretty easy to find on your loan agreement or on the lender’s website.

If you’re able to get back on track with your loan payments, these late fees will simply become a part of what you have to pay back. They will likely be added onto what you owe on your next payment. But if you’re able to pay that larger amount, you’ll be back on track. Well, mostly …

Damage to your credit score. 

If you miss a payment by a few days or even a week, it likely won’t be reported to the credit bureaus. This is good, because once it’s sent over to the bureaus, it will get added to your credit report and will negatively affect your credit score. One late payment can do some hefty damage to your score, and a few within a short period will really wreak some havoc.

Once you get past 30 days, that’s when your late payment will get reported. As it passes the 60 and 90-day mark, the damage to your score will only increase. It’s always worth it to get caught up on late payments if you can, even if damage has already been done. The more payments you miss, the closer you get to …

Defaulting on your loan. 

Defaulting on a loan means that you have failed to live up to your end of the loan agreement. Your creditor knows you aren’t going to pay them back as hoped, so they’ll switch into collections mode, either sending you to an in-house team or selling your debt to an outside debt collector.

There is no way to know for sure at what point your loan will go from “behind in payments” to straight defaulted. This is because the point of default is different depending on the laws in your state and the terms of your loan. One lender might give you 90 days or more before declaring a default, while others might call it after 30.

Debt collectors calling you. 

The job of a debt collector is to get you to pay back as much of your unpaid debt as they can. And while there are many upstanding debt collectors out there, it’s a fact of life that many other debt collectors will try and use dirty and downright illegal tactics to make you pay up. Learn more about your debt collection rights in our post, What Debt Collectors Can and Can’t Do.

Rather than ignoring a debt collector’s calls, you should do the opposite: talk to them and do your best to negotiate. Most collectors will be willing to settle for a guaranteed lesser sum rather than continue pressuring you for the whole thing. Try and settle for a smaller amount. That way you can get the account closed out and move on.

Going to court and having your wages garnished.

This is another good reason to not avoid a debt collector’s calls. If a debt collector (or the original lender) can’t get you to pay at least part of what you owe, there’s a very good chance that they’ll seek a legal remedy. That’s right, they’ll take you to court and ask a judge to rule in their favor.

If that judge does issue in your creditor’s favor, they’ll institute a garnishment on your wages. After taking your living expenses into account, the garnishment will set aside a portion of your income from every paycheck to be paid to your creditor until your debt is cleared. Be warned: the amount you owe could also include court fees, making it even harder to get out of debt.

Years of bad credit and high interest rates.

By the end of this whole endeavor, you’ll likely be left with a terrible credit score that will make you radioactive to traditional lenders. That will mean relying on bad credit loans or no credit check loans (like payday loans, title loans, or cash advances) in order to cover emergency expenses.

And while the right bad credit loan can be a good financial solution (particularly bad credit installment loans), many short-term loans in this class come with ridiculously high APRs and can easily leave you trapped in a dangerous cycle of debt. In other words, if you can manage it, avoiding this whole situation is truly your best bet.

Talk to your lender.

No lender likes to get a call from a customer saying that they won’t be able to pay their loan as agreed, but that doesn’t mean that they won’t be willing to help. (It doesn’t mean they will be willing to, either, but it doesn’t hurt to try.) Give them a call, explain your situation, and ask them if there is anything they can do to help you out.

Maybe it’s as simple as changing your monthly due date so that it doesn’t overlap with a bunch of your other bills. It might also mean asking for a lower interest rate or refinancing your loan to decrease the amount you’re paying each month. Whatever solution you are able to arrive at with them, it’s certainly preferable to defaulting on your loan altogether.

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

What other questions do you have about personal loans? We want to hear from you! You can find us on Facebook and Twitter.

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The 5 Ways a Personal Loan Can Affect Your Credit Score

Certain aspects of taking out a personal loan can help your score, while others can hurt it. In the end, just make sure you’re borrowing responsibly.

Maintaining your credit score is a pretty non-negotiable part of modern day life. While it certainly is possible to live a rich and full life without any credit score whatsoever, it involves quite a bit of extra hassle, and it’s certainly not for everyone. If you want access to credit, you’re going to need to maintain your credit score. It’s as simple as that.

The most common form of credit that people use is credit cards. And that makes sense. Their revolving balances allow people to use them for everyday purchases, all the while accruing points or miles that they can use for future purchases or travel. Like all forms of consumer credit, credit cards can hurt or help your credit score. It all depends on how you use them.

The same holds true for unsecured personal loans. In this post, we’ll give you a detailed overview of how a personal loan can both harm and help your credit score. But what it all comes down to is this: Using credit responsibly is good for your score, while using it irresponsibly is bad.

How your credit score works.

Your credit score is created using information from your credit reports, which track your history of using credit over the past seven years. (Some information, like bankruptcies, will stay on your report for longer.) Your credit reports are compiled by the three major credit bureaus: TransUnion, Experian, and Equifax.

Your credit reports contain a whole range of information, including how much credit you’ve used, what type of credit you have, your total open credit lines, whether you pay your bills on time, the age of your credit accounts, whether you’ve filed for bankruptcy or had liens placed against you, any debt collection actions taken against you, and whether you’ve had any recent hard credit inquiries.

All that information is then fed through a (mostly) secret formula to create your credit score. The most common type of score is your FICO score, which is scored on a scale from 300 to 850. The higher your score, the better. Any score above 720 is generally considered great, while any score below 630 is considered flat-out bad.

The two most important factors in your credit score are your payment history (35 percent) and your total amounts owed (30 percent). Together they make up well over half your score. The other major factors are the length of your credit history (15 percent), your credit mix (10 percent), and your recent credit inquiries (10 percent).

1. How a personal loan affects your payment history.

This is the one category where the effects of your personal loan will depend entirely on your behavior. Assuming that you take out a personal installment loan, which is broken up into a series of small, regular payments, paying your loan on time helps your score while missed or late payments hurts it.

Payment history is the single most important part of your credit score, and one late payment can dramatically lower your score. Meanwhile, it takes months and years of on-time payments to maintain a sterling payment history and to keep your score afloat. If you’re looking to repair your payment history, a personal installment loan (used responsibly) can be a great way to accomplish that.

2. How it affects your amounts owed.

When you take out a personal installment loan, you are adding money to your total amounts owed. This will probably have the effect of lowering your score in the short-term. Adding more debt means that you are increasing your overall debt load, which will likely cause your score to go down. Taking on more debt means an increased risk that you’ll take out too much.

However, if you have a thin credit history (which means you haven’t used much credit), taking out a personal loan will likely help your amounts owed in the long run. Showing that you can manage your debt load is great for your score and sends a signal to potential lenders and landlords that you’re a good bet.

This is one area where credit cards have a leg-up on personal loans. With a credit card, you can help maintain your credit score by never using more than 30 percent of your total credit limit. And when the opportunity arises to raise your credit limits, take it! Personal loans don’t come with a credit limit, so they don’t factor into your “credit utilization ratio.”

3 & 4. What about your length of history and credit mix?

While these factors are less important than your payment history and your amounts owed, they’re still areas where a personal loan can help or hurt your score. With your credit mix, for instance, it will depend on what other kinds of loans or cards you’ve taken out. Does this personal loan make your mix of loans and cards more or less diverse?

For instance, if you have two credit cards and car loan (all of which you are using responsibly), then taking out a personal loan will likely help your score because it means you’re using a new kind of credit. Whereas if you take out an online loan in addition to the two other personal loans you’ve used, your score will probably get dinged. The more diverse your credit mix, the more it will help your credit.

In regards to the length of your credit history, most traditional installment loans come with a multi-year repayment period. So the longer you’ve been paying off your loan, the older the average age of your credit accounts. Older credit accounts help your score because they show that you’ve been able to maintain long-term relationships with your lenders.

There is, however, a weird downside here. When you finally pay off your loan, it could actually cause your score to drop. What?! Well, closing out the account will lower the average age of your open accounts, which will hurt your overall score. This is also why you shouldn’t close old credit cards. The age of those accounts (plus the higher overall credit limit) helps your score!

5. A new personal loan means new credit inquiries.

When you apply for a regular personal loan, your lender will run a hard check on your credit. This means pulling a full copy of your credit report so that they can get a full accounting of your credit history. It’s standard procedure for personal loans, auto loans, and mortgages.

Here’s the downside: Recent credit inquiries will ding your score. Usually, no more than five points or so, and the effect will usually be gone within a year or so. Still, there’s no denying that this part of taking out a personal loan will slightly lower your score. With home and auto loans, multiple inquiries can be bundled together on your score, but this generally doesn’t happen with regular personal loans.

Stay away from no credit check loans.

There’s one exception to this rule, and it has to do with certain types of bad credit loans. Most lenders who serve people with poor credit will not run a hard check on your credit history, which means that your score won’t get dinged. However, many will still run a soft credit check, or pull in data from other alternative sources to get a good idea of your borrowing history before approving your application.

And yet there are no credit check loans out there that—you guessed it—don’t run any sort of credit check whatsoever. Common types of no credit check loans include payday loans, cash advances, and title loans. These types of loans often come with astronomical interest rates and lump-sum repayment terms that can make them incredibly difficult to pay back.

And what’s worse, these lenders typically don’t report payment information to the credit bureaus, so paying the loan off on time won’t help your score at all. But if you default on the loan and get sent to collections, they’ll report the account to the bureaus, which will lower your score. Basically, these loans can’t help your score at all, they can only hurt it.

The most important thing is to borrow responsibly.

As we said up top, the most important part about taking out a personal loan is to use it responsibly. Don’t take out more money than you need, make your payments on time, and make sure your payment amounts fit within your budget. You could even possibly use your personal loan to consolidate higher-interest credit card debt.

Do all that, and your personal loan will end up being a net positive for your credit score. To learn more about maintaining your credit score, check out these other great posts and articles from OppLoans:

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

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Found Yourself On The ChexSystems Blacklist? Here’s What You Can Do

A poor score from ChexSystems will affect your ability to open up a checking account. Here are some steps you can take to fix your score, plus a helpful alternative to traditional checking.

People with bad credit get turned away from banks when they apply for a personal loan, but a poor credit score doesn’t mean they can’t open a checking account. For people who get scored poorly by Chexsystems, however, that is precisely the fate that awaits them.

If you’re one of these folks, don’t panic. There are steps you can take to try and raise your Chexsystems score and other options you can pursue if you still can’t open a traditional bank account. Sit back, take a deep breath, and learn what you need to know.

What is ChexSystems?

First things first: Who are these guys? Well, they’re a national consumer reporting agency that most banks rely on for information. Just like the three major credit bureaus (Experian, TransUnion, and Equifax) that track your use of credit, Chexsystems tracks how you use your bank accounts. If you have a history of bouncing checks and/or over drafting your accounts, that’s something banks want to know.

Credit bureaus maintain your credit reports. They contain the info used to create your FICO score, which is scored on a scale from 300 to 850. Chexsystems does something similar. They maintain Consumer Disclosure reports that track your overdrafts, bounced checks, unpaid fees, credit freezes, and more.

They also turn that info into a score, but this one is on a scale from 100 to 899. The higher your ChexSystems Consumer Score, the better—just like with your FICO score. If your score from ChexSystems is poor, most banks will deny your application for a checking account. In their eyes, you simply pose too great a risk!

What does it mean to be on the ChexSystems blacklist?

So the term “blacklist” is a little misleading, even though it’s how most people commonly refer to this phenomenon. It’s not as though ChexSystems has a giant list of names tucked away in a safe somewhere that banks consult when they have an application. The truth is a lot more informal than that.

To be “blacklisted” by ChexSystems effectively means that you have a very poor ChexSystems score. Due to a history of overdrafts, bounced checks, etc., your score is low enough that any bank considering you for a standard checking account will deny you based on your risk profile.

Lacking a bank account will negatively impact your finances in many ways. You might have to carry cash around with you everywhere (which can be dangerous) and resort to check-cashing stores in order to access your money at all. Prepaid debit cards aren’t much better either; they usually come with a whole host of expensive fees.

Even many bad credit loans will be out of reach, as many of these lenders still require their customers to have a checking account before they’ll lend to them. The only loans you’ll be able to get will be certain types of no credit check loans like cash advances, payday loans, and title loans.

The good news is that, unlike real blacklists, your status is hardly permanent. ChexSystems keeps information for five years, after which it drops off your report. So five years of good banking behavior will ensure that damaging information disappears from your Consumer Disclosure report. Once that happens, your score will rebound!

If you’ve been blacklisted, here’s what you should do.

Five years is a long time to wait just to get a regular checking account. In the meantime, there are actions you can take that might improve your score, possibly pushing it over the threshold that you need in order to open an account. Here are some steps you should take if you’ve been blacklisted by ChexSystems:

  1. Request your Consumer Disclosure report: Just like the three major credit bureaus, ChexSystems is required to provide you with one free copy of your report every 12 months. All you have to do is ask! You can contact Chexsystems by phone at (800) 428-9623 or you can request a copy on their website. Once you have your report in hand, you can review it to learn exactly why your score is so low.
  2. Pay off any outstanding debts or fees: When assessing a consumer’s trustworthiness, unpaid debts (especially when they come from fees) is a huge red flag. While you’ll still get dinged for having these debts accumulate, paying them off will help. Try to pay them in full. If you can’t, try negotiating with your creditor to settle for a portion of your debt. Since businesses prefer getting something over nothing, they’re usually somewhat flexible. Once you’ve paid off the debt, ask your creditor to update your information with ChexSystems or to provide you with documentation so you can send it Chexsystems yourself.
  3. Dispute any errors you find: This holds true for both your ChexSystems score and your FICO score. You have enough to deal with from your own mistakes without having to also deal with someone else’s. Incorrect information on your Consumer Disclosure report should be disputed pronto. First, gather documentation that supports your case. Next, go to the Dispute section of the ChexSystems website. You can submit your dispute online, by fax, through the mail, or over the phone. ChexSystems will then investigate and resolve your claim within 30 days. You can also dispute the information directly with your creditor and ask that they update ChexSystems themselves or provide you with corrected documentation.

Taking the steps listed above might not be enough to get you off the blacklist. Still, it doesn’t hurt to make sure that all the information on your report is correct, that all your debts have been paid, and that you fully understand why your score is so low in the first place.

Apply for a “second chance” checking account.

Like we mentioned earlier, five years is a long time to wait before opening a checking account. In the meantime, it’s probably a good idea that you open up a “second chance” banking account, which are designed for people in your exact situation. Many banks offer these accounts, and you’d do well to check out your local credit union as well.

Because of the added risk that you present as a customer, second chance checking accounts usually carry monthly fees in order for you to use them. Additionally, they might come with some extra strings attached, like requiring direct deposit or a minimum balance. And some have fewer perks like online bill pay or debit cards.

Here’s the good news: Second chance checking accounts usually come with a graduation process whereby you can work your way up to a standard checking account. All you need to do is handle the account responsibly for a year or two–although the exact terms and conditions will vary from institution to institution.

Second chance checking accounts are far from perfect. But they sure as heck beat stuffing money in your mattress or putting it on a prepaid debit card. Just remember that no matter what banking option you choose, there’s only one surefire way to rebuild your banking history and get your ChexSystems score back up to snuff. You need to be responsible with your money.

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

What else do you want to know about living with bad credit? We want to hear from you! You can find us on Facebook and Twitter.

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Does Your Credit Score Show up on a Background Check?

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

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

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

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

What is a credit score anyway?

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

Your credit score is made of five parts.

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

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

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

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

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

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

When will you get a background check?

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

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

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

Will it or won’t it include your score?

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

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

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

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

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

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

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

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

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

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

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


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

How to Shop for Electronics When You Have Bad Credit

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

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

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

Read on and find out!

Why do I need credit for electronics?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Deals, deals, deals.

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

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

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

Want to learn more about living your life with bad credit? Check out these related posts and articles from OppLoans:

What else do you want to know about living with bad credit? We want to hear from you! You can find us on Facebook and Twitter.

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Can a Payday Lender Garnish Your Wages?

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

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

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

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

What happens when you default on a payday loan?

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

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

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

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

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

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

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

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

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

What can you do to avoid wage garnishment?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

3.  Take out a small loan.

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

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

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

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

4. Get a store credit card.

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

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

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

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

5. Take out a secured credit card. 

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

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

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

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

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

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

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

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

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

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

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

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

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

What Exactly Is A “Bad” Credit Score?

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

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

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

Jake: But look at this credit score! 100!

Victor: Out of 850.

Jake: No, really?!

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

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

How do credit scores work, again?

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

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

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

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

And how do credit reports work?

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

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

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

Okay, so what is a bad credit score?

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

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

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

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

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

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

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

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

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

How can you improve a bad credit score?

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

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

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

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

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

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

How Bad Credit Can Affect Your Kids’ Future

How Bad Credit Can Affect Your Kids' Future

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

Updated: August 7, 2018

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

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

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

Higher rates mean less bang for your buck.

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

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

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

A good education is expensive, especially for college.

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

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

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

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

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

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

Your money anxieties could be contagious.

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

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

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

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

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

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

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

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

Bad credit even means higher insurance rates.

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

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

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

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

Whatever you do, don’t give up hope!

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

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

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

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

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