Start Your New Year Out Right: Get a Credit Check!

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Checking your credit report with TransUnion, Experian, or Equifax is not only free, it’s an important first step to getting your finances in order.

Hey you! What’s your credit score?

It’s a new year full of new financial possibilities. So if you don’t know the answer to that question, it’s probably time for you to figure out where you stand financially. How? There a couple ways to do this. Take a look at your credit report, which lists all your inquires, available credit and past due accounts, or take a peek at your credit score, which is essentially that report in number form.

Building good credit is one of the best ways to prepare yourself for a successful future, but sadly, many people actively avoid checking their credit scores because they’re worried about what they’ll find. According to a recent survey, 37 percent of Americans haven’t checked their credit in at least a year, and 16 percent of Americans admit to never having checked their credit—ever!


Credit checks should be common.

While ignorance may feel like bliss for Americans who live without knowing their credit score, the truth is that these people are putting their financial futures at risk. Whether or not you know your score, you use it all the time. When you apply for an apartment, a job, a credit card, or a mortgage, your credit score is used to determine whether or not your application will be accepted or how high your interest rates will be.

Additionally, the FTC recently found that one in five credit reports include an error that can significantly decrease your score. If you’re not regularly checking your official credit reports, you have no way of knowing whether your score is even accurate!

“You need to make sure the accounts and any other information listed on your credit report as your own is correct,” said Lucy Lazarony (@lucy_lazarony), a personal finance author and former Bankrate staff writer. “Having an unpaid account on your credit report that’s not yours can hurt your credit!”

“It’s also a good idea to check your credit often to protect yourself against identity theft, which happens when a thief steals your personal information and opens up credit accounts in your name. You’re not responsible for a thief’s bills but you will need to take steps to clear your credit report of a thief’s handiwork.”

It’s free and it’s easy.

That’s the good news. And the bad news is … well … there really isn’t any bad news. It’s easy and it’s free. Good news all the way down, baby!

The government-sanctioned site AnnualCreditReport.com offers free annual copies of your credit report from all three major credit bureaus: TransUnion, Equifax, and Experian. You can get them all at once if you want, or spread them out every four months to get a thrice yearly update. However, your report will not give you your credit score.

To find out your score, you can sign up for a free credit monitoring service with a bank-backed site like Chase’s Credit Journey, or even one of the credit bureau services, like Experian’s CreditWorks, if you want to track your score day-to-day. you might even get a free credit score through your online checking account!

“Monthly monitoring is a good way to stay on track if you are working on building up a credit score,” said Lazarony. “If you’re not in the market for new credit, checking your credit report two or three times a year is a good strategy.”

Set some goals.

What should you be striving for? The average American credit score has been rising, hitting 700 for the first time ever back in July. But that’s still a fairly average score. In general, this is how credit is gauged:

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

If you have bad credit or poor credit, life can be tough. If you can get a loan at all, your interest rates are gonna be much higher. And you may be unable to access the kinds of financial lifelines—like credit cards and emergency loans—that someone with better credit has at their fingertips. The good news? While it’s certainly not easy to build your credit, it’s more than possible.

Raise that score!

First, scour your credit report for errors or accounts that don’t belong to you. If you find something, report that to the credit bureaus. Getting fraudulent or mistaken information off your credit report can help raise your score significantly.

Second, take care to put all utility bills and recurring monthly payments on auto-pay, so you won’t accidentally miss a payment and ding your credit score in the process.

Third, if you don’t already have a credit card, look into to getting one with no annual fee, and paying it off in full every month. This will help build credit quickly, so long as you don’t abuse it and rack up debt. Try using it only for a few recurring monthly payment. If you can’t get one with cash back rewards try starting out with a secured credit card.

Lazarony says when shopping for a secured credit card, you should look for one that doesn’t nickel and dime you.

You want an affordable interest rate and a low annual fee,” she said. “Before you apply, ask yourself: is the card from a major issuer? The aim is to graduate to an unsecured card as soon as you can and a big issuer will have a variety of low-cost card options. Avoid applying for secured cards with monthly or application fees. You don’t need to pay that much to establish credit!”

You can also take out a credit-building loan or try to become an authorized user on the credit card account of someone with good credit.

For even more help with credit building, check out these related pages and articles from OppLoans:

How often do you check your credit score? We want to know! You can email us or you can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

lucy-lazarony-headshotLucy Lazarony (@lucy_lazarony) is an experienced personal finance journalist. She was lucky enough to begin her online writing career as a staff writer for Bankrate.com in 1998.

A freelance writer since 2004, Lucy writes on a variety of personal finance topics for websites such as Credit.com, CardRatings.com, MoneyRates.com and The National Endowment for Financial Education.

She writes accessible and easy-to-understand articles on credit, debt, budgeting, credit cards, prepaid debit cards, retirement, insurance and savings.

Her personal finance writing has appeared on MSN, Fox Business and Forbes.com.

Know Your Car Repossession Rights

Car Repossession Rights

Worried you’re getting behind on your car payments? Learn more about your repossession rights today before it’s too late.

Getting behind on your car loan is bad for both your credit score and for the car itself. Since the vehicle is serving as collateral, falling behind on your payments means that the car can get repossessed. While defaulting on a personal loan or even certain kinds of bad credit loans will hurt your credit score, defaulting on a car loan will hurt your everyday life.

And while we have quite a few articles explaining how you can improve your credit score, we haven’t spent as much time telling you how you should handle the threat of repossession. Until now.

Repossession occurs when you can’t pay back a loan that you used collateral to acquire. Technically, the term can refer to any kind of loan, but it is almost always used to refer to auto loans. That’s why you need to know your rights and the steps you can take when facing repossession.


Look back at that contract.

Before you take action, it’s important to make sure you know exactly what you’re up against. That’s why you need to go back to where this all began: the contract. At least, that’s what Justin Lovely (@myrtleinjurylaw), an attorney in Myrtle Beach, told us. His experience comes from representing creditors in repossession cases, but he gave us his perspective on what someone facing repossession from the other side should do.

“First, a consumer needs to look to his contract and read what they signed,” Lovely explained. It may seem obvious, but it’ll allow you to see what options you have. Although it may be too late now, it’s also important to make sure that any updates you might make to the contract are put down in writing.

As the Federal Trade Commission’s website states: “if your creditor agrees to change your payment date, the terms of your original contract may not apply any longer. If your creditor agrees to such a change, make sure you have it in writing. Oral agreements are difficult to prove.”

So make sure you have everything down in writing, and check that writing when the specter of repossession comes up.

Let’s make a deal.

Even if there isn’t anything in the contract you signed that seems like it can help you, that doesn’t mean all hope is lost. You can still work something out with the lender, and odds are they would prefer that route.

“In my jurisdiction, the debtor gets a right to cure [pay the debt before the default occurs],” said Lovely. “When clients send me a repossession file, we send a right to cure notice to the consumer/debtor.  Consumers need to understand that companies don’t want to repossess the item in question, they always prefer to work out a payment arrangement. Often the arrangement may be better than the current situation he or she is in now.”

The FTC also suggests trying to work out a deal before your car (or house or other collateral) is seized: “It’s easier to try to prevent a vehicle repossession from taking place than to dispute it after the fact. Contact your creditor as soon as you realize you will be late with a payment. Many creditors work with consumers they believe will be able to pay soon, even if slightly late. You may be able to negotiate a delay in your payment or a revised schedule of payments. If you can reach an agreement to change your original contract, get it in writing to avoid questions later.”

If you’re not in a state with a right to cure, however, the FTC warns that your lender may not be willing to compromise: “However, your creditor or lessor may refuse to accept late payments or make other changes in your contract — and may demand that you return the car. If you agree to a ‘voluntary repossession,’ you may reduce your creditor’s expenses, which you would be responsible for paying. But even if you return the car voluntarily, you still are responsible for paying any deficiency on your contract, and your creditor still may enter the late payments or repossession on your credit report.”

You’ll have to deal with it.

As great as it would be to just ignore the looming threat of repossession, that’s a very bad idea. You can close your eyes and hope it all goes away, but realistically, the only thing that’ll be going away is whatever is being repossessed.

“Debtors stay silent and don’t call and just let the court date come without showing up,” Lovely warned. “Then it is out of our hands and the Sheriff picks up the collateral. If you are facing difficult financial times and miss payments resulting in a default in your contract, the best thing to do is simply be honest and try to negotiate before the file gets to a lawyer like myself.”

But don’t forget your rights.

Though it will likely benefit you to go out of your way to try and make a deal with your lender, it’s important that you remember your rights so you aren’t taken advantage of. Those rights will vary by state, so you’ll need to look up your specific situation, but here are a few possibilities the FTC outlines:

Should there be a breach of the peace in seizing your car, your creditor may be required to pay a penalty or to compensate you if any harm is done to you or your property. A breach of peace also may give you a legal defense if your creditor sues you to collect a ‘deficiency judgment’ — that is, the difference between what you owe on the contract (plus repossession and sale expenses) and what your creditor gets from the resale of your vehicle.

“Once your vehicle has been repossessed, your creditor may decide to either keep it as compensation for your debt or resell it in a public or private sale. In some states, your creditor must let you know what will happen to the car. For example, if the car will be sold at public auction, state law may require that the creditor tell you the time and place of the sale so that you can attend and participate in the bidding. If the vehicle will be sold privately, you may have a right to know the date of the sale.

Some states have consumer protection laws that allow you to ‘reinstate’ your loan. This means you can reclaim your car by paying the amount you are behind on your loan, together with your creditor’s repossession expenses. Of course, if you reclaim your car, your future payments must be made on time, and you must meet the terms of your reinstated contract to avoid another repossession.

Any resale of a repossessed vehicle must be conducted in a ‘commercially reasonable manner.’ Your creditor doesn’t have to get the highest possible price for the vehicle — or even a good price. But a resale price that is below fair market value may indicate that the sale was not commercially reasonable. ‘Commercially reasonable’ may depend on the standard sales practices in your area. A creditor’s failure to resell your car in a commercially reasonable manner may give you a claim against that creditor for damages or a defense against a deficiency judgment.

“Regardless of the method used to dispose of a repossessed car, a creditor may not keep or sell any personal property found inside. In some states, your creditor must tell you what personal items were found in your car and how you can retrieve them. Your creditor also may be required to use reasonable care to prevent anyone else from removing your property from the car. If your creditor can’t account for articles left in your vehicle, you may want to speak to an attorney about your right to compensation.”

In the end…

Facing repossession is never going to be fun. It’s the kind of situation that can lead to folks taking out predatory no credit check loans and cash advances to keep from falling behind on their bills, only to find themselves trapped in a different kind of debt trap.

While we can’t promise some kind of magic cure-all for having your car repossessed, we can tell you this: If you face repossession head-on, remember your rights, and deal with the issue as soon as possible, you can make it as painless as possible. And if your lender doesn’t follow the rules, you might even stand a chance at getting your car back.

Have you ever successfully challenged the repossession of your vehicle? We want to hear about it! You can email us or you can find us on Facebook and Twitter.

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Contributors

billboardJustin-croppedMr. Justin Lovely (@myrtleinjurylaw) is admitted to practice in all South Carolina Courts and the U.S. District Court for the District of South Carolina.  Mr. Lovely is a Certified Guardian ad Litem in South Carolina for Family Law Cases.  Mr. Lovely is also a member of the South Carolina Association for Justice, the State’s Trial Lawyers Association. More bio information can be found on his firm’s website.

Christmas Loans

The Holiday Borrowing Risk List


Ch. 3.1. Credit Cards

Most Americans have at least one credit card in their wallet, so using one to fund holiday spending might seem like the easiest option. But you need to be careful with credit card spending: interest can build up quickly. There’s a reason why, as of May 2016, Americans had built up $953.3 billion in outstanding revolving debt – the vast majority of that debt comes from credit cards. While interest rates can vary depending on your credit score, the average rate is currently at 15.97 percent, not exactly a small amount.9

If you decide to use a credit card for holiday shopping, remember that not all cards are created equal.

For example, some general use credit cards (the kind you can use anywhere) have an interest-free grace period on purchases, meaning they won’t charge you interest so long as you pay off your statement balance in full every month. This is good for the responsible shopper who always takes care never to carry a balance on their credit cards, but not everyone is capable of paying off their bill in full every month, especially during the big-spending months leading up to the holidays.

Cards with interest-free grace periods are different than cards that offer deferred or no interest introductory periods, which are often widely promoted during the holiday season.

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Deferred-interest cards won’t charge any interest on your balance during the promotional period – usually six months to a year. The catch is that, in order to pay no interest on any purchases you make during that time, you’ll need to pay off your entire balance before the promotional period is up. If it ends and you’re still carrying a large balance, all of the interest you racked up during that time will be applied in full. According to the Consumer Financial Protection Bureau (CFPB), interest on these kinds of cards is typically calculated based on the balance you owe each month. If your promotional period is a year and you don’t pay it off in that time, or if you are more than 60 days late in making a minimum payment, “you will be charged interest for each month on the balance you owed in each of the 12 months,” which kind of defeats the purpose of getting a card like this in the first place. Unless you’re sure you’ll be able to pay off your balance in full by the end of the promotional period, you should stay away from cards like this for holiday shopping.

No-interest credit cards, by contrast, offer an introductory period that is truly interest-free. No interest is charged, nor does it accumulate during the promotional period, so long as you’re making your minimum payments on time every month. However, if you make a late payment, your introductory period will be abruptly canceled, and when the promotional period is up, some of these cards may start charging interest as high as 25 percent.10 These kinds of promotions are definitely better than deferred-interest promotions, but if you use one for holiday shopping, you need to be careful that you’re making your payments on time, and you should try as hard as you can to pay off your card in full before the interest-free period is over.

During the holidays, you’ll notice an influx of marketing for store credit cards, some of which are closed-loop credit cards that can only be used at one specific retailer, and some of which are general-use cards that can be used anywhere that accepts credit. The holiday season is typically rife with deals surrounding these kinds of credit cards. Some stores will take a set percentage off any purchase made with their card, some will offer no interest until the new year, and some will throw in freebies like cash back or even free merchandise for signing up. But you should be very careful with store credit cards: even applying for one can negatively affect your credit score, and many only have one interest rate option, not a variable rate that’s lower for people with better credit.11

The other major downside to retailer credit cards? When you use a store credit card, your lender is actually a bank, not the store, which means falling behind on your payments can have a very real and very negative impact on your long-term finances.

Bruce McClary, Vice President of Public Relations and Communications for the National Foundation for Credit Counseling, said he has a relative whose excellent credit score was damaged by one of these cards.

“I think people should be careful when considering in-store financing or credit cards that come with introductory discounted interest rates,” McClary said. “These are very attractive to a lot of shoppers during holiday season… the caution flag is associated with how people approach repaying the balance once it’s time to move past the holidays and start clearing that debt.”

McClary says that if you do take advantage of an in-store offer, it pays to remember that the person at the register isn’t a financial advisor and won’t know whether or not that offer is actually a good one. If the promotional rate expires in a year, make a plan to pay it off in six months. If the promo is six months, pay it off in three, and so on.

If you want to use a credit card as a way to build credit, look for one that has cash-back deals and can earn you money or points on purchases you make. Some cards even partner with different retailers in order to offer higher cash-back percentages during the holidays, or sweet travel deals that can cut the cost of getting home for the holidays down to zero.12

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Is It Time to Break Up With Your Bank?

Break Up With Your Bank

As with any bad relationship, there will be tons of warning signs if you and your bank are a couple that’s beyond repair.

When you first met your bank, it was a romance like no other. You would spend days together at a time, eating at restaurants, going on weekend trips, or even just staying in, ordering stuff off of Amazon.

But now things have cooled a bit. They don’t seem to be offering you the same rewards they used to. Their customer service representatives used to talk on the phone with you for hours, but now they seem to be rushing you to wrap it up. They also used to keep their ATM kiosk sparkling clean if they thought there was even a chance you’d be coming over, but now it seems to be constantly covered in mustard.

(Specifically mustard. No other condiment. Just mustard.)

Is it time for you to break up with your bank? It just might be. But don’t worry, honey, because Auntie OppLoans Financial Sense Blog is here to help you make that decision.


The fee’s knees.

You’ll probably never find a bank with no fees at all. That’s just hoping for too much.

But if it seems like your bank is offering more fees than usual, it can be worth looking around and seeing what other banks are offering. Overdraft fees may be standard—and they may be preferable fees for bad credit loans—but it’s not wrong to take a look at banks that offer some form of overdraft protection. You deserve to be with a bank that tries to minimize the fees you pay, rather than squeeze you for every cent you’re worth.

After all, squeezing should be something you do to your loved one’s hand as you both watch a sunset together, not a way for bank executives to get rich at your expense.

Oh and make sure you’re paying attention to their interest rates too, especially the rates on their personal loans. If you’re not getting rewarded for being a loyal customer, then it might be time to teach them a lesson by walking out the door. That’ll show them to take you for granted!

You’ve grown distant.

People change. Maybe your bank worked for you when you were younger, but your life may have changed. You could have moved to a place that doesn’t have as many locations for your bank if it has any at all.

Maybe you were still a student when you started this account and now they’re trying to stick you with an “old person” penalty. Or you could have lost a job or gotten a new one and the specific rules and incentives this bank offer simply don’t mesh well with your new financial reality.

People and banks grow apart sometimes. It might not be anyone’s fault, but it could mean it’s time for a split.

It might just be time for a change.

There might not be any specific thing or things wrong, but it’s worth taking a look at your relationship with your bank every so often.

“I think it is good to stop and review every 6 months or every year and look at the interest rates you are receiving and the perks,” advises nationally recognized credit expert Jeanne Kelly (@creditscoop). “Sometimes you can go years as a loyal customer and that is great, but still when you sit down and take the time to review what other banks might offer for rewards, they might fit your lifestyle better for today.”

Getting back on the scene.

So you decided you might want to break up with your bank. But it’s been so long since you’ve been out there! How do people even find new banks these days? Is there some sort of app where banks post pictures and information about themselves and you can swipe left or right accordingly? How about a variation on that app where only potential customers are allowed to send the first message so you don’t get inundated with messages from banks?

Not really! But the internet is still a great resource for finding which new bank is best for your needs. Many banks also offer special rewards for starting a new account, possibly even straight up cash. But make sure you’re looking at all the terms you have to sign on to. Don’t let flashy rewards right now trap you into whole new bad bank relationship.

And speaking of the internet, different banks will offer different services in their apps and online. Take a look at each of those and consider them as one part of your decision.

Also, make totally sure that your bank is insured by the Federal Deposit Insurance Corporation (FDIC)! That’s how you can make certain that the funds you deposit are safe. Never, ever open an account with an uninsured bank, or you could risk losing everything in your account. If you aren’t sure if the bank is FDIC insured, you can check on the FDIC site.

Staying single isn’t recommended.

When it comes to banking, being single isn’t so great.

There are actually tons of folks out there who can’t even get a bank account. According to a  2015 survey by the FDIC, as many as nine million U.S. households are entirely frozen out from banking. These folks are known as “the unbanked.” They have to rely on check cashing services that charge hefty fees just so people can access the money in their paychecks.’

(If you’re worried that a bad credit score could prevent you from opening a bank account, then you’ve come to the right place. We have a blog post for that.)

Without a bank account, you could find yourself falling prey to predatory payday loans or title loans. These are a kind of no credit check loan, and they come with incredibly high interest rates and can trap borrowers into a cycle of debt.

Unless you like the feeling sleeping on top of money stuffed into your mattress, you should always maintain a bank account. We really can’t recommend the alternative.


At the end of the day, you have to do what’s best for you. As much as you want to avoid any awkward conversations or hurt feelings—if you let a bad relationship with your bank fester, you’ll both just end up miserable.

Are you thinking of breaking up with your bank? We want to hear from you! You can email us or you can find us on Facebook and Twitter.

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Contributors
Jeanne KellyJeanne Kelly (@CreditScoop) After being turned down for a mortgage 15 years ago, Jeanne Kelly realized she needed to get her credit in order. Not only was she able to fix her bad credit, but she took the skills and knowledge she gained and decided to share it with the world. Now she’s a nationally regarded credit coach and expert, with multiple books and television appearances. Follow her on Twitter and check out JeaneKelly.net to get the credit help you need!

Bad Credit Boot Camp

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

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Set up autopay on all your accounts

When you set up autopay for your credit card, utility or loan payments, a monthly charge is automatically deducted from your bank account. Autopay is useful if you’re not great at remembering to pay 15 different bills every single month, and find yourself missing payments or racking up late fees on a regular basis.

“Generally speaking, most people end up with bad credit because they’ve failed to pay their bills on time. That could mean anything from being late on their credit card bills to skipping a mortgage payment,” said Holly Johnson, a financial expert and author.

Unlike credit card payments, utilities, rent, and loan payments tend to be a set amount every month, so you’ll always know what to expect. When it comes to comes to credit cards, you should always try and pay off your full balance every month to avoid interest fees. Sometimes that’s not possible, though, and if you make a major purchase that you can’t pay off all at once, setting up autopay to cover your full credit card balance can mean over drafting on your checking account.

Instead, set up autopay for your minimum monthly payment. Different cards use different formulas to calculate minimum payments – some require you to pay based on a percentage of what you owe, while others calculate fees and interest into your minimum payment.24  Either way, your minimum monthly payment is likely going to be a lot less than the full balance of your credit card, and meeting it every month will keep you in good financial standing with your credit card company. Of course, if you CAN pay off your full balance, do so, but keep your minimum payment on autopay, just in case you forget.

Keep your account balances under 30 percent

As we mentioned before, your credit utilization ratio refers to the percentage of your available credit that you’ve used.25  A high credit utilization ratio means that you are carrying a large balance on your card, and the longer it stays that way, the lower your credit score will get. In general, you want to keep your credit utilization rate under 30 percent. If you have a credit limit of $500, don’t carry a balance over $150. If your credit limit is $15,000, keep it under $4,500. To calculate your optimal credit utilization score, take your credit limit and multiply it by 0.3. The number you get is the 30 cap you’ll want to stay under.

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Bad Credit Boot Camp

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


Credit-Builder Loans

A Credit-builder loan is a small personal loan taken out for the sole purpose of building credit.16 This kind of loan is available at many banks, credit unions and online lenders, and they tend to range from around $500 to $1,500. In some cases, these loans serve double-duty, acting as a much-needed cash injection during a financial emergency while helping to build the borrower’s credit as they pay it off, but most people who take out this kind of loan do it for the sole purpose of raising their credit score.17

The safest type of credit-building loan for both the lender and the borrower is called a pure credit-builder loan. Unlike other loans, which give you the lump sum of your loan up front, a pure credit builder loan is more like a forced savings account. The lender will give you a set amount of money, but keep it in a locked savings account that you can’t access until you’ve paid the full cost of the loan. These loans can be really beneficial to cash-strapped consumers who need to build credit. No money is required up front, and when you’ve paid off your entire balance, you have a nice chunk of change waiting for you in a savings account, which you can use to start an emergency fund or 401k.18

Standard secured loans can also be used to build credit. Secured loans require the borrow to use the money they have in savings as collateral for the loan. The money in your collateral account will be frozen until you begin to pay off your loan, and as you continue to make payments on time, more funds from the frozen account will become available to you. Secured loans are nice for anyone on a budget, as their interest rates are typically much lower.18

Taking out an unsecured loan can help build your credit and act as a safer alternative to predatory payday loans. Unsecured loans give you access to the lump sum of your loan up front, and an installment loan is probably your safest bet here. Unsecured installment loans allow you to make a set payment every month for a set amount of time until your loan is paid off. This set payment will include both the amount you borrowed, and the total amount you owe in interest, so you’ll know before you even start making payments exactly how much this will cost in the long run. These loans do typically come with higher interest rates, but as your credit score increases, the amount you’ll be required to pay in interest on just about everything goes down. This is a rare case where spending money initially will help you save it in the long run.18

Remember: if you want to take out a credit-builder loan, don’t get antsy and pay it off early. Credit building credit is a process, and you need to use all the time allotted to make regular monthly payments that will eventually show up on your credit report, and prove that you are a responsible borrower. Most loans will take six months to affect your credit score, so there’s no rush to get it paid off.

Lucy Luzarony Josiah Nelson – trolysis.com 

“Credit builder loans are often called secured loans. Basically, your bank or credit union gives you a loan. The most common amount for these loans is $1,000 over 12 months. The key difference between this and a regular loan, though, is that the proceeds go into a locked savings account. This means that you make the payment each month and at the end of the 12 months, you get the principal back ($1,000 in this case). The advantage is adding diversification to your profile. Creditors usually like to see a mix of credit beyond just credit cards. The disadvantage is that you are basically paying interest on your own money. Though rates for these loans are usually low, it’s still money you’re paying for the bank to take zero risk at all.”

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Bad Credit Boot Camp

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

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Chapter 2. How to build credit when you don’t have any

If you’ve never taken out a loan, had a credit card or put utilities in your own name before, you probably don’t have much of a credit history. You might think this is a good thing – no credit usually equals no debt, after all – but in some cases, having zero credit can be just as hard has having terrible credit. Lenders are hesitant to loan money to someone with no credit history because there’s no way for them to know whether or not you’ll be able to pay it back in a timely fashion. However, if you’re in this situation, don’t panic. When it comes to credit, everyone starts from nothing, and there are plenty of easy ways to build credit without too much risk.

Secured Credit Cards

Signing up for a secured credit card is one of the easiest ways to build credit if you have none. Pretty much anyone, regardless of their credit score, can sign up for a secured credit card so long as they pay a cash deposit, which will serve as both collateral and, in some cases, set your credit limit. Depending on the card, your deposit amount can vary, but in general, your credit limit will be about double what your deposit is. In other words, if you deposit $50, your credit limit will be $100. Some issuers require the entire line of credit as a deposit – so if you want a $400 credit limit, you’ll need to make a $400 deposit – but some only require a fraction of the overall credit limit, it all depends on the issuer.14

Not every bank offers secured credit cards, and not all secured credit cards are created equal. There are a lot of good ones out there, but be aware that many charge a plethora of fees, from application fees a required monthly insurance policy that can really drive up the price of card membership. On top of that, most secured cards have an annual fee and can carry some pretty hefty interest rates.

In order to use a secured credit card to build credit, you will need to pay it off in full every month. Several months of on time, full payments will significantly improve your credit score, and due to the high-interest rates most of these cards carry, you probably won’t want to keep any kind of balance on one.

“You want to start by either applying for a secured card or a store card. It does not matter what the credit limit is, so do not stress over that. Make sure when you get a new credit card account you use it and pay it on time. Keep the balance below 10% or less of the credit limit. You should treat the credit cards as an investment into your credit future.”

-Credit expert Jeane Kelly- http://www.jeannekellyacademy.com/

Lucy Luzarony Josiah Nelson – trolysis.com 

“Secured cards offer the advantage of almost guaranteed approval, but the downside is that your money will be tied up for a long period of time. Look for cards that “graduate” after a year or so. Graduating means they give you your deposit back but you keep the card & credit limit. Some secured cards that graduate are Bank of America, Discover and Capital One.”

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Bad Credit Boot Camp

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

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Justin Lavelle – (@Justin_Lavelle) (@Been Verified)

“Reviewing your credit report is essential with both the increase in identity theft and the possibility of simple errors. There are three major reporting agencies: Equifax, Experian, and Trans Union. Each is required to give you a free copy of your credit report each year if you request one. At the very minimum, you should be doing this. However, it is probably in your best interest to invest in a credit monitoring program such as Life Lock to have a daily and active monitoring system of your credit and further your personal information.

Let’s focus on the minimum review that you should be doing. After requesting your credit report from each agency, you need to sit down and work through each aspect of the report. The report will include personal information, employment information, and then credit information. Make sure addresses are correct. If there is an address that is not yours, this should be reported to the agency that has it listed. This could be a signal that someone has your credit. Also, report inaccurate employment information and then move to the credit section. You want to be able to match all credit entries with the accurate information you have in your personal records. Make sure that all accounts that are closed are in fact closed. Match open accounts to accounts you currently maintain. Any account that you do not recognize, you need to inquire about and possibly open a formal inquiry.

It is important that you maintain a good recollection of your credit history and also good records to refresh that recollection if you find something odd on your report. An annual review is imperative but experts will urge that you do this more frequently than that.”

 

Lucy LuzaronyLucy Luzarony – LucyLazarony.com (@lucy_lazarony)

“I’ve been using Experian’s CreditWorks, I get to track my credit score (FICO score 8 model) each month and check my credit report from Experian. It’s not free but I trust the accuracy of the score since it uses the FiCO scoring model.  Another free site put me in a panic, they had my credit score much lower than I expected and that’s why I paid Experian for a check of my FICO score and felt relieved when it was higher.”

Checking your report for errors

According to the FTC, about 5 percent of all credit reports contain errors, These errors, if left unspotted, could seriously affect your ability to borrow.9  The Fair Credit Reporting Act holds credit bureaus and the companies that they collect information from accountable for correcting errors on your credit report.10  However, it’s up to you to find these errors in your report and submit a formal complaint to the credit bureaus on your own. To look for errors on your credit report, request a copy and take a hard look at the following information to make sure it’s all correct:12

  • Personal information: name, address, social security number, etc.
  • Account history: a list of all the accounts you’ve opened under your own name, loan or credit amount, history of payments, etc.
  • Inquiries: A list of third parties that have requested your credit report in the last 24 months
  • Public records: bankruptcies, legal judgments against you, foreclosures, etc.

If you find an error in your credit report, you need to write a letter to both the credit bureau and information provider correcting the information and including documentation to prove that there was an error. You can find a sample dispute letter on the next page, or click here to file a dispute online with all three major credit bureaus.

Sample Dispute Letter

8/17/2016
John Doe
123 Fake Street
City, State Zip codeComplaint Department
X Credit Bureau
123 Fake Lane
City, State, Zip CodeHello, I have spotted the following error(s) on my credit report, and am writing to correct it (/them). I have attached a copy of my credit report, and have circled all the incorrect information on the attached files. Below is a list of the error(s):

  • Error #1 is inaccurate/incomplete because (describe what the problem is and why). I am requesting this error be corrected and the information be deleted or updated.
  • Error #2 is inaccurate/incomplete because (describe what the problem is and why). I am requesting this error be corrected and the information be deleted or updated.

(Mention that you have attached documents supporting your position, and explain what they are and how they prove the errors on your report). I hope these errors can be deleted or corrected as soon as possible.Thank you,

John Doe

Lucy Luzarony Josiah Nelson – trolysis.com 

“Many experts will tell you to get your reports from annualcreditreport.com, but with the new era of digital technology and data breaches, I believe consumers should take advantage of the many free and better alternatives. Sign up for a credit monitoring service such as CreditKarma (I’m not affiliated with them – they are just popular). Services like this are free and while the credit scores they give are notoriously unreliable, you can very easily keep track of reports and get notifications for changes to your credit reports as they happen. Consumers should be looking at their reports monthly if possible in order to keep on top of them, as simple overlooked errors can cost you thousands when applying for credit.

The best way to know if something is inaccurate is to reconcile your reports like a checkbook. If you read through your report and see an account that you don’t recognize or some of the details of a legitimate account are incorrect, the first thing to do is contact the creditor.. By law they have to list an address and phone number on the report. Simply call or write a letter stating why you believe the item is inaccurate and send it to the creditor. Often times they will rectify it on their end and that will be the end of it. If they refuse to help, send a letter to the credit bureau (addresses are easily found on Google) requesting they investigate and remove it. In 95% of cases, this will cure the error and you can move on! If not, it would be best to speak with a professional for further guidance.”

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Bad Credit Boot Camp

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

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Credit Bureaus

Credit Reporting Agencies, also known as credit bureaus, collect and store the information that goes into your credit report and by extension, your credit score. The United States has three major credit bureaus: Experian, Equifax, and TransUnion.7  Between the three of them, these for-profit companies, independent of the government, have information on the spending and financial habits of more than 200 million people.8

Each of these credit bureaus allow consumers to see a free copy of their credit report every year through AnnualCreditReport.com. If you want to check your score, make sure you’re going there, and not to one of the many other scam sites that are designed to look and feel like that page. The imposters will look similar and may have a very similar site name, but require you to pay a fee, or worse, steal your information. AnnualCreditReport.com is a government-authorized website and will not charge you a fee for an annual copy of your credit report.

If you want to see more than one copy of your credit report per year, don’t request your report from all three bureaus at once. If you space out your requests every four months, you’ll be able to check your official score and report three times per year. However, if you’re trying to build credit or if you are dealing with issues like identify theft, you’ll probably want to check your score more often.

“Monthly monitoring is a good way to stay on track if you are working on building up a credit score,” said Lucy Lazarony, a financial writer. “If you’re not in the market for new credit, checking your credit report two or three times a year is a good strategy.”

There are many (free!) ways to keep on top of your credit score, even if you’ve already maxed out your three official queries.

Credit Reporting Apps

There are quite a few websites, apps, and services designed to let you check your credit scores from all three bureaus anytime, anywhere. Because credit reports contain very sensitive and private information, it’s important to choose a trustworthy credit monitoring service with a reputation for being safe and reliable. While many of these services cost a monthly fee, there are several that are completely free.

NamePriceDescription
Identity GuardOne month free trial, $19.99/month after that.Offers ongoing credit monitoring and notification when anything on your report changes. Uses scores from all three bureaus and looks out for fraud.
PrivacyGuard$1 14-day trial, $19.99/month after that.Offers triple-bureau credit reports and scores, daily credit monitoring, monthly score tracking, a toll-free hotline and identity theft support.
Credit SesameFree!Offers free monthly credit tracking, advice and financial goal-setting. Also gives suggestions for ways to improve your credit and shows offers for cards you might qualify for.
LifeLock60-day free trial, between $9.99 and $34.99/month after that depending on what service you sign up for.LifeLock offers a wide variety of credit and identity monitoring services for literally every kind of person – from children to seniors.
Credit KarmaFree!Offers free credit tracking, credit score analysis to help you better understand your score, and suggestions for credit cards you qualify for.
Nav Business Credit ReportsStandard plan: Free | Essential plan: $19.99/month | Premium plan: $24.99/monthOffers personal and business credit monitoring for entrepreneurs who are looking to build business credit.
FreeScoresAndMore14-day free trial, $19.99/month after that.Offers ongoing credit monitoring, a toll-free credit information hotline, fraud protection and automatic credit alerts.

All of the above services are reputable and safe, but FreeScoresAndMore, Identity Guard, and Privacy Guard all have five-star ratings on the independent financial review site NextAdvisor. If you’re not sure which service to go with, take advantage of all the free trials to see which one you like best, then cancel the rest.

(Also, for information and reviews on other financial apps, be sure to check out the OppLoans Personal Finance App Directory!)

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Time to Fix Your Credit Score? Here are 12 Expert Answers to Get You Started 

opploans-how-long-rebuild-credit

Learn more about your credit score, credit report, and the best ways to improve your creditworthiness.

For a being such a dinky little three-digit number, your credit score sure has the power to shape your life. It determines how much your loans and credit cards are going to cost you, not to mention it can decide whether you have access to (traditional) credit at all!

We know you’ve got questions about how it all works—especially when it comes to raising your credit score. But before you fix your score, you’ve got to learn a bit more about what makes it tick. And, in particular, you’ve got to learn more about your credit report. Without it, you wouldn’t have any credit scores at all!

That’s why we reached out Rod Griffin, Director of Public Education for Experian (@Experian), one of the three major credit bureaus. He gave us some great pieces of expert insight into how credit scores and credit reports work and how you can use that knowledge to improve your credit.

You’ve got questions? He’s got answers.


1. Is your credit score part of your credit report?

“There are two things to keep in mind about credit scores, says Griffin, “there isn’t just one credit score and it is not part of your credit report.”

Are you surprised?

Credit scores use the information kept on credit reports to determine your creditworthiness, but the score isn’t actually a part of the report itself. Information can vary between the three major credit bureaus—Experian, TransUnion and Equifax—so you have different scores depending on which credit report is used.

And that’s not all.

“In fact,” adds Griffin, “there are many different credit scores used by lenders to meet their particular risk management needs. Each scoring model weighs credit indicators differently.”

Figuring out your credit score might be a little harder than you originally thought—but that doesn’t mean there aren’t common “best practices” you can follow to keep all your scores healthy.

2. What are the most important factors in a person’s score?

Griffin says that “Missed/late payments are the most important factor in credit scores.” And that makes sense, as your payment history makes up 35 percent of your score, more than any other single factor.

According to Griffin, those late or missed payments “may appear as negative information on your credit report for seven years, but their impact on a person’s credit score will decline over time.”

But he adds that “depending on the severity of the delinquency, they can affect scores for as long as they remain on the report.”

3. How long do new credit inquiries stay on your report?

Whenever you apply for a loan or a credit card from a traditional lender, they’re going to run a “hard” credit check. These get recorded on your report as “new credit inquiries.” Basically, lenders want to know any time you’re searching for more credit than you already have.

“While inquiries remain on a credit report for two years, their impact on credit scores is minimal and diminishes relatively quickly, says Griffin. “Typically, any significant impact from inquiries diminishes after two or three months, by which time a new account will appear in the report, or not.”

“The new account – or lack thereof – represents the risk and the inquiry becomes much less significant. FICO excludes entirely any inquiries more than 12 months old from their score calculations. Inquiries for car loans or mortgage loans are counted as only one inquiry by most credit scoring models and may be not counted at all in the newest systems from FICO and VantageScore.”

He adds that “Inquiries will always be the least important factor in credit scores.”

4. How do debts sent to collections affect your score?

If you fail to make a payment on one of your credit accounts, it’s going to get sent to collections—which oftentimes means that your lender (or “creditor”) sells the debt to a new company for a fraction of what you actually owe. That company, a debt collection agency, then tries to recoup the debt, while the collection account gets recorded on your report

According to Griffin, “The collection account will remain on your credit report for seven years from the date the original creditor first reported the debt as delinquent to the credit-reporting agency. That’s true even if the collection account has been transferred from the original creditor to one or more collection agencies.”

“Although collection accounts stay on the credit report for seven years, the longer ago they were paid off, the less of an effect they will have on your credit scores.”

“A collection account that has been paid in full is often viewed more favorably by lenders than if left unpaid, especially after some time has passed. In fact, some newer scoring models no longer include paid collections when calculating scores, so paying off a collection could benefit credit scores even sooner,” he says.

A collection account is one of the ways that no credit check loans like payday loans or title loans can get recorded on your report. Even if the lender doesn’t report your loan to the credit bureaus, a debt collector will report their collection account. In cases like these, bad credit loans will only hurt your score, not help it.

5. How long does a bankruptcy remain on your report?

“There are two main forms of bankruptcy, chapter 7 and chapter 13,” says Griffin. “Chapter 7 bankruptcy remains on your credit report for 10 years after the date filed. Chapter 13 bankruptcy remains on your credit report for 7 years after the date filed.”

“Bankruptcy is the most serious negative factor in a credit report. The exact point impact depends on the individual’s unique credit history and the credit scoring system used to calculate the score. Regardless of those issues, a bankruptcy will have very serious negative implications for credit scores while it remains on the credit report.”

We agree. While bankruptcy is sometimes a person’s only solution, the effect on your credit score is … well, it’s not going to be pretty. We can promise you that much.

6. How long does it take for on-time payments to positively affect your score?

“Everyone’s credit history is unique, and there are many different scoring systems, so there’s really no one-size-fits-all answer,” says Griffin.

“Payment history is the number one factor in determining credit scores. Therefore, consistent on-time payments for one year or even three years will positively impact a person’s score because it shows you are responsible. The longer the history of on-time payments, the more positive the impact.”

But making on-time payments won’t fix your score all by itself.

“For example,” offers Griffin, “credit usage is the second biggest factor in credit scoring models. If someone is making consistent on-time payments, but their credit card balances are creeping closer and closer to their limit each month, the higher balances could offset the impact of the positive payments on their score.”

And if you’re looking for instant results from an on-time payment, you’re going to be disappointed. According to Griffin, “Credit scores also require a minimum of three months, and more typically six months of payment history before they can be included in the credit score calculation.”

7. Is there a certain credit utilization ratio at which a person will see their score jump?

Your credit utilization ratio sounds complicated, but it’s actually pretty simple. It measures how much of your available credit you’re using.

Say you have a credit card with a $1,000 limit on which you’re carrying a $500 balance. Your credit utilization ratio would be 50 percent, as you are currently using half of the credit that’s  available to you.

“A general rule of thumb is to always keep your utilization rate below 30 percent,” says Griffin, adding that “Ideally, you should pay your balances in full each month.”

He stresses that “The 30 percent ratio is a maximum, not a goal.” So if your ratio is currently above 30 percent, it certainly makes a good milestone to shoot for. Just make sure you don’t stop paying down your balances once you’ve achieved it.

“Credit scores consider both your overall balance-to-limit ratio, or utilization rate, and your utilization rate on individual accounts. The credit limit of an account is important because it is part of what determines your utilization ratio—the amount of credit you’re currently using vs. the amount that is available to you.”

This is one of the reasons why closing down an old credit card can actually hurt your credit. It lowers the amount of credit you have available to you, which in turn hurts your ratio. Instead of closing that account, you should consider keeping it open—so long as you aren’t tempted to use it.

To learn more about your credit utilization ratio, check out our blog post, Know Your Credit Score: Amounts Owed.

8. Do people’s scores get penalized for using zero percent APR balance transfers to help with debt repayment?

“Opening a new credit account often means taking on new debt, or at least increasing your potential to incur debt,” says Griffin. “For this reason, you may see a slight dip in scores when you first apply for and open a new account.  The action of opening the new account would not cause you to be penalized for using a zero percent APR balance transfer to help with debt repayment.”

“However,” he adds, “there are other pitfalls that may affect your credit score.”

  • “For instance, a high transfer fee could outweigh the benefits you might get from a lowered or zero percent APR.”
  • “Another downside is that if you fail to pay off the entire transfer amount by the end of the promotional period, your APR will reset to a higher rate – one that could potentially be higher than you were paying before making the transfer.”
  • “And lastly, if you continue to use the paid-off card, you could accrue even more debt. It’s important to avoid adding more debt – either on the old card you’ve paid off or on the new card with lower or zero percent APR.”

To learn more about balance transfers, Griffin recommends that you check out this article from Experian.

9. How does the length of your credit history affect a person’s creditworthiness?

“The length of credit history helps lenders evaluate your creditworthiness,” says Griffin. “Credit history gives lenders a better insight into your credit behaviors, thus, determining lending risk and not really a fuller picture of how you manage your debts.”

“In general, the longer your accounts have been opened, the better it can be for your credit history, as long as you manage them well. “

“Though, in terms of creditworthiness having a line of credit for one to three years is only positive if the account is managed well. It’s quite possible for a person with a credit history that is only a few years old to have very good credit scores,” he says.

10. Is it easier to go from bad to fair credit than it is from fair to good credit?

According to Griffin, “Moving your credit score up the scale regardless of where you start requires the same behaviors. You have to catch up on any late payments, reduce your credit card balances and always pay your bills on time”.

“Just how fast any individual’s scores will improve depends on their unique credit history. The more severe the issues, the longer it will take.”

“For example,” he says, “a person who is just beginning to build their credit history but has all positive, on-time payments may increase their score faster that a person whose scores have been dragged down by bankruptcy. The bankruptcy filing will seriously hinder scores for as much as 10 years, especially if coupled with other late payments, charged-off accounts or collections. It also depends on the scoring system and how it weighs the individual items.”

The bottom line for Griffin is that “everyone has a unique credit history with a different mix of factors that will determine how fast their credit scores may increase.”

11. If someone is committed to raising their credit score, what is the best course of action for them take?

According to Griffin, there are two things that a person should do if they want to raise their score:

1. “If you have late payments, catch up and then make all your payments on time, every time.”

2. “Reduce your credit card balances. Payment history and revolving account utilization are the two most important factors in credit scores.”

“Beyond those two things,” he says, “every credit history is different, and the things that each person should do differ as well.”

“To find out what you need to do, get a copy of your credit report and purchase a credit score. When you purchase your credit score you will receive a list with the risk factors that go with that score. The risk factors tell you what, from your personal credit history, are most affecting your credit score. Address those risk factors and all your scores should get better.”

“The numbers can be different from one scoring system to another, but the risk factors are very consistent,” says Griffin.”

12. How can I get a copy of my credit report and score?

Here’s some great news: Did you know that you are entitled to one free copy of your report from Experian, TransUnion, and Equifax ever year? Well, you do! It’s the law! All you have to do is request them by going to www.annualcreditreport.com.

As for your credit scores, the FICO score is the most commonly used type of score, but there’s also the VantageScore, which was created by the three bureaus.

“You can purchase a VantageScore from Experian when you request your free annual credit report,” says Griffin. “You also can get a free credit report and free FICO credit score at www.freecreditscore.com.”

“In both cases,” says Griffin, “you get the number, an explanation of what it means in terms of risk and the list of risk factors that most affected the score. The risk factors are empowering because they tell you what you can do to make your scores better.”

What questions do you have about your credit scores and your credit report? We want to know! You can email us or you can find us on Facebook and Twitter.

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Contributors
Rod Griffin is Director of Public Education for Experian (@Experian). Rod oversees the company’s financial literacy grant program, which awarded more than $850,000 in 2015 to non-profit programs that help people achieve financial success. He works with consumer advocates, financial educators and others to help consumers increase their ability to understand and manage personal finances and protect themselves from fraud and identity theft. He works to help all consumers be better prepared to get the credit they need, at the time they need it, and at rates and terms that are favorable to them.”