Is Checking your Credit Score Bad?

no-credit-check

Short answer? No.

Slightly longer answer? It depends.

For the complete answer, keep reading…

There are two types of Credit Inquiries: Hard Inquiries and Soft Inquiries

And when it comes to how they affect your credit score, they’re pretty much night and day.

Hard Inquiries

Hard inquiries happen whenever you are applying for new credit, like a mortgage, credit card, or personal loan. They usually require that your authorization before the lender can pull your credit history.

Hard Inquiries are recorded on your credit report and will stay on that report for two years. Since a hard credit inquiry is an indication that you are looking for a loan, the inquiry can have a negative effect on your credit score for up to a year.

Why is that? Well, according to experts at FICO, a borrower with six or more hard credit inquiries on their report is up to eight times more likely to file for bankruptcy than someone with no inquiries.[1] Those same experts also say that a typical hard inquiry can knock up to five points off your credit score.[2]

There is an exception, however, and it’s when you have several inquiries within the same 45-day period. Since it is typical (and a good idea!) for people to “rate shop” when applying for a mortgage, auto, or student loan, the credit bureaus will bundle all these separate inquiries together. You’ll still get dinged for the hard inquiry, but you’ll only get dinged once.

A typical hard inquiry can knock up to five points off your credit score.

Soft Inquiries

There are several different situations under which a soft credit inquiry might occur. Some of the most common include looking for a new apartment, getting hired for a new job, and checking your own credit score.

Basically, soft inquiries are when anyone other than a lender is looking at your credit score. Many credit card companies will run a soft inquiry before sending you a “pre-approved” credit card offer.[3]

The great thing about soft inquiries is that they do not affect your credit score. While soft inquiries are indeed recorded on your credit report, they are only visible to you. If a lender pulls a copy of your credit report, they will only be able to view your hard inquiries. So while soft inquiries do end up on your report, it’s basically as a technicality.

If you have bad credit and are worried that applying for a loan that could hurt your credit score, there are certain kinds of lenders (including OppLoans) that will only run a soft credit check while reviewing your application. Even if you apply and get turned down, it won’t affect your credit.

P.S. Did you know that you can request a free copy of your credit report?

It’s true! We swear!

In fact, it’s the law. Under the Fair Credit Reporting Act (FCRA), every person is legally entitled to receive one free copy of their credit report per year from each of the three major credit bureaus — TransUnion, Experian, and Equifax.[4] For those keeping score, that’s three free credit reports per year.

But first you have to ask. To get a free copy of your credit report, just visit www.annualcreditreport.com. If you find an error on your report, just follow this helpful guide from the Federal Trade Commission (FTC).

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References:

  1. “The Difference Between Hard and Soft Credit Inquiries” TransUnion.com. Accessed November 11, 2016 from http://blog.transunion.com/the-difference-between-hard-and-soft-credit-inquiries/
  2. “What are inquiries and how do they affect my FICO score?” MyFico.com. Accessed November 11, 2016 from http://www.myfico.com/crediteducation/questions/inquiry-credit-score.aspx
  3. “Hard Inquiries and Soft Inquiries.” Credit Karma. Retrieved November 10, 2016 from https://www.creditkarma.com/article/hard_inquiries_and_soft_inquiries
  4. “Free Credit Reports.” Federal Trade Commission. Accessed November 19, 2016 from https://www.consumer.ftc.gov/articles/0155-free-credit-reports

What Does a “No Credit Check” Loan Really Mean?

What Does a No Credit Check Loan Really Mean?

If you have bad credit, getting a safe, responsible loan can feel impossible. After all, any legit lender is going to run a credit check. And once they see your score, they’ll just turn you down flat, right?

Wrong.

There are lenders out there who run credit checks but still lend to people with bad credit.

(We know, because we’re one of them.)

To explain how this works, we’ve gotta get some stuff out of the way first. Namely, we need to talk about the difference between hard credit checks and soft credit checks.

Hard credit checks

A hard credit check means pulling a full copy of your credit history.

Most often, a hard credit check occurs when a person is applying for new credit. Many lenders see too many hard checks as a sign that a person is desperate for credit, which makes the lenders less likely to lend to them. In fact, running a hard credit check can actually lower your credit score by up to five points!

According to the experts at FICO, a person with six hard credit checks within a one-year span is eight times as likely to file for bankruptcy than someone with no hard checks.[1]

Soft credit checks

A soft credit check returns much less data than a hard check. Instead of a person’s full credit report, it gives them a brief overview.

While hard credit checks have to be authorized, soft credit checks don’t. You know those pre-approved credit card offers you get in the mail? Those lenders likely ran a soft check on you before sending you the offer.

The great thing about soft credit checks is that they don’t show up on your credit report. Or rather, they don’t show up when other people look at your credit report. If you request a copy of your report, you’ll be able to see your history of soft credit checks, but other parties who look at your credit will not.

For all intents and purposes, soft credit checks do not show up on your credit history—and they definitely do not affect your credit score.

Okeedoke. Now that we’ve got that out of the way…

What are no credit check lenders?

Next time you see an ad for a “no credit check lender” just go ahead and replace the words “no credit check” with “payday” because they are usually one and the same.

The reason that payday lenders don’t check their customers’ credit is because they don’t care if their customers can’t pay their loans back.

Actually, you know what? Scratch that. They are actively counting on their customers not being able to pay their loans back on time. The more customers that can’t afford their loans, the more loans the payday lender gets to rollover.

What’s loan rollover?

It’s the worst. Really.

Loan rollover is a process in which payday lenders offer their customer an extension on the due date of their loan. It sounds nice at first, but it’s really just a chance for the lender to charge the borrower additional interest for borrowing the same amount of money.

Here’s an example:

You take out a $300 payday loan that costs $15 per $100 borrowed. The loan is due in 14 days, and you will owe $345 (The $300 that you borrowed + $45 in interest).

But when that 14 days is up, you find that you don’t have $345 to spare. So you roll the loan over. You only pay the $45 that’s due in interest, and you get another 14 days to pay back the $345 you still owe.

See what happened there? You pay the lender the $45 in interest, and then they charge you an additional $45 for the two-week extension. A loan that cost you $15 per $100 borrowed now costs you $30 per $100.

Measured as an annual percentage rate (APR), the true cost of this loan is pretty staggering: 390 percent. If you had that loan outstanding over a full year, you would pay almost four times what you borrowed in interest alone.

The real problem with no credit check loans

Now, a 390 percent APR might not seem to matter so much for a loan that’s only two weeks long, but that’s precisely why rollover is so sneaky and awful: the more you roll the loan over, the more expensive your loan becomes (read more in The Truth About No Credit Check Loans).

That’s why payday lenders don’t run a credit check on their potential customers. Whereas most lenders are concerned about whether their customers can afford to repay their loans, payday lenders are the exact opposite: They are hoping their customers can’t repay.

Don’t believe us? Well how about this:

According to the Consumer Financial Protection Bureau (CFPB), over 80 percent of payday loans are the result of rollover or reborrowing.[2] Basically, if payday loan customers could actually afford to pay their loans on time, the industry would go kaput.

Not. Great.

What about soft credit check loans?

Both “no credit check” and “soft credit check” lenders lend to people with bad credit, the kinds of folks who most traditional lenders would turn down. The big difference between the two is that “soft credit check” lenders genuinely care about whether or not you can repay the loan they’re offering.

That’s why soft credit check lenders check your credit before extending you an offer. They want to make sure it’s a loan you can actually afford. Unlike no credit check lenders, they don’t plan on rolling over your loan again and again and again. They intend to give you a loan that you can pay off the first time.

But that’s not the only difference. While payday lenders offer you short-term loans that you have to repay all at once (something that few borrowers can actually afford to do), soft credit check lenders usually offer long-term installment loans. These loans are designed to be paid off a little bit at a time, with equally sized, regularly scheduled payments.

And many times these loans are amortizing, which means that (long story short) you can save money by paying the loan off early, something you can’t do with payday loans.

You deserve better than a payday loan

At OppLoans, we run soft credit checks on all our applications because we care about our customers’ ability to repay the loans we’re offering. Plus, our loans are up to 125 percent cheaper than your typical payday loan. Applying for a loan won’t cause your credit score to go down, and you’ll be in much better, more responsible hands than you would with a payday lender.

References:

  1. “What are inquiries and how do they affect my FICO score?” MyFico.com. Accessed November 14, 2016 from http://www.myfico.com/crediteducation/questions/inquiry-credit-score.aspx.
  2. Burke, K., Lanning, J., Leary, J., Wang, J. “CFPB Data Point: Payday Lending.” Consumer Financial Protection Bureau. Accessed November 14, 2016 from http://files.consumerfinance.gov/f/201403_cfpb_report_payday-lending.pdf.

5 Must-Know’s Before Applying for a “No Credit Check” Loan

Picture this: You’re standing in front of your car, staring down at a brand new (and totally mysterious) dent in your door. Hit and run? Aggressive stray shopping cart? Who know?

What you do know is this is going to cost you money—money that you do not have on hand.

You used to have a $1,000 emergency fund, but that got eaten up when your boiler decided to die in the middle of January.

You’re going to need to take out a loan to pay for the repairs. There’s no way around it.

Oh, and here’s the kicker: Your credit score is only 590.

That means a traditional bank loan is out, as are most personal loans offered by online lenders. Those lenders will check your credit and could give you the boot pretty much immediately.

It looks like you’re going to need a no credit check loan.

But before you sign that loan agreement, here are five things you need to know …

1. Stay away from payday and title loans

For real. If you have bad credit and need a fast cash loan, taking out a payday or title loan is pretty much the last thing you should do.

Both payday and title loans are short-term loans that come with interest rates around 15 to 25 percent. But those rates can be seriously misleading. When measured as an annual percentage rate (APR), payday loans have an average rate around 390 percent, while title loans have an APR of 300 percent.

What that means is they’re really, really expensive.

In addition to those high rates, these predatory loans are designed to be paid off in a single lump sum, which can be hard to do for many borrowers, which is why they will usually roll the loan over. Every time they do that, they increase the cost of their loan. That’s how a 15 percent interest rate can turn into a 390 percent APR! You can learn more in the article The High Cost of Payday Loans.

Sometimes, a no credit check loan is necessary—but steering clear of payday and title loans is always a must.

2. Make sure the lender checks your ability to repay.

This is something that a lot of payday and title lenders don’t do. That’s one of the reasons those loans are so dangerous.

With a traditional unsecured personal loan, the lender will lose money if you can’t pay your loan back. That’s why they always check to make sure that you can afford your loan.

But did you know that many no credit check lenders actually count on their customers not paying their loans back on time?

With predatory payday and title loans, borrowers who can’t afford their loans are more likely to roll the loan over and incur additional interest. Every time the loan rolls over, it becomes more and more profitable for the lender. Combine loan rollover with interest rates north of 300 percent, and you have a recipe for financial disaster.

Lenders that don’t confirm your ability to repay the loan are probably taking you for a ride. Do yourself a favor and just steer clear of them.

3. If possible, find a lender that does soft credit inquires

Just because a lender checks your credit score, that doesn’t mean they’re going to turn you down. And if they’re only running a soft inquiry on your credit, then applying for the loan won’t show up on your credit report.

There are two kinds of credit inquires: hard inquiries and soft inquiries. Hard inquiries return a lot more detailed information to the requester, but they also get recorded on your credit report. Too many recent inquiries can hurt your credit score, as it looks like you are desperate for a loan.[1]

Soft inquiries, on the other hand, only return a more general overview and are not recorded on your credit report. So even if you think your credit score is so low that no lender could possibly approve you for a loan, you should still consider lenders that run a soft inquiry while processing your application.

For one thing, running a soft inquiry means that the lender is considering your ability to repay. That’s a good sign they’re on the up and up.

4. Don’t forget: Defaulting on a no credit check loan could still hurt your credit.

Even if a lender isn’t checking your credit score, failing to pay that loan back could (and probably will) negatively affect your credit.

Some no credit check lenders might report your late or non-payments directly to the the three major credit bureaus (Experian, TransUnion, and Equifax). If you default on your loan, the bureaus will know, and the info will go on your credit report.

And even a lender that doesn’t report info to the bureaus could still sell your unpaid debt to a collections agency. Once it’s been sold to them, that collections agency will likely report the unpaid debt to the credit bureaus.

Likewise, a lender or a collections agency could take you to court in order to reclaim the money that you owe them. These usually result in your wages being garnished until the debt is fully repaid. A court decision against you will also go on your credit report.

Lastly, there are other specialty reporting agencies beyond the big three. Some no credit check lenders will report payment information to these businesses. That info could be used to deny you a bad credit or no credit check loan in the future.[2]

5. Do shop around

Remember, a loan is basically a product. So when you’re looking to buy one, you shouldn’t treat the process any different than shopping for a pair of jeans or a new carburetor.

Shop around! Different lenders are going to be offering different loan products with different terms and different rates. Even if it’s tempting, or you’re running short on time, don’t just take the first offer you receive.

One of the great things about online lending is that you have way more options than you would have just 10 or 15 years ago. There are lot of personal lenders that will let you apply for a loan online and will deposit the funds into your account once you’re approved.

Take a spin on Lendingtree to see what kind of loans are available to you, and make sure to check out the customer reviews to see what kinds of experience other people have had. Odds are, the right no credit check loan for you is out there somewhere. You can read more in Bad Credit Helper: How To Shop for a Credit Counselor.

It’s up to you to find it.

If you have bad credit and need a loan, a personal installment loan from OppLoans is always a safe, reliable choice. You can apply online by filling out a simple application, and you will receive a decision within minutes. We only run soft credit inquiries, which means that applying will not hurt your credit score, and we always verify our customers’ ability to repay.

Personal installment loans from OppLoans come with larger principals ($1,000-$5,000), longer terms (6-36 months), and lower rates (up to 125 percent less) than your typical payday or title loan. Our loans are designed to be repaid in a series of regular, manageable payments that won’t bust your budget. We don’t charge any prepayment penalties either, so paying your loan off early will save you money!

At OppLoans, we think you deserve better than a payday loan. To learn more, or to apply for a loan today, just visit our homepage, www.OppLoans.com.

References:

  1. “Hard Inquiries and Soft Inquiries.” Credit Karma. Retrieved November 10, 2016 from https://www.creditkarma.com/article/hard_inquiries_and_soft_inquiries.
  2. “If I take out a payday loan, could it hurt my credit? Consumer Financial Protection Bureau. Retrieved November 10, 2016 from http://www.consumerfinance.gov/askcfpb/1635/if-i-take-out-payday-loan-could-it-hurt-my-credit.html.

Creditworthiness

Creditworthiness
Creditworthiness is a description of an individual’s credit health and history.

What is Creditworthiness?

Creditworthiness is a concept that illustrates what kind of risk a lender might associate with a borrower. Lenders and creditors review a potential borrowers’ creditworthiness to gauge how risky it would be to lend that person money. Creditworthiness is also a major determiner of the interest rates that borrower might be charged.

How is Creditworthiness determined?

Creditworthiness is determined primarily by a person’s credit score. Lenders may also consider, credit history, age, income, employment, existing debt, and types of debt. Factors such as a person’s credit score and repayment history are used to determine how likely they are to make on-time payments, make late payments, or default on loans.[1]

Creditworthiness will not only impact financial opportunities made available to a borrower, but may also affect one’s ability to be hired by certain companies, insurance premiums, and, in some cases, the opportunity to be certified or licensed in certain professional arenas.

What is a credit score?

Your credit score is a numerical depiction of your creditworthiness. If your credit score is high, you have a high level of creditworthiness, and alternatively, a low credit score is equated with lower levels of creditworthiness. The Fair Isaac Corporation created the FICO score, which is the most commonly used credit score today.

Scores can range from 300 to 850; the higher your score is, the more creditworthy you are considered to be. Your credit score is arrived at through the evaluation of multiple factors, such as how much debt you’re carrying as well as whether or not you make payments on time.

A credit rating is a way to assess creditworthiness. Credit ratings are primarily applied to governments and businesses, while credit scores are used for individuals. Just as your creditworthiness is assessed when borrowing money, the credit history of countries and businesses is similarly evaluated. While credit scores usually range from 300 to 850, the credit rating scale is from AAA (excellent) to C and D.[2] The largest credit rating agencies include Standard & Poor’s, Moody’s, and Fitch. You can think of these agencies as being similar to TransUnion, Equifax, and Experian, but working with credit ratings instead of credit scores.

Knowing what information goes into factoring your credit score the first step in ensuring your creditworthiness remains healthy. A person’s creditworthiness can be improved, but it can be a slow process. We suggest always trying to make payments on loans or credit cards on-time—that’s a great way to start to improve your creditworthiness.

What is credit history?

The three major credit bureaus (TransUnion, Equifax, and Experian) keep records of consumer credit usage and accounts in what’s called a credit report. A credit report is simply the written record of one’s credit history. Credit histories (found in credit reports) will contain information on open and closed credit accounts, credit inquiries, derogatory marks, and on-time payment histories.[3]

Your credit history will not contain information on your checking and savings accounts or any personal information such as your income, race, or age.

The information in your credit report and credit history comes from lenders, collection agencies, and public records such as bankruptcies and liens.[4] A credit report can be requested by lenders, landlords, and employers. It is used to make decisions related to borrowing, employment, insurance, and other purposes allowed under federal law.

What is my Creditworthiness?

The first step to improve your creditworthiness, is to know what it currently is.

Under the Fair Credit Reporting Act you have many rights,[5] including the right to a free credit score. You also have the right to be told if information in your file has been used against you, the right to deny employers access to your credit file, and the right to seek damages if a credit bureau violates your protections. The Federal Trade Commission offers a complete list of your rights.

To see what’s in your credit report, request your credit report through the government’s sanctioned site at www.annualcreditreport.com. You are entitled to a free credit report once a year from the three major credit bureaus.

Under law, credit bureaus can only share your information with others in the event of a legitimate need. People who might qualify to see your report based on this include insurers, creditors, landlords, and employers.

If you notice errors in your credit report you should, in writing, inform the credit bureau that’s reporting them. Under law, credit bureaus are required to investigate them in a timely manner—usually within 30 days. For more information, check out the Federal Trade Commission’s step-by-step instructions for disputing credit reporting information.

How can I improve my Creditworthiness?

You can become more “creditworthy” by improving your credit score. This can be done over time by adopting more responsible credit, borrowing, and spending habits. Generally, the first step to take is to get up to date on all of your bills. If you have outstanding debts, pay them. Also, maintaining a low balance on your credit card, making on-time repayments on bills and installment loans will improve your credit score, and—creditworthiness—overtime.

References:

  1. “Creditworthiness”. Investopedia. http://www.investopedia.com/terms/c/credit-worthiness.asp. Accessed September 26, 2016.

  2. “Credit Rating”. Investopedia. http://www.investopedia.com/terms/c/creditrating.asp. Accessed September 26, 2016.

  3. “What Is Your Credit History?” Credit Karma. https://www.creditkarma.com/article/What_is_your_credit_history. Accessed September 26, 2016.

  4. “What Is a Credit Reporting Company?” Consumer Financial Protection Bureau. Accessed on October 12, 2016, at http://www.consumerfinance.gov/askcfpb/1251/what-credit-reporting-company.html.

  5. “A Summary of Your Rights Under the Fair Credit Reporting Act.” Federal Trade Commission. Accessed on October 12, 2016, at https://www.ftc.gov/sites/default/files/documents/one-stops/credit-reporting/pdf-0096-fair-credit-reporting-act.pdf

3 Ways an Installment Loan Can Help Your Credit Score

3 Ways an Installment Loan Can Help Your Credit Score

If you ever feel like your credit score is totally beyond your control (like the weather or your utterly doomed fantasy football team), then it might be time to adjust your thinking. After all, your credit score is merely a reflection of the information in your credit report, which is itself a reflection of how you handle your debt. You can’t change the stuff you did in the past to hurt your score, but there are definitely actions you can take to improve it today.

It’s possible to improve your FICO score by taking out a personal installment loan. Unlike short-term payday or title loans, an installment loan is designed to be paid off in a series of simple, manageable payments over the course of the loan’s term. Plus, your typical installment loan will come with a lower interest rate than a comparable credit card.

Here are three ways that a safe, affordable installment loan can help you improve your credit score.

1. Diversify Your Debt

When the good people at FICO are creating your credit score, they are sorting all the information on your credit report into five different categories. The two most important categories are “Payment History” (which makes up 35 percent of your score) and “Amounts Owed” (30 percent).[1]

But one of the other three categories is “Credit Mix”, which determines 10 percent of your score. “Credit Mix” refers to the different kinds of debt you owe: credit card debt, personal loan debt, student debt, auto debt, mortgage debt, etc. The more diverse your credit mix, the better your credit rating.

If you have a lot of credit card debt, taking out an installment loan to pay some of it off would also help diversify your credit mix. And that more diverse mix could help improve your credit.

Best Practices: Don’t take an installment loan just for the sake of taking one out. That would add to your total debt load and—if you fail to repay it—lower your credit rating.

2. Save You Money

You know what’s a great way to raise your credit score? Owe less debt. (Shocking, we know.) And you know what’s a great way to less debt? Score a lower interest rate. The less you’re paying in interest, the less you’ll overall—and the faster you’ll be able to pay your debt down.

First things first: if you cannot get approved for an installment loan with an equal or lower rate than your other debt (credit cards, payday loans, title loans), then it’s probably not worth it. Consolidating high-interest debt into an affordable, reliable installment loan is a great way to save money (read more in Debt Consolidation Loans – An OppLoans Q&A with Ann Logue, MBA, CFA). But if you’re going to be paying a higher interest rate? Not so much.

But scoring a lower interest rate isn’t the only way you can owe less through an installment loan. You see, the longer any piece of debt is outstanding, the more you’ll end up paying in interest overall. The shorter the loan, the less it costs. Most installment loans are structured to repaid over the course of a few years—and that’s with the borrower paying only their minimum payments. Compare that to your typical credit card: with only minimum payments, that card could take nearly a decade to pay off! That’s thousands of extra dollars in interest.

Paying less money on your debt will also help you pay down your debt fast. And the sooner you pay that debt off—or at least pay it down—the faster that change will be reflected in your credit score.

Best Practices: Most installment loans are amortizing, which means that they can save you money compared to rolling over a similar payday or title loan.

3. Improve Your Payment History

As you’ll recall, your payment history determines 35% of your score overall. This means that making your installment loan payments on time every month will go towards improving that chunk of your score. If you don’t have a great history of on-time payments, it just might help to start fresh!

Of course, that all depends on your lender actually reporting your payment information to the credit bureaus. And if you have bad credit, you might find yourself dealing with lenders who don’t report any payment information at all. This is especially true for most payday and title lenders. While many of their customers will be grateful that these lenders don’t report payment information, someone who’s looking to be responsible and improve their credit score will not.

Best Practices: Did you know that OppLoans offers personal installment loans with lower rates, longer terms and better customer service than your typical payday or title lender? Plus, we do report your payment information to credit bureaus, so taking out a loan with us could help improve your credit.

References:

  1. “What’s in my FICO Scores.” MyFICO.com. Retrieved October 4, 2016 from http://www.myfico.com/crediteducation/whatsinyourscore.aspx
  2. Konsko, L. “Will an Installment Loan Help Your Credit?” Nerdwallet. Retrieved October 4, 2016 from https://www.nerdwallet.com/blog/loans/installment-loan-boost-credit-fico-score/

Getting a Loan with Bad Credit? It’s Possible. Here’s How.

getting-a-loan-with-bad-credit

Let’s face it: Nobody likes to be judged. But when it comes to loans, it’s going to happen. Creditors are going to look deep into your credit history and make a decision about whether or not to lend to you. Lenders need to determine how risky it would be to lend money to a borrower. And if you’ve got bad credit, you might expect to be shown the door right away.

But don’t panic! Even if you have bad credit, it’s still possible to get a loan. Here’s how.

Know Your Credit Score and Know What It Means

Lenders know your credit score, and you should too. When you’re applying for a loan, that three-digit FICO score is going to play a big role in whether or not you’re approved. If you don’t know your FICO score, there are plenty of ways you can find it. You can check your credit score for free using Experian’s FreeCreditReport.com site; you can ask your bank if they provide free credit scores; you can even request one directly from FICO themselves—though they’ll make you pay for it.

So now that you know how to find your credit score, how can you improve it? Check out the OppLoans ebook Credit Workbook: The OppLoans Guide to Understanding Your Credit, Credit Report and Credit Score to learn if you have bad, fair, or good credit—and then, what you can do about it!)

When it comes to getting a personal loan, borrowers with a credit score above 720 typically pay an 11-percent interest rate. Those with subprime credit pay almost three times as much – 29 percent! For borrowers with a credit score below 550, many traditional lenders won’t offer a loan at all.

Sound Advice: Don’t despair! Borrowers with bad credit still have options like safe installment loans and certain “no credit check loans” (or “soft credit check loans”!)

Do NOT Take Out a Payday Loan

If you happen to fall into the “poor credit” category, you’ll likely find your loan application has been turned down at the bank. However, you won’t have to look far to find people, both online and on the street, advertising “quick cash” for borrowers with bad credit. Many of these are payday loans, and they are dangerous.

Payday lenders will likely give you a loan, but they’ll make you pay for it. Literally. You can expect an APR of 350 percent or more. Rates that high are how payday loans trap low income borrowers in a cycle of predatory debt.[1] So if you’re thinking about taking out a payday loan, DON’T DO IT.

Worried you might be dealing with a predatory lender? Check out the warning signs in our ebook “How to Protect Yourself From Payday Loans & Predatory Lenders“.

If Your Credit Is Bad, Build It

Here’s the truth: Bad credit can mean that you’re going to have to pay more for a loan. It’s as simple as that. However, your credit score isn’t written in stone. If your credit is currently lower than you’d like, the best thing to do is build it up before taking out a loan.

We know, it sounds daunting. Also, it’s going to take a little bit of time. But don’t worry, you can do it by following these six steps.

Sound Advice: Stay below 30 percent of your credit card limit to boost your credit score.

Consider Personal Installment Lenders

Building credit sounds great, but sometimes emergencies happen and you need funds immediately. A payday loan might be tempting, but there are better options out there.

One place to look for a bad credit loan is with personal installment lenders. A personal installment loan can used to cover emergency expenses or to consolidate higher-interest debt. These lenders consider many factors when evaluating a loan application – not just your credit score –so you’ll probably have better luck with them. Also, not to toot our own horn, but OppLoans scores 4.9/5 stars with the Better Business Bureau® based on customer reviews. Toot toot!

Opt for a Secured Loan

Secured loans are a good way for borrowers with bad credit to boost their appeal when applying for a loan. With a secured loan, a borrower offers an asset – a home or car, for instance – as collateral. It makes lenders more likely to approve a loan because they know they can take possession of the asset to cover their losses if the loan is not repaid. Just make sure you avoid short-term, high-interest title loans! They are definitely not worth the risk.

Sound Advice – Be careful when choosing collateral for a secured loan. If you default on the loan, you will lose your collateral.

Join a Credit Union

Credit unions are a good option for borrowers with bad credit. They’re like banks, but when you apply for a loan, they don’t evaluate you purely on your credit score. The trick, however, is that you have to be a member, so you have to convince them to grant you membership. They look at your financial health, but they also make a decision based on factors like where you live, where you work, or where you went to school. You can search for credit unions near you through mycreditunion.gov.

Sound Advice: Professional groups often form credit unions, so try to find one through your job.

Get a Co-Signer

Another option for borrowers with bad credit is to get a co-signer. With a co-signer, the interest rate for the loan will be calculated based on the credit rating of the person you sign with. So find someone with good credit who trusts you to repay the loan. But be careful. That person will be equally responsible for payment, so if you fall behind, they’ll suffer for it too.

Sound Advice: Cherish your co-signer. Payment information will be recorded to both of your credit reports.

At OppLoans, we believe that you deserve better than a payday loan. That’s why we offer personal installment loans with longer terms (6-36 months) and lower rates (up to 125 percent less) than your typical payday or title loan. Plus, our customers rate us an average of 4.9 out of 5 stars on Google.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

References:

  1. “Bulusu, Siri. “How Small Short-Term Loans Draw Vulnerable Borrowers Into Big Long-Term Debt.” Medill News Service. Accessed September 30, 2016,from http://news.medill.northwestern.edu/chicago/how-small-short-term-loans-draw-vulnerable-borrowers-into-big-long-term-debt/

5 Need-to-Know Facts About Title Loans

If you’ve ever tried to sell your car, you may have had that dark moment when you realize how much your vehicle is actually worth. (Spoiler alert: it’s way less than you might have thought!) But even if your ’92 Geo Prism with the sweet hatchback isn’t exactly a goldmine, you could still use that car to get a pretty sizeable loan if you’re strapped for cash.

This is a major part of why car title loans seem so appealing: In exchange for handing over your car title as collateral, you can get a loan regardless of your credit score. Sounds like a great deal!

Only it’s not a great deal. In fact, it’s a terrible, “how is this even legal?” kind of deal. If you’re thinking about taking out a title loan to cover either emergency expenses or just everyday costs, these five surprising facts will make you want to steer clear!

1. Title Loans are banned in 25 states

That’s half the country, folks. Due to their short terms, lump sum repayments and high Annual Percentage Rates (APRs), title lenders are only able to operate in a handful of states.[1] And many of these states take a, shall we say, lax approach towards regulating these predatory lenders. This makes taking out a loan from one even more dangerous. So if you’re thinking about a title loan, consider that 50 percent of states have said “thanks, but no thanks” to title lenders.

2. Title Loans have an average APR of 300%

A loan’s Annual Percentage Rate, or APR, measures how much that loan would cost the borrower if it were outstanding for a full year. And with an average APR of 300 percent, your typical title loan would cost three times what you originally borrowed in fees and interest alone. Technically, these loans are only a month long, with a 25 percent monthly interest rate, but lots of people can’t afford that. Since they can’t pay their loan back on time, they keep rolling the loan over, scoring another month in exchange for an additional 25 percent (read more in Title Loans: Risk, Rollover, and Repo). Before you know it, one month has turned in 12, and that 300 percent APR is now a reality!

3. Sometimes, a “Title Loan” isn’t actually a Title Loan

Cases like these have been reported in states like Missouri[2] and Virginia, both of which allow title loans. Customers took out what they thought was a title loan, but was actually something far different. These loans can come with different names, like “consumer installment loan” or “consumer finance loan” but they come with even less regulations than title loans. They can be structured to last much longer than a conventional title loan with potentially unlimited interest.[3] Offering loans under a different statute is a classic trick by predatory lenders to skirt around state lending regulations. Don’t fall for it.

4. Over 80% of Title Loans are the result of refinancing

The majority of title loans may be short-term loans, but that doesn’t mean that lenders intend them for short-term use. According to a study published by the Consumer Financial Protection Bureau (CFPB) in May, 2016, over 80 percent of title loans are the result rollover.[4] What does that mean? It means that the title loan industry doesn’t just profit from their customers’ inability to afford their loans, they depend on it. Short-term title loans aren’t designed to be paid off in a series of small, manageable payments: They are meant to be repaid in a single lump sum. Many customers can’t afford to pay their loan off all at once, meaning they have to refinance the loan just to keep from defaulting and losing their vehicle. Speaking of which …

5. 1 in 5 Title Loan customers loses their car

When a customer cannot pay their title loan back, the lender gets to repossess their vehicle. And according to that same study from the CFPB, this is exactly what happens to one out of every five title loan customers. That’s 20 percent. If someone told you that a loan came with a 20 percent chance of losing your car, would you still sign the agreement? Heck no, you wouldn’t!

If you need a loan and need it fast, don’t fall for the promises of a predatory title lender. Choose a personal installment loan from OppLoans instead. We’re a socially responsible lender, and we believe that people deserve better than a payday or title loan. Our personal installment loans come with lower rates, longer terms, and a series of easy, manageable payments. Plus, if you are approved for a loan, we can have the funds in your checking account as early as the next business day. To learn more, or to apply for a loan today, check out our homepage: www.OppLoans.com.

References:

  1. Bourke, N., Horowitz, A., Karpekina, O., Kravitz, G., Roche, T. “Auto Title Loans: Market practices and borrowers’ experiences.” Retrieved September 12, 2016, from http://www.pewtrusts.org/~/media/assets/2015/03/autotitleloansreport.pdf?la=en
  2. Moskop, W. “TitleMax is thriving in Missouri — and repossessing thousands of cars in the process.” Retrieved September 12 from http://www.stltoday.com/business/local/titlemax-is-thriving-in-missouri-and-repossessing-thousands-of-cars/article_d8ea72b3-f687-5be4-8172-9d537ac94123.html
  3. Pope, M. “The Fast-Cash World of Virginia Car-Title Lenders.” Retrieved September 12, 2016, from http://wamu.org/news/15/10/05/inside_the_fast_cash_world_of_virginia_car_title_lenders
  4. “Single-Payment Vehicle Title Lending.” Retrieved September 12, 2016, from  http://files.consumerfinance.gov/f/documents/201605_cfpb_single-payment-vehicle-title-lending.pdf

Bad Credit Checkup: 6 Steps to a Healthy FICO

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When people get a cold, their doctor’s advice is usually pretty straightforward: Take some medicine, drink fluids, and get lots of rest. If you had a cold and your doctor recommended that you stand on your head and yodel, you’d think she was crazy. Sometimes the simple, straightforward answers are the best ones.

The same holds true for your credit score. If you have bad credit and are looking to improve it, the answers are pretty simple. We don’t have any #hacks for you, just best practices. While it is possible to improve your FICO score quickly, it’s not really achievable for most people. (Pay off all my credit cards right now and my score will skyrocket? Why didn’t I think of that before?!)

If you have bad credit and want to improve your credit score, here are the doctor’s orders …

1. Get a copy of your credit report.

Your credit score is based on the information in your credit report. If you want to find out why your credit score is so low, then your credit report probably has the answers you seek. Plus, your personal report might have errors in it that are unnecessarily dragging down your score. Under federal law, everyone is entitled to one free credit report per year from each of the three major credit bureaus: Experian, TransUnion, and Equifax. To request a copy of your credit report, visit www.annualcreditreport.com.[1] Learn more about credit reports in the eBook Credit Workbook: The OppLoans Guide to Understanding Your Credit, Credit Report and Credit Score.

2. Pay your bills on time. No really.

Your payment history accounts for 35 percent of your FICO score. Make a spreadsheet with all your payment dates, set reminders to check your minimums, and make the payments on time. It’s that simple. And even if you miss payments by a day or so, don’t tear your hair out. Many lenders and credit card companies have a grace period before they report a late payment to the credit bureaus. Plus, if you open a new account, making on-time payments from the outset will help your FICO score long-term.[2] You can read more about why you should pay your bills on time in our blog How One Late Payment Can Affect Your Credit.

3. Use less than 30 percent of your credit limit.

Your credit utilization ratio makes up 30 percent of your FICO score, which begs the question: What is a credit utilization ratio? Basically, it’s the amount of your available credit that you are actually using. If you have a credit card with a $5,000 limit and you have used $1,000, then you have utilized 20 percent of your available credit. In general, keeping your credit utilization ratio below 30 percent will help boost your score. This means paying down your balances and then keeping them low. However, it might also mean requesting that your credit card company increase your credit limit. (Fair warning: If you don’t have a good history of paying bills on time, they aren’t going to give you more credit.)

4. Keep your old cards open.

Once you have paid off a credit card, you should just close that card, right? Nope! You should keep that card open. Remember your credit utilization ratio? That card represents a bunch of available credit that you aren’t using. And since you have a longstanding history with that credit card, it helps you more than opening a new card would. In fact, do not open up new cards just to create more available credit. According to FICO themselves, that could end up backfiring on you and lowering your score.

5. Pay down your debt.

Start with your credit card debt. Did you know that the average US household has over $15,000 in credit card debt?[3] Yikes! The key to paying down your debt is to make a plan and then stick to it. Create a monthly budget that comes in well under your monthly income and use that extra money to pay down your cards. Two popular methods of debt repayment are the Debt Snowball and the Debt Avalanche. Check them out to see which one might work best for you. Paying down your debt won’t just improve your FICO score, it will improve your financial future, too!

6. Think about consolidating.

Credit cards carry higher interest rates than most standard personal loans. This is one of the reasons that credit card debt can be such a heavy burden. Plus, your FICO score weights credit card debt more heavily than it does other types of personal debt. So if you are having trouble paying down your credit cards in a timely manner, think about consolidating those cards instead. Shop around to see if you qualify for a personal installment loan with a lower Annual Percentage Rate (APR) than your credit cards. Shifting that debt from a credit card to a personal installment loan could net you both an improved FICO score and a more reasonable path towards debt repayment. You can learn more about the ins and outs of debt consolidation loans in our blog series, Debt Consolidation 101.

Making your payments on time with a personal installment loan from OppLoans could help improve your credit score.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

References:

  1. Free Credit Reports. Federal Trade Commission: Consumer Information. Accessed from https://www.consumer.ftc.gov/articles/0155-free-credit-reports.
  2. How to repair my credit and improve my FICO Scores. MyFICO.com. Accessed from http://www.myfico.com/crediteducation/improveyourscore.aspx.
  3. El Issa, E. “2015 American Household Credit Card Debt Study.” Accessed from https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/.

Have Bad Credit and Need a Personal Loan? Let’s Play the Bad Credit Lender Dating Game!

DatingGameV1

If you’re shopping around for a bad credit loan, it can be hard to know which loan is right for you. Really, it’s a lot like online dating. For one thing, just like there are a lot of sketchy people lurking online, there are also a lot of shady lenders out there looking to get matched up with inexperienced borrowers. But even among the honest and responsible lenders, how can you know which is really right for you?

Before we get to our most eligible options, here are some bad credit personal lenders that practice predatory behavior. You really can’t swipe left fast enough when you’re dealing with:

Payday Lenders

These lenders offer short-term, fast cash loans that only average around 14 days. That quick turnaround might sound nice but, in reality, these loans are pretty nasty. They have extremely high interest rates, with an average Annual Percentage Rate (APR) of 339 percent.[1] Payday loans are also structured to be paid back in a single lump sum, which is difficult for many borrowers. A lot of payday borrowers end up rolling their loans over again, trapping themselves into a continuous cycle of debt. It’s a bad relationship they just can’t get out of!

Title Lenders

Take everything we just said about payday lenders and add losing your car: That’s title loans. These are month-to-month, short-term loans with an average interest rate of 25 percent that adds up to an APR of 300 percent. Since these loans are secured by the borrower’s car title, you can usually borrow more with a title loan than you can with a payday loan. However, it also means that the lender can repossess your vehicle if you can’t pay the loan back. In fact, one out of every five title loan customers eventually has their car repossessed.[2] Imagine if you had to give someone your car in order to break up with them. That’s a person you should avoid!

Okay, now that we’ve got the bad eggs out of the way, here’s a few types of bad credit personal lenders that you can swipe right on and see where things take you:

Personal Installment Lenders

These lenders offer long-term installment loans, which usually have a minimum term of six months and are designed to be repaid in a series of equal, regularly scheduled payments. Their loans are also amortizing, which means that every payment you make goes towards both the principal loan amount and the interest. Dating them would be a calm, loving series of Netflix binges, home-cooked meals, and weekend antiquing. OppLoans is a personal installment lender, and our interest rates are 70 to 125 percent lower than your typical payday lender. That last part isn’t true of all installment lenders by the way. If you’re taking out an installment loan, you’ll still want to do your research.

Credit Unions

These lenders work a lot like traditional banks, only they are not-for-profit, member-owned organizations. Credit unions also have different requirements for membership than banks do. Being eligible for membership could depend on where you work or live, or even where you go to church. Credit unions that belong to the National Credit Union Administration (NCUA) offer Payday Alternative Loans. These loans have principals between $200 and $1000, terms that are one to six months long,[3] and interest rates that are capped at 28 percent.[4] That could be a great deal! However, you have to be a member for one month before you qualify for one of these loans. They’re a great date, but they’re picky.

Charities and Community Organizations

If you have bad credit and need a small cash loan, you might be able to get one from a local charity in your area. Many of these organizations have small-dollar lending programs with reasonable rates that are aimed at combating predatory payday lending in small communities. Some even offer credit-counseling services, which can help you build a budget, practice better financial habits, and improve your credit score over time. They help you grow and make more responsible decisions—like any good partner should.

We all know people sometimes need a financial partner. So skip the predators and go with a reliable, honest, financial institution that has your best interest at heart!

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

References:

  1. “Payday Loans and Deposit Advance Products.” Retrieved September 6 from http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf.
  2. Pascual, K. “1 In 5 Auto Title Loans End In Car Repossession: CFPB Study.” Retrieved September 6, 2016, from http://www.techtimes.com/articles/159308/20160518/1-in-5-auto-title-loans-end-in-car-repossession-cfpb-study.htm
  3. Payday Loan Alternatives. MyCreditUnion.Gov. Retrieved September 1, 2016, from http://www.mycreditunion.gov/what-credit-unions-can-do/Pages/payday-loan-alternatives.aspx
  4. Aho, K. “Payday Loans: How They Work, What They Cost.” Retrieved September 1, 2016, from https://www.nerdwallet.com/blog/loans/payday-loan-alternatives-dodge-debt-trap/

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Installment Loans: More Mileage for Your Money (Part 1 of 3)

Ask a teenager if they’d rather drive a minivan or an F1 racer, and you know what the answer is going to be. Easy decision. Of course, the choice is easy for adults too. Given the option between a solid, dependable ride and a deathtrap, most adults would choose the safe and reliable vehicle.

The difference between something safe and something wildly dangerous is exactly the difference between an installment loan and a payday loan. While a payday loan promises to get you from “in debt” to “out of debt” at warp speed, that promise rarely holds true in reality. More often than not, these short-term loans lead to debt that spirals out of control. On the other hand, installment loans are safer, more reliable, and less likely to blow up in your face.

In this blog series, we are going to take a peek under the hood to see just how these loans work. First things first, let’s cover some basics:

Payday Loans: Make Sure to Wear Your Seatbelt

It’s right there in the name: these short-term cash loans are designed to tide borrowers over until their next pay day. They’re pretty easy to get, which is one reason they seem so attractive. Oftentimes, a potential borrower needs little more than a bank account and a photo ID in order to qualify for one.

Payday loans generally have a maximum limit of $500, an average repayment term of 14 days, and charge an interest rate of $15 per $100 borrowed. And while that interest rate doesn’t look too bad at first, it’s because that 15 percent rate only applies to the stated repayment period. To truly compare costs, we can’t just look at the simple interest rate. Instead, we have to look at another figure: The Annual Percentage Rate, or APR. With a 15 percent interest rate over a two-week period, the standard APR for a payday loan comes to 390%. Yikes!

If they are so expensive, then why do people use them? Well, the majority of payday loan borrowers are people who don’t have a ton of options when it comes to getting a loan. These are people who don’t have a great credit score, and their average income is only $26,167.[1] Most traditional lenders think these types of borrowers are too “risky” to lend money to. Payday lenders, on the other hand, see them as perfect targets for their high-cost products. Read more in our eBook How to Protect Yourself from Payday Loans and Predatory Lenders.

Payday loans are also designed to be paid off in one lump sum payment, which can be difficult for borrowers to afford. Installment loans, on the other hand, are designed to be paid off gradually, over time …

Installment Loans: Even the Cup Holders Are Spacious

Like payday loans, installment loans have a preset repayment term. Unlike payday loans, this repayment term is usually a minimum of six months. Mortgage and auto loans are most often set up as installment loans, as are most personal loans. While payday loans are usually capped at $500, most installment loans are available for much larger amounts.

Installment loans come with a series of regularly scheduled payments, usually once-a-month. Each payment is the same size as every other payment, and each payment consists of two parts: one part of the payment goes towards paying the principal, and the other part goes towards paying the interest. With every payment made, the amount owed on the loan grows smaller. This type of structure is referred to as “amortization.” You can learn more about whether an installment loans is right for you in Top 5 Questions to Ask Before Taking Out an Installment Loan.

Personal installment loans from traditional lending institutions, like banks and credit unions, are something that people with bad credit are probably not going to qualify for. However, there are also many lenders, like OppLoans, that offer the security of the installment loan model to borrowers with less-than-stellar credit.

There, now that we have the basics covered, check back tomorrow for Part II: The Rollover Road Trip!

References:

  1. “Payday Loans and Deposit Advance Products.” Consumer Finance.Gov. Accessed August 22, 2016. https://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf.