5 Tips for Finding the Right Bad Credit Loan

The smarter you are when looking for a bad credit loan, the better positioned you’ll be to find the loan that works best for you.

Shopping for a personal loan isn’t easy, even when you have good credit. Add bad credit to the mix, however, and the difficulty level ratchets up pretty severely. While there are some bad credit loans and no credit check loans that make for good short-term financial solutions, there are many others that could easily trap you in a recurring cycle of debt.

In order to find the right bad credit loan for your situation, you need to know what to look for. You need to know how to look at interest charges versus APRs and how to compare payment terms versus your monthly budget. That’s why we’ve put together this handy bad credit loan guide to help ensure that you’re asking the right questions in order to find the right loan.

1. Ask friends and family first.

If you haven’t stopped to consider this option, then you should—well—stop and consider it! While borrowing money from a friend or family member can be deeply awkward, it sure beats borrowing money from a bad credit lender.

The key to borrowing money in a situation like this is communication. You need to sit down with the person you’re requesting money from and make everything crystal clear. Why do you need this money? How much do you need? What other options have you considered? What kind of repayment plan makes sense?

And while it’s often the case that friends and family members don’t charge each other interest, you should be prepared for this to be part of the deal. But even if they do charge you interest, the rates are probably going to be much lower than the average 400 percent APRs that you see from a typical payday loan or cash advance.

Make sure that both you and your lender understand the terms of your agreement before they hand over the money. In fact, you would do well to get the agreement in writing. If that sounds like a big hassle, you should check out this personal loan agreement template that we created to help people in situations exactly like this one.

2. Shop around.

When people are borrowing bad credit loans, it’s often because they have been blindsided by an emergency expense or another financial shortfall. When your car breaks down, you just want to get it fixed, pronto. The last thing on your mind is taking the time to shop around for the perfect deal. You need money, and you need it now.

But here’s the thing: You should take that extra time to shop around for the best bad credit loan you can find. Loan offers can differ depending on what state you live in, so do some quick research to figure out what kind of interest rates and payment terms are possible for you—and then compare that to the offers you’re actually seeing.

The more loans you compare—including online loans and loans from storefront lenders—the more likely you are to find the best possible loan for you. On the flip side, settling on the very first offer you see is a great way to end up with a loan that’s dragging down your financial picture instead of helping to prop it up. An extra hour or so is rarely going to matter in the grand scheme of things, so take your time and see what’s really available.

Even better, do your research now so that you can act quickly when an emergency expense arises later. Depending on the nature of the situation, you might find yourself under a great deal of pressure to act quickly. If you already have a bad credit loan on file that you know works best for you, it will save you time and it will save you from a financial headache down the road.

3. Do they perform soft credit checks?

Unlike regular personal loans, many bad credit loans don’t perform a hard credit check when you apply. That’s why they’re often referred to as “no credit check loans.” But there’s a difference between checking your credit score and checking your ability to repay, and it could also mean the difference between a loan that helps your finances and one that hurts them.

Bad credit lenders that check your ability to repay will often run some kind soft inquiry on your credit history and/or use a process to verify your income. They take these steps to ensure that you can actually afford the loan that you’re applying for. In many ways, it’s very similar to the process that traditional lenders use with their customers.

True no credit check lenders, on the other hand, do not take any steps to verify your income or look into your credit history. And because they do not do anything to check whether or not you can afford the loan you’re attempting to borrow, the odds are much higher that you’ll end up buried under a pile of high-interest debt.

Many no credit check lenders offer short-term bad credit loans like payday loans, cash advances, and title loans, while most soft credit check lenders offer longer-term bad credit installment loans. Keep this in mind when you’re shopping around and you’ll be well on your way to finding the right bad credit loan for you.

4. Consider payment size.

When people think of payday loans, they usually think about the fact that they have very short repayment terms. Whereas traditional personal loans usually have terms measured in years, payday loan terms are measured in a matter of weeks. In fact, the average payday loan has a repayment term of only 14 days.

Short terms might seem great, as they mean you’ll be getting out debt faster, but that’s not necessarily the case: When considering a loan’s repayment term, you should also be considering the size of its payments. Many short-term no credit check loans have lump sum repayment structures, which means that you pay the loan off all at once.

Lump sum terms can actually make these loans more difficult to pay. Think about it: If you borrowed a $300 two-week payday loan with a 15 percent interest charge, that would give you only 14 days before you had to make a single payment of $345. Is that kind of payment really something you can afford, or would it force you to take out another payday loan to cover your other bills?

Installment loans, on the other hand, come with smaller, regularly scheduled payments that let you pay the loan off gradually. Do the math and calculate how much money you can afford on each payment: Even if a short-term loan seems cheaper than a longer-term installment loan, a lump sum payment that’s too big for your budget means it might not be.

5. Read their reviews.

If your opinion on a company is based solely on their advertisements, then you’re doing it wrong. Ads are where a company puts its best face forward. Customer reviews, on the other hand, give you an idea of what working with them is really like. Before borrowing money from a company, see what their actual customers have to say.

Visit sites like LendingTree and Google to see what kind of customer reviews the business has received. You can also check out their Facebook page to see what kinds of comments are being left and how they’re being resolved. See if the company has a BBB page; if they do, what kind of grade do they have? When customers complain, are their claims being handled?

Borrow now, plan for later. 

When you’re borrowing money, there is no perfect way to protect yourself from risk. You could do everything right and still end up defaulting on your loan—possibly for reasons that were entirely beyond your control. But following these five tips will help you make the best decision you can. From there, the rest is up to you.

And in the future, the best way to deal with an unexpected bill or financial shortfall is to be prepared. That means creating a budget, building your savings, and improving your credit score. To learn more about how you can make your finances battle-ready, check out these related posts and articles from OppLoans:

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

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No Credit? Here Are 3 Ways to Start Building Some

In order to have good credit, you need to build up a positive credit history. For some people, that means starting from scratch.

If you have bad credit, it’s probably due to some combination of two things: You don’t pay your bills on time and/or you’ve taken out to much debt. But if you have no credit, it’s only due to one thing: You don’t use any credit at all!

Whether you have bad credit or no credit, the result will still be the same when you try to borrow money: Instead of being able to take out a standard personal loan from a bank or online loan company, you’ll be forced to rely on predatory no credit check loans and short-term bad credit loans like payday loans, cash advances, and title loans to cover unforeseen expenses.

And while focusing instead on bad credit installment loans might be a good short-term solution to that problem, the real fix is simple: You need good credit. When you have no credit, that means starting to build your credit history from scratch.

The problem you’ll run into is of the chicken-and-the-egg variety: You need a good credit history to borrow money at reasonable rates, but you need to borrow money first in order to create that history. Luckily, there are some ways that you can start building that credit history now so that you can qualify for better types of personal loans later. Here’s how …

1. Take out a secured credit card.

In order to qualify for a traditional credit card, you’re going to need decent credit. But in order to qualify for a secured credit card, all you’ll need is cash. Unlike traditional cards, secured credit cards require a cash deposit to serve as collateral and to set your total credit limit. For example: Put down $500 and your card will have a $500 limit.

Once you’ve opened this secured card, you can start using it to make small purchases. Make sure that you aren’t using the card to spend beyond your means; simply take purchases that you would have made on your debit card and make them on your secured credit card instead. And make sure that you are paying off that card’s balance as quickly as possible.

To the best of your ability, try to never let your outstanding balance reach 30 percent of your total credit limit. This doesn’t mean you have to spend less than 30 percent of your limit every month, it just means paying off your card frequently instead of monthly. Keeping your credit utilization ratio below 30 percent will help your score.

While secured credit cards can be a great way to build your credit score, there are two things you should keep in mind. First, you need to make sure that the credit card company reports your payment information and balances to the credit bureaus. Second, secured credit cards can come with some pretty outrageous fees, so do your research first to find a card that’s reasonably affordable.

2. Ask someone to “lend” you their score.

If you don’t have any credit—or you have bad credit—you can help build your score with a little help from your friends. How does that work, exactly? If you become an authorized user on one of their credit accounts or they cosign a loan for you, they are basically lending you their good credit to help you build their own.

When you’re an authorized user on another person’s credit card, your name is on the account. This means that any activity on said account—like payments and outstanding balances—gets recorded on your credit report as if that activity was your own. Even if you don’t have any actual access to the account, you’ll still get credit for it—literally.

When someone cosigns for you on a loan or credit card application, it’s the credit equivalent of them vouching for you as a borrower. This can help you qualify for a better loan or credit card, but there are some sizable potential downsides: Late payments and large balances will drag down your friend’s score, and they’ll be liable if you end up defaulting entirely.

When possible, you should opt for being an authorized user over getting a friend to be your cosigner because there is much less risk that you’ll jeopardize your relationship. You can become an authorized user on your friend’s credit card without ever actually using the card at all. In fact, you should definitely avoid using the card at all.

Asking friends and family for financial help can be tricky, so you’ll want to broach the subject with them in a calm and cautious manner. This is especially true if you’re asking them to be your cosigner. Gaining access to someone’s account or asking them to be liable for your own financial behavior requires a lot of trust, and it’s vitally important that that trust is maintained.

3. Take out a credit-building loan.

If you’re looking for a traditional personal loan from a bank or credit union, you’re going to need good credit. But there are other kinds of loans you can borrow that are designed for people like yourself who need help improving their scores. The key is to look local.

While large national banks are unlikely to have lending options focused on helping customers build their credit, local banks and credit unions are different. They tend to have more customer-friendly mentalities that extend to issuing small loans to customers with little to no credit.

This is especially true for credit unions, which are nonprofit institutions. In order to qualify for one of their loans, you’ll first need to become a member. Membership in credit unions can be based on where you live, where you work, or even where you go to church.

As mentioned earlier in this article, it’s critical that you don’t use this loan to spend beyond your means. Instead, only use it to purchase something that you can already afford. While paying the loan off slowly means racking up a little bit of interest, the positive payment history it will help you build can be worth it in the long run.

Earlier in this article, we mentioned bad credit installment loans as a possible option for borrowers with little to no credit history. Some companies that offer these loans—like OppLoans—report payment information to the credit bureaus, which means that paying your loan off on-time could help you build a better score.

Again, you wouldn’t want to borrow one of these loans solely for the purposes of building your credit. But if you find yourself needing to borrow money to cover a financial shortfall, taking out a loan that will help you improve your credit history is certainly a factor worth considering.

There’s more to money than credit.

Improving your credit score will help brighten your financial future in any number of ways. But that doesn’t mean that your credit score should be your only financial priority. Building up your savings, investing for retirement, and creating a budget are all important financial building blocks as well.

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

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6 Scary Facts about Bad Credit Scores

by Jessica Easto
If you need some motivation to start fixing a lousy credit score, then these six terrifying facts should help scare you into action.

When you need to feed your family but there’s not enough money in the bank account to cover it, it may not seem like you have much of a choice but to run up credit cards or skip other bill payments, like on your utilities or maybe your car loan.

In the long term, however, actions like these can damage your credit score, which means the next time you need a line of credit, you may have to pay higher interest rates. And if your score gets really low, you may only be eligible for bad credit loans or predatory payday loans and cash advances that can threaten your already fragile finances.

Bad credit is a huge problem in this country, where only 40 percent of us have at least $1,000 in the bank to cover emergency expenses. Let’s take a look at six other scary facts about bad credit scores.

1. 34.8 percent of Americans with credit have bad credit.

According to a recent report by one of the top three credit bureaus in the country, nearly 35 percent of Americans with credit have what’s called “subprime credit,” or a FICO credit score between 580 and 669. In fact, the national credit score average is 701. (A “very good” score is between 740 and 799.)

Since your credit score is the primary tool lenders use to measure how risky it would be to loan you money, having subprime credit means you may end up paying much higher rates in order to borrow money. In some cases, you may not qualify for the product you want at all.

2. 26 million Americans don’t have any credit at all.

A recent Consumer Financial Protection Bureau (CFPB) report found that about one in 10 Americans don’t have any credit history with a national credit bureau—or at least not enough credit history to produce a credit score. This is what is called being “credit invisible.”

Certain communities are at a higher risk for being credit invisible, including black and Hispanic consumers (15 percent credit invisible), as well as those who live in low-income areas (30 percent credit invisible).

It can be very difficult for those with no credit to qualify for financial products like credit cards and installment loans. They may also have trouble getting a cell phone contract or an apartment.

3. About 12 million Americans use no credit check loans each year.

According to a study by the Pew Charitable Trusts, about 12 million Americans took out at least one payday loan—a predatory form of a no credit check loan—in 2010. An average borrower actually took out eight payday loans, each with an average principal of $375.

Due to payday loans having such short terms and high interest, many borrowers have to take out multiple loans simply to pay down the debt owed on the first loan. Because these storefront and online loans do not require credit checks—hence the umbrella term “no credit check loan”—vulnerable populations with poor credit or credit invisibility are frequently the target of predatory lenders.

4. The national average interest rate on a payday loan is 400 percent.

Recent reports have shown that payday loans in the United States come with an average annual percentage rate (APR) of 400 percent and can be as high as 700 percent!

APRs reflect that total cost (interest and fees) of a loan per year, so it is a good way to compare the cost of different financial productions.  Compare those payday loan APRs to your average credit card or personal loan and you will see rates that are twenty times higher on the low end.

And if you think a secured title loan might be a better option—think again. The average annual interest rate for those no credit check loans is 300 percent. Plus, according to a study from the CFPB, one in five title loan sequences ends with the borrower’s vehicle being repossessed.

5. A bad credit score can prevent you from getting a job.

That’s right. It’s not just loan and apartment applications that can be affected by bad credit. Unless you live in one of the few states that have regulated the practice, employers can—and do—run your credit as part of the application process.

According to one report, which surveyed low- and middle-income households, one in four participants said that potential employers asked to run their credit, and one in 10 respondents had been informed that they would not be hired based on credit report findings. Of those, 70 percent were rejected on the basis of their credit score.

A survey of human resources professionals—the people who help make hiring decisions for companies—found that 25 percent of participants checked credit for some positions while 6 percent checked for all positions.

6. Bad credit may be the result of errors.

The three major credit bureaus—the companies that calculate your credit score—are not perfect and sometimes they even make mistakes that can negatively impact your credit score.

In fact, a new study of CFPB consumer complaint data showed that 43 percent of all complaints made in 2018 were related to credit reporting, and 61 percent of those complaints were specifically about credit reporting mistakes.

Credit reporting mistakes can be disputed, but according to the report, it’s not common for the credit bureaus themselves to resolve issues with customers.

To check your credit report for errors, simply request a free copy of your report by visiting AnnualCreditReport.com. You are legally entitled to one free credit report from each of the three primary credit bureaus every year upon request.

Bad credit is scary, but fixing your score might actually be easier than you think. To learn more about how you can improve your credit score, check out these other posts and articles from OppLoans:

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

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8 Credit-Killing Mistakes that Recent Grads Make with Credit Cards

120 credit hours is a good thing. A 120 credit score? Less so.

Credit card usage among college students has declined thanks to legislation that prevents credit agencies from marketing to students. Unfortunately, loopholes still make students one of the demographics most targeted by credit card companies. In fact, 57 percent of students reported carrying at least one credit card, and that number jumps to 86 percent for graduates.

Many young people will sign up for their first credit card during college or immediately afterward. And while a new credit card may grant some new freedoms, it also comes with a lot of responsibility. Credit card mistakes, like falling for predatory credit card offers and practices, can greatly damage credit scores just when new credit users are starting out.

In February 2009, the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act went into effect, making it more difficult for credit card issuers to target and market credit cards to college students, or those under 21. This act also increased the transparency of the relationship between institutions of higher education, including their affiliated organizations, and credit card issuers. The CARD Act requires the Consumer Financial Protection Bureau (CFPB) to submit a report to Congress about these relationships and make the report available to the public.

The 2009 law stipulates that, one, credit card issuers can’t entice students to sign up for a credit card by offering tangible items; two, students under 21 must have either an independent income or a co-signer to qualify for a credit card; and three, credit card issuers can’t issue pre-screened offers to students, or those under 21, without their consent.

However, this act hasn’t entirely curbed predatory credit card practices. In reality, credit card issuers have found ways to skirt the law. For instance, they can still offer enticing perks, like free pizza and t-shirts. It’s a fact that credit card companies love college students.

So what should current students and recent college grads do to avoid damaging their credit? We gathered the eight most common credit-killing mistakes that recent grads face when it comes to credit cards. Learn what to avoid from the pros.

#1 Not Establishing Credit

Perhaps one of the first mistakes that college grads make with credit cards is not starting to build their credit history while in college. A lot of young people either don’t think that credit is important or simply don’t know enough about it. Only 58 percent of students said that establishing credit was their number one reason for having a credit card. If not to establish good credit card practices and improve a credit score, then what purpose do credit cards serve? Sadly, many young people most likely use credit cards as a tool to fall back on when overspending. This subsequently racks up debt and starts a vicious cycle of paying interest and fees.

When done responsibly, signing up for a credit card that caters to students can be a good first step into the world of credit. The main requirement if you’re under 21 is that you may need to prove that you have a steady income or you’ll need to secure a co-signer.

One viable credit card option is student credit cards. A student credit card is tailored to meet the needs of young adults who have a limited credit history. These types of credit cards typically offer lower credit limits, no annual fee, and have more lax requirements for approval.

When looking for a good starter credit card, be sure to consider the rewards structure, the introductory annual percentage rate, and additional perks. For instance, many cards offer rewards such as cash back on your purchases. That means all those text books, fast food stops, and entertainment expenses will add up and give you a certain percentage back. Other cards focus on travel, gift cards, or statement credit rewards.

Student credit cards are a powerful option for building a credit history with limitations that promote good credit behavior. Still, you’ll have to remember to use your best judgement as with any other type of credit card.

#2 Treating Credit Like a Necessity

According to personal finance blog and a licensed real estate agent Jaquetta Ragland, “[n]ew graduates should see credit cards as a tool and not a necessity.” When used correctly, this tool can be used to boost your credit score. The trick is to only make purchases on a credit card that offers rewards or in cases of extreme emergency.

Students “should only use their credit cards for purchases such as hotel stays, rental car reservations and airline tickets,” she said. “Since some credit card companies offer insurance for rental car reservations and other purchases, they would be covered in case of an accident.”

Ragland warned students to “never get in the habit of using their credit card as a way to handle their everyday expenses or to pay their monthly bills.” Keep your balances low and pay off what you charge to your credit card in full each month. These are the cornerstone rules of managing credit cards and building a positive credit history.

#3 Overspending on Credit Cards

In that same vein, overspending is one of the biggest mistakes that everyone, including college grads, makes when it comes to credit cards. This is the easiest and fastest way to rack up credit card debt. Learn these lessons before you find yourself in an overwhelming situation with bills you can’t pay.

Recent college graduates tend to spend more than they save. If you’re a graduate who has secured a job and salary, it’s easy to view your ramen-eating and low-budget living days as long gone. This is a dangerous mindset to get in since it challenges the practicality of living within your means.

While piling up credit card debt is never good, it’s especially dangerous when you’re just beginning your career, since it can have lasting professional and personal consequences. By living outside of your means now, you’ll be paying off credit card debt long into your late 20s and maybe even 30s. If you want to buy a car or a home in the future, then all of that credit card debt may hurt your credit card score from carrying a high balance, missed payments, and in the worst case delinquency or default.

#4 Letting Someone Use Your Credit Card

Generosity is an admirable trait, but not when it comes to finances. A good rule of thumb is to remain in control of your personal credit cards by not lending them to others.

“Many people have encountered the situation where a family member or friend asks to use your credit card,” said Justin Lavelle, the chief communications officer for an online background check company. “Perhaps they don’t have a credit card or perhaps they don’t have room on their credit card to make a purchase,” he said, adding that “[w]hatever the reason may be, it can be a potentially dangerous situation for the card holder.”

The consequences of losing possession of your credit card, whether intentional or not, could be disastrous on your credit.

“A few of the things that can happen when your credit card is out of your possession is the card being confiscated after an identity check when making a purchase, loss of the credit card, abusing the privilege to use the credit card by making multiple purchases, and overage charges due to lack of knowing how much has been charged.”

Your best bet? Not to “let someone use your credit card,” he said. Don’t let your family or friends’ mistakes affect your financial future.

#5 Not Checking Credit Card Activity

Lavelle had some great advice about why it’s crucial to monitor your credit card activity for those who hold even one credit card account.

“Unauthorized charges can appear on your card very easily and if you’re not monitoring them, you may continue to overpay every month,” he said.

Charges often “stem from fraud/abuse of your card by an outside person or vendor, charges for services you may have discontinued or never signed up for, and service charges you were unaware of.”

Go through your credit card statement, either online or on your paper statements. Cross-check each purchase you made with what’s listed on the statement. If something looks fishy be sure to report it immediately. “It’s just smart business,” Lavelle said.

#6 Waiting to Report a Lost or Stolen Credit Card

Have you lost or misplaced your credit card? It happens to everyone at some point. The important thing to do is act quickly in an effort to protect your account. In some cases what you initially believed was an error on your part may actually be a lot more nefarious.

“Many times people will assume it’s their own fault, thinking they left it laying on the kitchen table or stuck it in the pocket of their coat, but in reality it was stolen,” said Lavelle. “The longer you wait to report a lost or stolen the card, the easier it is for a thief to add fraudulent charges to your account.”

What should you do if your credit card suddenly goes missing? Report it as soon as possible!

“If you report your missing credit card before any fraudulent charges are made, the faster you’ll clear your account,” he said.

Always be overcautious when it comes to credit cards. “Report a missing credit card as soon as possible—don’t assume you misplaced it,” recommended Lavelle.

#7 Responding to Phony Emails

Scammers are rampant both online and over the phone. Be on the watch for unusual emails or calls from people who may be posing as a credit card issuer, bank, or other financial professional.

“Credit card companies do not typically email you regarding your credit card and they will never ask you [for] personal information,” said Lavelle. Scammers pose as people connected to banks or credit card companies and ask for personal information in an attempt to steal your login, identity, and ultimately hard-earned money.

“Replying to the email with personal information, even clicking a link and entering personal information, can give the scammer what he needs to commit identity theft,” he warned. “Assume that any email asking for you to confirm personal information, submit personal information or click on a link is a scam.”

Remember that you can always call the bank or credit card company associated with the call or email to make sure that it is in fact phony and to warn the company about the possible scam. Financial institutions take these threats to current and potential customers very seriously. With your assistance they may be able to track down the source and put a stop to it before someone is scammed into losing money.

#8 Applying for Retail Cards

A retail card is a type of credit card that certain retailers, such as department stores or airlines, offer to their loyal customer base. These cards can get you merchandise discounts, rewards, and other special offers.

Students are most likely to run into these types of credit cards while shopping in person at stores or online through pop-up ads. A store card, while a good option for some, come with dangers and should be avoided by most students. Interest rates on store credit cards are higher than many other types of credit cards. These types of cards also promote overspending since their added convenience at check out makes them hard to resist.

Be wary of sales associates who push you to sign up or send in an application. They’re most likely trying to improve their sales or bonus if they’re based on the number of customers they convince to open a credit card. Politely decline and finish up your purchase.

If you are a frequent shopper at a specific retail store, then perhaps a store-branded card makes sense. You’ll be able to save more money by using that card on store purchases when compared to a regular credit card. Just be sure to research the true value of the store card before agreeing to apply. Some credit card applications are a soft pull, but a majority are a hard pull on your credit, which will briefly lower your score. Your credit won’t take a huge hit when you apply for one new credit card, but several inquiries and new lines of credit will reflect badly to credit card companies. Don’t go through with the application process unless you’re serious.

Bottom Line

Credit cards can be a useful financial tool, but they can also be easily abused when the user doesn’t have a solid understanding of how they work. This is even more true for recent college graduates, who are often new to the world of credit, but are a key target of credit card agencies.

Key mistakes that this demographic can avoid when using credit cards include:

  1. Misunderstanding the importance of establishing a positive credit history early on.
  2. Using credit for daily purchases as opposed to rewards-driven expenses, such as travel, education, dining, and entertainment.
  3. Living beyond their means by overspending on credit cards.
  4. Loaning credit cards to friends or family members.
  5. Overlooking a statement error by not diligently monitoring credit activity.
  6. Waiting to report or cancel a credit card that is misplaced, lost, or stolen.
  7. Failing to identity a credit card scammer by phone or email and letting personal information get leaked to untrustworthy people.
  8. Opening too many retail credit cards at the urging of pushy sales associates.


Justin LavelleJustin Lavelle is the chief communications officer for beenverified.com, a leading source of online background checks and contact information. It allows individuals to find more information about people, phone numbers, email addresses, property records, and criminal records in a way that’s fast, easy, and affordable. The company helps people discover, understand, and use public data in their everyday lives.
Jaquetta T RaglandJaquetta T Ragland is the owner of youngandfinance.com and is also a licensed real estate agent. She teaches personal finance education to empower individuals to make the right financial decisions in their lives.

What credit card lesson did you learn after college? Share your stories with us on Twitter at @OppUniversity.

What Happens When Someone Checks Your Credit?

What happens during a credit check depends on what kind of check is being run—and who’s doing the checking.

There are a lot of myths out there surrounding credit scores, especially when it comes to what happens when you or someone else check them. That’s why we’ve cooked up this little blog post to set the record straight.

We don’t know how much good it will do—the internet is pretty good at sustaining all sorts of “out there” legends—but we figured it doesn’t hurt to try. In that regard, it’s actually a lot like checking your own credit score!

Here’s how credit scores work.

We say “your credit score” as though you only have one. In fact, you have several! The most common type of credit score—and the one you’re almost certainly familiar with—is your FICO score. FICO scores are graded on a scale from 300 to 850 and the higher your score, the better, with a score of 680 serving as a rough border between “good” and “fair” credit.

Like all credit scores, FICO scores are based off the information in your credit report. Or shall we say, credit reports! You have three different credit reports, and each one is compiled by one of the three major credit bureaus: Experian, TransUnion, and Equifax.

Information can vary between your credit reports, as some businesses don’t report information to all three. As such, your credit score can also vary depending on which credit report was used to create it. In addition to FICO scores, the three credit bureaus also got together a few years ago to create their own credit score: VantageScore.

Your credit reports contain a whole bunch of information regarding how you use credit, including records of what accounts you’ve opened, how much you’ve borrowed, whether you’ve made your payments on-time, any debts that have been sent to collections, and whether you’ve ever filed for bankruptcy.

All that information is then blended together using a super secret formula to create your credit score. With FICO scores, we do know the five main categories of info and how they’re weighted. The categories are payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), credit mix (10 percent), and recent credit inquiries (10 percent).

There are two types of credit checks: hard and soft.

When you apply for a personal loan, a mortgage, an auto loan, or a student loan, your lender is going to want to look over your credit report. In order to do this, they need to run what’s called a “hard” inquiry on your credit report. This delivers them a full copy of your credit report, and it can only be run with your express permission.

Other times, a business might want to access your credit report for a more general purpose, like renting you an apartment or “pre-approving” you for a credit card offer. In cases like this, a business would run what’s called a “soft” inquiry. Unlike hard inquiries, these soft credit checks can be run without your permission—or even your knowledge.

One of the biggest differences between hard and soft credit checks is how they affect your credit score. Hard inquiries are recorded on your credit report under the “recent credit inquiries” category, and they do affect your score. Depending on your credit, a single hard inquiry can ding your score by five points, and multiple inquiries in a short amount of time can have a larger effect.

Meanwhile, soft credit checks are also recorded on your report, but they will only be visible to you. And they have zero effect on your credit score. For instance, if you have lousy credit and you’re applying for a bad credit loan, that lender might run a soft check on your credit. Even if you end up getting denied for the loan, your score will remain the same.

Soft credit checks also apply when you check your own credit score or request a copy of your credit report—the latter of which you can do for free, by the way. It’s the law: All three credit bureaus must provide you with one free copy of your report annually upon request. To order a free copy of your report, just visit AnnualCreditReport.com.

Why do hard inquiries affect your credit score?

To explain why hard credit inquiries affect your credit score, it helps to think like a lender:

You receive an application for an unsecured personal loan, and you pull up a copy of this applicant’s credit report. You notice that, recently, they’ve been applying for a number of different personal loans and credit cards. What does that say to you?

For many lenders, a large number of recent credit inquiries points to one thing: A borrower who is desperate for more credit, which means that they have probably encountered some additional costs that need covering. And when a person is struggling with added costs—including extra debt—that means that they are somewhat less likely to pay back a new loan.

However, there is one pretty obvious exception to this rule: shopping around! In order to find the best loan possible, it helps to apply for a bunch of different ones. It’s only once your loan application is approved that you’ll see the terms these lenders are actually offering you.

Shopping around for the best loan is smart financial behavior and something to be encouraged. That’s why, when it comes to mortgages, auto loans, and student loans, any inquiries made within the same 45 day period are bundled together on your credit report and are counted as only a single hard inquiry.

The benefits of soft credit check loans.

For people with bad credit, a hard inquiry on an in-person or online loan application might as well be a “No Trespassing” sign. That’s why many of them end up borrowing no credit check loans that don’t perform any hard inquiries—and come with much higher interest rates to compensate.

And while some of these loans can provide a sensible short-term financial solution, there is a big difference between checking a person’s credit score and checking their ability to repay, period. That’s why many bad credit lenders perform a soft credit check, one that won’t affect an applicant’s credit but that still gives them a better idea of what this person can handle financially.

Other no credit check lenders, meanwhile, don’t do anything to check whether or not a potential borrower can repay the loan they’re applying for. Many of these lenders offer short-term payday loans, cash advances, and title loans. And even with such quick turnarounds, many borrowers end up taking out more money than they can handle and getting stuck in a spiral of debt.

Soft credit check loans, on the other hand, often come in the form of longer-term installment loans. If you have bad credit and need a loan, you should look into the benefits of installment loans that perform a soft credit check when you apply.

Some of these lenders, like OppLoans, even report your payment information to the credit bureaus, meaning that on-time payments could help improve your score! To learn more about credit scores—and what you can do to improve your own—check out these other posts and articles from OppLoans:

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

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10 Ways That Bad Credit Can Mess up Your Life

10 ways that bad credit can mess up your life

If you thought that a bad credit score only affected your ability to get qualified for personal loans and credit cards—think again.

Having a bad credit score is … bad. That’s why they call it “bad” credit. But what does that actually mean? If you’re a credit newbie, you would do well to learn all the different ways that bad credit can damage your financial wellbeing. Luckily, that’s exactly what we’re here to teach you. So check out these 10 ways that bad credit can totally mess up your life!

1. Higher interest rates.

The way that bad credit most directly affects a person’s life is in the realm of—well—credit. If you have a lousy credit score, you’ll have a hard time getting approved for personal loans and credit cards, especially if those loans are unsecured.

But even if you do get approved, the bad credit pain isn’t over.

“Everyone knows that having bad credit can make it difficult to be approved for a loan, but even if you do happen to be approved, it’s not always a good thing,” said Jacob Dayan, CEO and co-founder of Community Tax, LLC (@communitytaxllc) and Finance Pal, LLC.

“These loans will come with higher down payments, higher interest rates, and tighter terms. When it comes to loans, even a one or two percent increase in your rates can be extremely expensive over time.”

This is why people with bad credit and zero savings often end up relying on short-term no credit check loans (like payday loans, cash advances, and title loans) to bridge unexpected financial shortfalls—loans that can all-too-easily leave them trapped in a dangerous cycle of debt.

2. Car ownership.

Unlike unsecured personal loans, online loans, and credit cards, auto loans involve collateral. Specifically, they use the car or truck that the loan has been taken out to purchase. The presence of collateral means that these loans are easier to qualify for, even if you have bad credit.

Still, bad credit means that you will stand a much higher chance of being declined for the loan. And even if you are approved, you will once again face higher interest rates and more restrictive terms. Due to the larger principal amounts and longer terms for auto loans, this could mean paying thousands and thousands more in interest.

3. Buying a home.

“At worst a bad credit score will prevent you from securing a mortgage,” said CFP Patricia Russell, founder of the personal finance blog FinanceMarvel. “And at best, even if you do secure a mortgage, you will be paying a much higher interest rate compared to someone with a better credit rating.”

For first-time homebuyers, a credit score of 580  is needed to secure a Federal Housing Administration (FHA) mortgage loan with as little as 3.5 percent down. If your credit score is between 500 and 579, you’ll have to put 10 percent down in order to secure that same loan.

While a 580 score is much lower than the score one would need to qualify for an unsecured installment loan, there are many borrowers would still be unable to meet it. For them, the dream of home ownership might be beyond their grasp, all because they have poor credit!

4. Car insurance.

Most people understand that their access to affordable loans and credit cards pretty much depends on their credit score. But here’s another less widely known way that bad credit can increase a person’s cost of living: Car insurance!

“A poor credit score will result in a higher premium as insurance companies run a credit check,” said Russell. And why is that? Russell went on to state that there is evidence linking lower credit ratings and higher claim rates.

Insurance companies actually use something called your “credit-based insurance score” to predict how many claims you’ll be likely to file. And according to a 2007 report from the Federal Trade Commission (FTC), these scores do a pretty great job:

“Credit-based insurance scores are effective predictors of risk under automobile policies. They are predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums and lower-risk consumers will pay lower premiums.”

While your credit-based insurance score isn’t exactly the same thing as your FICO score, the two are quite closely linked. If you have poor credit and you’re applying for car insurance, you should brace yourself for a larger bill!

5. Renting.

It’s a fair bet that the biggest bill you encounter every month is the bill for your place of residence. If you own a home, that’s your mortgage payment. If you don’t, then it’s your rent. Either way, your credit score is going to come into play. When you’re applying for a new apartment, most landlords are going to check your credit score.

Like lenders, landlords don’t want to rent to people who cannot pay their bills on time. And since payment history makes up 35 percent of your total FICO score—more than any other single factor—poor credit will make many a potential landlord leery.

If you’re applying for a new apartment and you know you have lousy credit, there are steps you can take. The most helpful step of all is to offer a larger security deposit: Instead of one month’s rent, for instance, maybe you offer to pay them two months rent. You’ll still end up having to pay more due to your bad credit, but at least you’ll have a place to live.

6. Cell phone contracts.

If you’ve applied for a new phone contract recently, you might have noticed that they checked your credit before approving your application. That’s right: Bad credit can even affect how much you get charged to talk (and more likely, text) on the phone!

“One of the lesser known effects of bad credit is that it can make it very difficult to obtain a contract with a phone service provider,” explained Dayan.”This may not have been a problem in the past, but these days when your cell phone is your connection to the entire world, it can be a huge handicap.

“Similar to landlords, service providers like to know that you will be able to consistently pay for your service and cover any additional charges you may rack up. If you have bad credit then you will likely have to resort to more costly options like security deposits and prepaid plans.”

The answer here is similar to the answer for renting an apartment, as you’ll probably be forced to pay more for the phone up front. Beyond shopping around for the best deal, it might be a good idea to ask your friends and family members if one of them is willing to co-sign your phone contract.

7. Starting a business.

“Many entrepreneurs need a loan or line of credit to get their business idea off the ground, but as a small business owner, your personal credit will impact your ability to get a loan for the business,” said personal finance blogger Marc Andre of VitalDollar.com (@vital_dollar).

“Poor credit could prevent you from being able to qualify for the business loan, and you may have a hard time getting the funding that you need to start the business.” So if you’re looking to pay down some extra debt in hopes of boosting your score, an unincorporated side hustle might be the way to go.

8. Getting a job.

“It can be tough to secure employment, as many jobs in upper management will require a good credit score (especially in the financial sector). A bad credit history will greatly reduce your chances of securing a job,” said Russell.

Pre-employment credit checks count as a hard inquiry, which means that an employer will need your permission in order to run one. In certain states—and the District of Columbia—an employer’s ability to run credit checks on potential (and current!) employees is limited.

While a pre-employment credit check could prevent you from getting hired—or could lead to you being fired from a job you already have—these inquiries slightly more rare outside of the financial sector and jobs that require handling a lot of money. But don’t forget: Some bad information from your past doesn’t require a credit check. A quick Google search will do just fine.

9. Utilities.

“Not many people are aware that a poor credit score can result in higher costs of utilities like electricity, water, phone, and cable,” said Russell. “These are in essence short-term loans as you receive the benefits of the service before you pay for them.”

“Utility companies will always run a credit check when you sign up to and anyone with poor credit may be required to pay a deposit of several months worth of services,” she added.

And while many utility companies will refund that deposit after a year of on-time payments, some will require a letter of guarantee: Basically, someone with good credit has to co-sign your gas bill!

10. Strain on your relationship.

If you think that the effects of bad credit are limited to only matters of your pocketbook, think again. Bad credit and—and sometimes bad credit loans—can negatively affect your dating life. And the more serious the relationship, the more damage a bad credit score can do.

“The impacts of poor credit, like higher interest rates and missing out on job opportunities, can lead to a lot of stress and sometimes to financial difficulties,” said Andre. “These situations put added strain on marriages and other relationships. In this case, the indirect results of credit troubles can be much worse than the direct results.”

Maneuvering through life with a bad credit score is like trying to use your phone’s GPS right after you dropped it in the pool: Getting where you want to go is a lot more difficult than it should be, and the many detours you’re sure to encounter are going to be a real hassle. To learn more about how you can improve your credit score and seize control of your financial future, check out these related posts and articles from OppLoans:

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

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Marc Andre is a personal finance blogger at VitalDollar.com (@vital_dollar), where he writes about saving money, managing money, and ways to make more money. His goal with Vital Dollar is to help individuals and families get the most out of the money they have and to reach their full financial potential. He lives in Pennsylvania with his wife and their two kids (a son and a daughter).
Jacob Dayan is the CEO and Co-Founder of Community Tax, LLC (@communitytaxllc) and Finance Pal, LLC. He began his career in Wall Street New York at Bear Stearns working in the Financial Analytics and Structured Transactions group. He continued to work in Wall Street until early 2009. When he then left New York and returned to Chicago to be with his family and pursue his lifelong dream of self-employment. There he co-founded Community Tax, LLC followed by Finance Pal in late 2018.
Patricia Russell is a Certified Financial Planner (CFP) and the founder of the personal finance blog, FinanceMarvel, which provides free financial advice on managing credit, debit and savings. Patricia has more than 10 years experience in helping families and individuals take control of their personal finances and achieve financial independence.

What Is a Hard Credit Check?

Hard credit inquiries occur when you are applying for new credit and can only be run with your express permission.

No credit check loans can help people with poor credit and meager savings obtain short-term financing when their car breaks down or they find themselves hit with a surprise medical bill. Unlike standard personal loans, these are bad credit loans that don’t perform a “hard” check on an applicant’s credit.

For those who have bad credit, hard credit inquiries are something that they can come to dread, as it often means that their application is about to be denied and their score is going to get dinged even further. If you’re not familiar with the ins and outs of hard credit checks, here’s what you need to know.

Credit scores: an overview.

In order to explain credit checks, it helps to explain how credit scores work in the first place. Your credit score is a three-digit number that summarizes your creditworthiness—basically, how likely you are to meet your financial obligations, whether that be a personal loan, a credit card, a rent check, a mortgage, etc.

The most common kind of credit score is also the oldest: Your FICO score. Created by Fair, Isaac and Company in 1989, the FICO score is graded on a scale from 300 to 850. The higher your score, the better your credit, with 680 being a rough cut-off point for “good” credit.

Credit scores are created using the information from your credit reports. These are documents maintained by the three major credit bureaus–Experian, TransUnion, and Equifax–that track your history as a credit user.  Most of the info on these reports will drop off after seven years, though some information—like bankruptcies, for instance—sticks around for longer.

In addition to the public record, credit reports rely on businesses like banks, credit unions, landlords, and debt collectors to report information. Some businesses do not report to all three credit bureaus, which means that your score can vary slightly depending on which report was used to create it.

There are five main factors used to create your FICO score: payment history (35 percent), amounts owed/credit utilization (30 percent), length of credit history (15 percent), credit mix (10 percent), and recent credit inquiries (10 percent). We’ll talk a little bit more about that last category in the next section.

Here’s how hard credit checks work.

Hard credit inquiries occur when you are applying for a loan, credit card, or other forms of credit. The prospective lender will pull a copy of your credit report to review whether or not your credit application should be approved. Hard credit inquiries can only be run on your report with your express permission.

These hard inquiries get reported on your credit report under the “recent credit inquiries” category. Depending on your credit score, a single hard inquiry could ding your score by five points or not at all. These inquiries stay on your report for two years but generally aren’t included in your score longer than one year.

Why are hard inquiries reflected in your credit score? Well, hard credit inquiries represent a request for new credit. And any request for new credit could mean that you are encountering costs beyond what you could normally afford. While a single hard inquiry might just ding your score, several inquiries within a short period of time will have a greater negative effect.

There is one exception: Lenders and credit bureaus do not want to discourage borrowers from shopping around when applying for a loan. But shopping around means multiple hard inquiries. This is why all credit inquiries within 45 days for mortgage, auto, and student loans are bundled together and counted as a single hard inquiry.

If a business requests permission to run a hard inquiry on your credit, you do not need to grant them permissions. However, it is often the case that declining permission will result in your application being automatically denied. Still, if you do not want that inquiry recorded on your report, the decision is ultimately up to you.

Soft credit checks exist as well.

Have you ever checked your own credit score or received a “pre-approved” credit card offer in the mail? If you have, then that means a soft inquiry has been run on your credit. Unlike hard inquiries, these soft checks do not affect your credit score.

If hard credit checks represent instances where a lender is evaluating your request for more credit, then soft credit checks represent … pretty much any other instance where a credit pull is being requested on your report.

It’s often said that soft credit checks don’t show up on your credit report, but this isn’t exactly true. Soft pulls are recorded on your report, but they are visible only to you, not to any other businesses or entities that might run a credit check. More importantly, soft inquiries do not affect your credit score.

With a soft check, companies will often get a less clear picture of your overall creditworthiness: A solid overview, not a detailed analysis. This is why you can receive a pre-approved offer for an online loan or credit card and then still be denied when you submit an application and a hard inquiry is run.

Unlike hard credit inquiries, soft inquiries can be run with or without your permission. So if you are applying for a new apartment and a landlord runs a soft check on your application, then they don’t need to ask for permission before doing so. However, if the landlord does request permission, then you know it is a hard check.

Some loans use soft credit checks.

If you have bad credit and you’re applying for a loan, you should consider the benefits of a soft credit check loan over a no credit check loan. While neither one of these loans performs a hard inquiry, soft credit check loans do indeed run a soft inquiry when evaluating their loan applications.

Running a soft check allows the lender to determine a borrower’s ability to repay the loan they’re applying for. It’s pretty much exactly the same reason that traditional personal lenders run hard inquiries. If a soft credit check lender determines someone cannot afford a loan, they will decline to lend to them.

No credit check lenders, on the other hand, will approve a loan regardless of whether the borrower can afford it or not. This means that it’s all too easy for no credit check loans to trap borrowers under a mountain of high-interest debt that they have little hope of ever paying off on their own.

Common no credit check loans include payday loans, title loans, and cash advances. Soft credit check loans, meanwhile, most often come in the form of bad credit installment loans. Some soft credit check lenders even report payment information to the credit bureaus; this means that paying your loan off on time could help you build a better credit history.

To learn more about how you can improve your credit, check out these other posts and articles from OppLoans:

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

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5 Tips to Help You Rebuild a Bad Credit Score

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

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

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

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

1. Pay your bills on time.

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

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

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

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

2. Pay down your debt.

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

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

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

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

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

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

3. Keep your old cards open.

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

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

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

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

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

4. Stop dodging debt collectors.

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

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

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

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

5. Be patient.

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

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

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

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

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

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

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

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

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

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

1. Payday loans.

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

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

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

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

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

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

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

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

2. Title loans.

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

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

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

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

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

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

3. Pawn shops.

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

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

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

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

4. Installment loans.

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

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

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

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

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

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

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

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

Borrow now, plan for later.

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

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

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

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

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

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What is a Soft Credit Check?

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

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

But have you heard of credit checks?

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

You don’t? What do you want?

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

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

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

Credit checks: what are they?

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

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

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

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

Credit checks: What are the two kinds?

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

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

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

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

Credit checks: Can you avoid them?

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

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

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

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

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

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

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

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

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

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

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


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