The average couple has a number of topics to discuss on their to-do list before heading to the altar. The least romantic topics, if they even make the list at all, are probably concerning debt and the possibility of divorce. If you foresee a divorce in your future or are currently going through one, itâs safe to say that you have some burning questions about your finances. Perhaps you and your spouse acquired some debt during the course of your marriage and youâre now wondering who is going to be responsible for what. While itâs important to note that each situation is unique, there are some ground rules in the Divorced with Debt arena. In the below sections, weâll address the usual ways in which debt is divided up between each spouse.
Community Property vs. Common Law Property Rules
If youâre trying to figure out what debts you will be responsible post-divorce, you will first need to know if you live in an equitable distribution state that follows common law or if you live in a community property state. When it comes to debt and the divorce process, most states follow common law for property, meaning that following a divorce, each ex-spouse will be held responsible for the debt that they took on. In a community property state, both spouses, considered to be the âcommunity,â may both end up equally responsible for debt that incurred throughout the marriage, known as âcommunity debt.â The following states are Community Property States:
Most of the time, the banks arenât interested in how the courts decide to split up your debt. Even after a divorce, the original contract or credit card agreement will typically overrule a divorce decree. This means that if the original agreement was set up under your spouseâs name, the banks are going to expect the payments to be as such. As you can imagine, this could potentially cause problems with an ex-spouse who is being asked to pay off debt that is not under their name, or at least under a joint account.
To put it into perspective, letâs imagine that the court orders your ex-spouse to make payments on credit card debt under your name. If your ex neglects to make the payments on time, itâs going to have an effect on your credit report. The good news is that if this happens, you have a right to pursue legal action against your former spouse for not following court orders. However, itâs possible that by the time legal action is taken, your credit score may already be damaged.
Prenuptial agreements will affect these outcomes as well. Depending on yours and your spouseâs marital assets, the debt in question will vary. Here are the typical categories of debt that are affected during divorce proceedings:
Credit Card Debt
Auto Loan Debt
Credit Card Debt
Itâs possible that you could be responsible for your former spouseâs credit card debt, but itâs not likely. If you have a joint account, then the outcomes may vary. Usually, marital debt is considered to be any debt that was created during the time of the marriage. So if you racked up credit card debt under a joint account, expect that both of you will be equally responsible for paying it off.
If both spouses have their names on the mortgage, the easiest way of solving the mortgage debt is to sell the house and divide the earnings between both parties. It might be tempting to keep the home for a multitude of reasons, but at the end of the day, selling the property and splitting the money is usually the least complicated solution for everyone involved.
Once the house is on the market, itâs time to start communicating with your former spouse about who is going to be responsible for what amount. Come up with an agreement on who will pay which portion of the mortgage, so that neither partiesâ credit score is negatively affected.
If selling the home and dividing the earnings isnât a viable option for you and your ex, then one of you will end up fully responsible for the debt. In most cases, mortgage debt following a divorce is assigned to:
The spouse with the higher annual income.
The spouse who gains full custody of the children.
When this happens, one spouse will have to buy out the other spouseâs equity in the property.
Car Loan Debt
When it comes to car loans, things become more complicated. If the car loan has both names on it, here are the two best options:
Refinance the car without your ex.
Propose automatic payments to come directly from your former spouseâs account.
Letâs say one person ends up with the car loan debt, but the other person was also on the loan as a cosigner. Unfortunately, if one spouse is held responsible for picking up the tab on a debt, and they neglect their payments, both parties can suffer those consequences.
Each state has different laws surrounding medical debt and divorce agreements. If you live in a Community Property state, you might have to pay for your former spouseâs medical debt. However, if you live in a state that follows common law, the court will ultimately make the decision about who is responsible for what debt.
Pay off your debt before the divorce is finalized
Â If you and your spouse can find a way to work out the kinks of your debt issues before the divorce is finalized, itâll make things a lot easier in the long run. Work together to figure out who should be responsible for which debt, so that you can lower your chances of having to pay off a debt that isnât yours.
If youâre working with credit card debt, one of you may need to transfer your credit card balance to a separate card. Consolidating your credit card balances is another common option when dividing debts.
Generally, credit card debt is going to be easier to deal with than the big things, like home loans and car loans. In many cases, couples who are going through a divorce will have to consider refinancing their loans under one partyâs name.
Keep in mind that the original loan agreement supercedes the divorce agreement, so if you wait until your divorce is finalized, you might have a harder time moving things around. You can ask your lender to take your name off of an account and have it replaced with your former spouseâs name, but be prepared to provide the divorce decree as evidence. If it doesnât work out this way, then seek legal advice from your divorce attorney about your options. Another common solution is to sell the asset in question and use the earnings to pay off the debt.
How your former spouseâs bankruptcy can affect you
If your ex-spouse isnât able to keep up with the payments on their share of the debt, they might decide to file bankruptcy. This could cause problems for you if you didnât choose to file as well.
Filing for bankruptcy does not erase the debts, instead it erases your ex-spouseâs liability for the debt. In this instance, you could find yourself in a situation where the creditor is now pursuing you for the debt. Itâs also important that you check your credit report. Even if you werenât the one who filed bankruptcy, it could still end up on your credit report.
Be cautious about any joint accounts you may still have open post-divorce. If you leave joint accounts open and your former spouse has access to them, he or she could potentially transfer balances from other accounts onto those ones. Safeguard your credit by paying off any debts you can manage to pay off ahead of time, so that you donât have to worry about it later.
Marital Debt After Divorce: Who is Responsible? is a post from Pocket Your Dollars.
If you have bad credit and need a car loan, there are some challenges when compared to obtaining a standard car loan. However, pick your head up because there are a handful of great lenders that specifically tailor their programs to people with bad credit. We researched the landscape of lenders that can help you get a car loan even if you have a below-average credit score.
Based on our study, OneMain Financial and LightStream are two of the top lenders offering bad credit card loans. This is due to factors including loan options, requirements to qualify, and interest rates offered. Of course, we offer in-depth reviews of all the top lenders who offer bad credit car loans further down in this piece.
Apply now with our top pick: OneMain Financial
In this guide we also help you understand the factors that go into selecting the right auto lender, and how to get the best rate you can.
Most Important Factors for Bad Credit Car Loans
If youâre in the market for a bad credit car loan, there are a plethora of factors to consider and compare. Here are the main loan details we looked at in our study, and the ones you should prioritize as you select the best car loan for your needs.
Check your credit score. And understand what is in your credit report.
FICO scores under 579 is considered ‘poor’. But you may need a bad credit loan with a score as high as 669.
Interest rates and fees matter. These can make a huge difference in how much you pay for an auto loan each month.
Compare loan terms. Consider your repayment timeline and compare lenders with this in mind.
Getting prequalified online can help. Some lenders, including ones that made our ranking, let you get prequalified for a loan online without a hard inquiry on your credit report.
Watch out for loan restrictions. Some lenders impose restrictions on what car you can purchase. Keep this in mind to avoid unpleasant surprises later.
The Best Bad Credit Car Loans of 2021
The best bad credit car loans make it easy for consumers to qualify for the financing they need. The following lenders made our list due to their superior loan offerings, excellent customer service, and reputation in this industry.
Car Loan Company
Best for Flexibility
Best Personal Loan Option
Best Loan for Bad Credit and No Credit
Best Loan Comparison Site
Best Big Bank Loan for Bad Credit
Best for Fast Funding
Why Some Lenders Didn’t Make the Cut
While the lenders we are profiling are the best of the best, there are plenty of bad credit car loans that didnât quite make the cut. We didnât include any lenders that only offer auto loan refinancing, for example, since we know many people need a car loan in order to purchase a new or used car or truck. We also stayed away from bad credit car loans that charge outrageous fees for consumers with the lowest credit scores.
Bad Credit Auto Loan Reviews
We listed the top companies we selected in our study above, but we also aim to provide readers with more insights and details on each. The reviews below highlight the highlights of each lender that made our list, plus our take on who they might be best for.
OneMain Financial: Best for Flexibility
OneMain Financial offers personal loans and auto loans with interest rates that range from 18.00% to 35.99%. You can repay your auto loan in 24, 36, 48, or 60 months, and you can use this lender to borrow up to $20,000 for a new or used car. You can apply for your auto loan online and from the comfort of your own home, and itâs possible to get approved within a matter of minutes.
While OneMain Financial doesnât list a minimum credit score requirement, itâs believed they will approve consumers with scores as low as 600. You should also note that auto loans from OneMain Financial come with an origination fee of up to 5% of your loan amount.
Sign Up With OneMain Financial Today
Why This Lender Made Our List: OneMain Financial offers a lot of flexibility in terms of your loan terms, including the option to repay your auto loan over five years. OneMain Financial also has pretty decent reviews from users for a bad credit lender, and they have an A+ rating with the Better Business Bureau.
Potential Downsides to Be Aware Of: OneMain Financial charges some pretty high rates for its bad credit loans, and donât forget that you may need to pay an origination fee that is up to 5% of your loan amount. Their loans are also capped at $20,000, which means this lender wonât work for everyone.
Who Itâs Best For: This lender is best for consumers with really poor credit who need auto financing but canât get approved for a better loan.
Upgrade: Best Personal Loan Option
Upgrade is an online lender that offers personal loans with fixed interest rates, fixed monthly payments, and a fixed repayment timeline. You can borrow up to $50,000 in an unsecured loan, which means you wonât actually use the car you purchase as collateral for the loan.
You can repay the money you borrow over 36 to 60 months, which makes it possible for you to tweak your loan offer to secure a monthly payment you can afford. Upgrade has a minimum credit score requirement of 620 to qualify, although theyâll consider additional factors such as your income and employment history.
Sign Up With Upgrade Today
Why This Lender Made Our List: Upgrade lets you âcheck your rateâ online without a hard inquiry on your credit report. This makes it easy to shop around and compare this loan offer to others without having to fill out a full loan application. Also note that Upgrade has an A+ rating with the BBB.
Potential Downsides to Be Aware Of: Upgrade charges APRs as high as 35.89% for consumers with the worst credit, and an origination fee of up to 6% of your loan amount might also apply.
Who Itâs Best For: Upgrade is best for consumers with decent credit who need to borrow a larger loan amount. This loan is also best for anyone who wants an auto loan that isnât secured by their vehicle.
AutoCreditExpress.com: Best Loan for Bad Credit and No Credit
AutoCreditExpress.com is an online platform that lets consumers with bad credit and even no credit get the financing they need. Once you fill out some basic loan information, youâll be connected with a lender who can offer you financing as well as a dealership in your area. From there, youâll head to the local dealership and pull the pieces of your auto loan together, including the purchase price of the car you want.
Sign Up With Autocreditexpress.com Today
Why This Lender Made Our List: AutoCreditExpress.com has an A+ rating with the Better Business Bureau. This platform also makes it possible for consumers with no credit at all to finance a car, which is a welcome relief for people who are building credit for the first time.
Potential Downsides to Be Aware Of: This website is a loan platform but they donât offer loans directly to consumers. This means you wonât have any idea on rates and terms until you fill out an application and get connected with a lender.
Who Itâs Best For: This loan is best for consumers with no credit or minimal credit history who cannot get approved for a loan elsewhere.
MyAutoLoan.com: Best Loan Comparison Site
MyAutoLoan.com is a loan comparison site that makes it easy to compare up to four auto loan offers in a matter of minutes. You can use this website to apply for a new auto loan, but you can also utilize it to consider refinancing offers for an auto loan you already have. You can also use funds from this platform to purchase a car from a dealer or from a private seller.
Sign Up With MyAutoLoan.com Today
Why This Lender Made Our List: Comparing auto loans in terms of their terms, rates, and fees is the best way to save money and wind up with the best deal. Since MyAutoLoan.com is a loan comparison site, they make it easy to shop around and compare competing offers.
Potential Downsides to Be Aware Of: Loan comparison sites connect you with other lenders who have their own loan terms and minimum requirements for approval. Make sure you know and understand all the details of loans youâre considering before you sign on the dotted line.
Who Itâs Best For: MyAutoLoan.com is best for consumers who want to do all their auto loan shopping with a single website.
Capital One: Best Big Bank Loan for Bad Credit
Capital One offers online auto loan financing in conjunction with a program called Auto NavigatorÂ®. This program lets you get prequalified for an auto loan online, then work with a participating dealer to coordinate a loan for the car you want. Capital One also lets you search available vehicles at participating dealerships before you apply for financing, making it easy to figure out how much you might need to borrow ahead of time.
Sign Up With Capital One Today
Why This Lender Made Our List: Capital One offers the huge benefit of letting you get prequalified online without a hard inquiry to your credit report. Capital One is also a reputable bank with a long history, which should give borrowers some comfort. They have an A+ rating with the BBB and plenty of decent reviews from consumers.
Potential Downsides to Be Aware Of: You should be aware that Capital One auto loans only work at participating dealers, so you may be limited in terms of available cars to choose from.
Who Itâs Best For: Capital One auto loans are best for consumers who find a car they want to buy at one of the participating lenders that works with this program.
LightStream: Best for Fast Funding
LightStream offers online loans for a variety of purposes, including auto financing. Their auto loans for consumers with excellent credit start at just 3.99% with autopay, and even their loans for consumers with lower credit scores only run as high as 16.79% with autopay.
You can apply for your LightStream loan online and get approved in a matter of minutes. This lender can also send your funds as soon as the same business day you apply.
A minimum credit score of 660 is required for loan approval, although other factors like your work history and income are considered.
Sign Up With LightStream Today
Why This Lender Made Our List: LightStream offers auto loans with exceptional terms, and thatâs even true for consumers with less than perfect credit. You can also get your loan funded as soon as the same business day you apply, which is crucial if you need auto financing so you can get back on the road.
Potential Downsides to Be Aware Of: With a minimum credit score requirement of 660, these loans wonât work for consumers with the lowest credit scores.
Who Itâs Best For: LightStream is best for people with decent credit who need to get auto loan financing as quickly as possible.
What You Need To Know When Applying For A Car Loan With Bad Credit
Interest rates and fees matter.
If you think your interest rate and loan fees wonât make a big difference in your monthly payment, think again. The reality is that rates and fees can make a huge difference in how much you pay for an auto loan each month. Consider this: A $10,000 loan with an APR of 35.89% will require you to pay $361 per month for five years. The same loan amount at 21.99% APR will only set you back $276 per month. At 9.99%, you would pay only $212 per month for five years. The bottom line: Make sure to compare auto loans for bad credit so you wind up with the lowest possible APR you can qualify for.
Take steps to improve your credit score before you apply.
Itâs not always possible to wait to apply for a car loan, but you may be able to secure a lower interest rate and better loan terms if you can improve your credit score before you borrow money. The most important steps you can take to improve your score include paying all your bills early or on time, as well as paying down debt in order to decrease your credit utilization. You should also refrain from opening or closing too many credit card accounts in order to avoid new inquiries on your credit report and maintain the longest average length of your credit history possible.
Compare loan terms.
Some lenders let you borrow money for up to 84 months, while others let you repay your loan over 36 or 60 months at most. If you need to repay your loan over a longer timeline in order to secure an affordable monthly payment, make sure to compare lenders based on this factor. If youâre having trouble figuring out how much can you can afford, gauging affordability based on the monthly payments you can handle can also help in that effort.
Getting prequalified online can help.
Some lenders, including ones that made our ranking, let you get prequalified for a loan online without a hard inquiry on your credit report. This makes it considerably easier to compare rates and shop around without formally applying for an auto loan. Getting prequalified with more than one lender can also help you determine which one might offer the lowest rate without having to fill out a full loan application.
Watch out for loan restrictions.
As you compare the lenders on this list, keep in mind that not all lenders extend loans for any car you want. Some only let you finance cars with participating lenders in their network, which can drastically limit your options and make it impossible to purchase a car from a private seller. If you hope to purchase a car from someone you know or a website like craigslist.org, you may want to consider reaching out to your personal bank or a credit union you have a relationship with.
Bad credit car loans donât have to be forever.
Finally, you should know that a car loan for bad credit doesnât have to last forever. You may need to borrow money for a car right now regardless of the interest rate and terms you can qualify for, but it may be possible to refinance your loan into a better loan product later on. This is especially true if you focus on improving your credit score right away, and if you use your auto loan as an opportunity to prove your creditworthiness.
How to Get the Best Rate
1. Check your credit score.
Your credit score is one of the most important defining factors that dictate loan costs. Before you apply for an auto loan, it can help you check your credit score to see where you stand. Your score may not be as bad as you realize, but it could also be worse than you ever imagined. Either way, it helps to know this important information before you start shopping for an auto loan.
2. Improve your credit over time.
If your credit score needs work, youâll want to take steps to start improving it right away. The most important steps you can take to boost your credit score include paying all your bills early or on time and paying down debt to decrease your credit utilization. Also, make sure youâre not opening or closing too many credit accounts within a short amount of time.
3. Check your credit reports.
Use the website AnnualCreditReport.com to get a free copy of your credit reports from all three credit bureaus. Once you have this information, check over your credit reports for errors. If you find false information that might be hurting your score, take the steps to have the incorrect information removed.
4. Compare loan offers from at least three lenders.
A crucial step to get the best rate involves shopping around and comparing loan offers from at least three different lenders. This is important since lenders with different criteria might offer a lower APR or better terms than others.
5. Be flexible with repayment terms.
Also consider a few different loan terms provided you can afford the monthly payment with each. Some auto lenders offer better rates for shorter terms, which can help you save money if you can afford to repay your loan over 24 or 36 months instead of 60+.
How We Chose the Best Auto Loans
The lenders on our list werenât plucked out of thin air. In fact, the team behind this guide spent hours comparing auto lenders based on a wide range of criteria. Hereâs everything we considered when comparing the best bad credit car loans of 2021:
Interest Rates and Loan Terms: Our team looked for loans that offer reasonable rates and terms for consumers with poor credit. While higher APRs are typically charged to consumers with a low credit score, we only considered lenders that offer sensible rates that donât seem out of line for the auto loan market.
Ratings and Reviews: We gave preference to lenders who have decent reviews online, either through Consumer Affairs, Trustpilot, or another third party website. We also gave higher marks to lenders who have a positive rating with the Better Business Bureau (BBB).
Online Availability: Lenders who offer full loan details online were definitely given top priority in our ranking, and lenders who let you get prequalified online without a hard inquiry on your credit report were given the most points in this category. But since not everyone wants to apply for a loan online, we also included some lenders that let you apply over the phone.
Approval Requirements: Finally, we looked for lenders that extend credit to consumers with low credit scores in the first place. Not all lenders offer specific information on approval requirements, but we did our best to sort out lenders that only accept borrowers with good or excellent credit.
Summary: Best Bad Credit Card Loans of 2021
Best for Flexibility: OneMain Financial
Best Personal Loan Option: Upgrade
Best Loan for Bad Credit and No credit: AutoCreditExpress.com
Best Loan Comparison Site: MyAutoLoan.com
Best Big Bank Loan for Bad Credit: CapitalOne
Best for Fast Funding: LightStream
The post What Are the Best Car Loans When You Have Bad Credit? appeared first on Good Financial CentsÂ®.
Credit cardÂ billsÂ can be confusing. If everything was straightforward and clear,Â credit cardÂ debtÂ wouldn’t be such a big issue. But it’s not clear, and debt is a massive issue for millions of consumers.Â
One of the most confusing aspects is theÂ minimum payment, with few consumers understanding how this works, how much damage (if any) it does to theirÂ credit score, and why it’s important to pay more than the minimum.
We’ll address all of those things and more in this guide, looking at howÂ minimumÂ credit cardÂ paymentsÂ can impact yourÂ FICOÂ scoreÂ and yourÂ credit report.
What is aÂ Credit CardÂ Minimum Payment?
TheÂ minimum paymentÂ is the lowest amount you need to pay during any given month. It’s often fixed as a fraction of yourÂ total balanceÂ and includes fees and interest. Â
If you fail to make thisÂ minimum payment, you may be hit withÂ late feesÂ and if you still haven’t paid after 30 days, your creditor will report your activity to the majorÂ credit bureausÂ and yourÂ credit scoreÂ will take a hit.
When this happens, you could lose up to 100 points and gain a derogatory mark that remains on yourÂ credit reportÂ for up to 7 years.Â MakingÂ minimum paymentsÂ will not result in a derogatory mark, but it can indirectly affect yourÂ credit scoreÂ and we’ll discuss that a little later.
Firstly, it’s important to understand why you’re being asked to pay aÂ minimum amountÂ and how you can avoid it.
How Much is aÂ MinimumÂ Credit CardÂ Payment?
Prior to 2004,Â monthly paymentsÂ could be as low as 2% of the balance. This caused all kinds of problems as most of yourÂ monthly paymentÂ is interest and will, therefore, inflate every month so that every time you reduce the balance it grows back.Â
Regulators forced a change when they realized that some users were being locked into a cycle ofÂ credit cardÂ debt, one that could see them repaying thousands more than the balance and taking many years to repay in full.
These days, a minimum payment must be at least 1% of the balance plus all interest and fees that have accumulated during that month, ensuring the balance decreases by at least 1% if only theÂ minimum paymentÂ is met.
Do I Need to Make theÂ Minimum Payment?
If you have a rolling balance, you need to make the minimumÂ monthly paymentÂ to avoid derogatory marks. If you fail to do so and keep missing those payments, your account will eventually default and cause all kinds of issues.
However, you can avoid theÂ minimum paymentÂ by clearing your balance in full.
Let’s assume that you have a brand-newÂ creditÂ cardÂ and you spend $2,000 in the first billing cycle. In the next cycle, you will be required to pay this balance in full. However, you will also be offered aÂ minimum payment, which will likely be anywhere from $30 to $100. If this is all that you pay, the issuer will start charging you interest on your balance and your problems will begin.
If you spend $2,000 in the next billing cycle, you have just doubled your debt (minus whatever principal theÂ minimum paymentÂ cleared) and your problems.
This is a cycle that many consumers get locked into. They do what they can to pay off their balance in full, but then they have a difficult month and thatÂ minimum paymentÂ begins to look very tempting. They convince themselves that one month won’t hurt and they’ll repay the balance in full next month, but by that point they’ve spent more, it has grown more, and they just don’t have the funds.
To avoid falling into this trap, try the following tips:
Only Spend What You Have:Â AÂ credit cardÂ should be used to spend money you have now or will have in the future. Don’t spend in the hope you’ll somehow come into some money before the billing period ends and theÂ credit cardÂ balanceÂ rolls over.
Get an IntroductoryÂ Interest Rate:Â ManyÂ credit cardÂ issuersÂ offer a 0% intro APR for a fixed period of time, allowing you to accumulate debt without interest. This can help if you need to make some essential purchases, but it’s important not to abuse this as you’ll still need to clear theÂ full balanceÂ before the intro period ends.
Use aÂ Balance Transfer:Â If you’re in too deep and the intro rate is coming to an end, consider aÂ balance transfer credit card. These cards allow you to move yourÂ full balanceÂ from one card (or cards) to another, taking advantage of yet another 0% APR and essentially extending the one you have.
Pay the Minimum:Â If you can’t pay the balance in full, make sure you at least pay the minimum. AÂ missed paymentÂ orÂ late paymentÂ can incur fees and may hurt yourÂ credit score.Â
Why Pay More Than the Minimum?
You may have heard experts recommending that you pay more than the minimum every month, but why? If you’re locked into a cycle ofÂ credit cardÂ debt, it can seem counterproductive. After all, if you have a debt of $10,000 that’s costing you $400 a month, what’s the point of taking an extra $100 out of your budget?
Your interest and fees are covered by yourÂ minimum paymentÂ and account for a sizeable percentage of thatÂ minimum payment. By adding just 50% more, you could be doubling and even tripling the amount of the principal that you repay every month.
What’s more, your interest accumulates every single day and this interest compounds. Imagine, for instance, that you have a balance of $10,000 today and with interest, this grows to $10,040. The next day, the interest will be calculated based on that $10,040 figure, which means it could grow to $10,081, which will then become the new balance for the next day.Â
This continues every single day, and the larger your balance is, the more interest will compound and the greater theÂ amount will be dueÂ over the term. By paying more than yourÂ minimum paymentÂ when you can, you’re reducing the balance and slowing things down.
Does Paying the Minimum Hurt MyÂ Credit Score?
Paying theÂ minimum amountÂ every month ensures you are doing the bare minimum to avoid hurting yourÂ credit historyÂ or accumulating fees. However, it can indirectly reduce your score via yourÂ credit utilizationÂ ratio.
YourÂ creditÂ utilizationÂ ratioÂ is a score that compares theÂ credit limitÂ of allÂ availableÂ creditÂ cardsÂ to the total debt on those cards. It accounts for 30% of yourÂ credit scoreÂ and is, therefore, a very important aspect of theÂ credit scoringÂ process.
The moreÂ credit cardÂ debtÂ you accumulate, the lower yourÂ credit utilizationÂ rateÂ will be and the more your score will be impacted. If you only pay the minimum, this rate will become stagnant and may take years to improve. By increasing theÂ payment amount, however, you can bring that ratio down and improve yourÂ credit score.
You can calculate yourÂ credit utilizationÂ score by adding together theÂ totalÂ amountÂ ofÂ creditÂ limitsÂ and debts and then comparing the latter to the former. A combinedÂ credit limitÂ of $10,000 and a balance of $5,000, for instance, would equate to a 50% ratio, which is on the high side.
CanÂ Credit CardÂ Fees Hurt MyÂ Credit Score?
As withÂ interest charges,Â credit cardÂ fees will not directly reduce your score but may have an indirect effect. Cash advance fees, for instance, can be substantial, with manyÂ credit cardÂ companiesÂ (includingÂ Capital One) charging 3% with a $10 minimum charge. This means that every time you withdraw cash, you’re paying at least $10, even if you’re only withdrawing $10.
What many consumers don’t realize is that these fees are also charged every time you buy casino chips or pay for some other form of gambling, and every time you purchase money orders and other cash products.Â
Along with foreign transaction fees and penalty fees, these can increase your balance and yourÂ minimum payment, making it harder to make onÂ time paymentsÂ and thus increasing the risk of aÂ late payment.
Does Paying the Minimum Hurt Your Credit Score is a post from Pocket Your Dollars.
Your minimum monthly payment is the lowest amount that you need to pay on your credit card balance. Any less could result in a derogatory mark, any more will clear more of the principal.Â
Your monthly payment is one of the most important aspects of your credit card debt and failure to understand this could seriously impact your credit score and leave marks on your credit report that remain for up to 7 years.
With that in mind, letâs take a closer look at how these payments operate and how you can quickly clear your credit card debt.
How Minimum Payments on a Credit Card are Calculated
The minimum payment is calculated as a percentage of the total balance at the end of the month. This percentage ranges from 2% to 5%, but it has been known to go lower.Â
As an example, if you have a $5,000 credit card balance and are required to pay 5% a month, then your monthly payment will be $250. However, this only covers the principal, which is the money that you borrowed. It does not cover the interest, which is where things get a little complicated and expensive.
What Influences Your Minimum Monthly Payment?
The reason credit card interest is so high is because it compounds. This means that if you have an annual percentage rate of 20% and a debt of $20,000, that debt will climb to $24,000, at which point the next billing cycle will commence and this time youâll be charged 20% on $24,000 and not $20,000.
However, credit card interest is calculated daily, not yearly. To arrive at your daily percentage rate, simply divide your interest rate by 365 (the number of days in a year) and then multiply this by your daily balance.
For example, if we stick with that 20% interest rate, then the daily rate will be 0.00054%. If we multiply this with the daily balance, we get an interest rate of $2.7 for the first day. Multiply this by 30, for the total days in a billing cycle, and itâs $81. Thatâs your total interest for the first month.
So, when we calculate the 2% minimum monthly payment, weâre calculating it against $5,081, not $5,000, which means we get a total of $101.62, reducing the balance to just $479.38.
In other words, you pay over $100, but reduce the balance by a little over $20 when you make that monthly payment. If penalty fees and interest rates are added to that, it will reduce in even smaller increments.
Pros and Cons of Only Paying the Minimum Payment on your Credit Card
As discussed above, itâs imperative that you make the minimum payment, avoiding any late payment charges or credit score reductions. However, if you only make those minimum payments every month then it will take a long time to clear your balance and you may struggle to keep your head above water.
The Benefits of Paying More Than the Minimum
Many borrowers struggle to pay more than the minimum not because they donât have the money, but because they fail to see the benefits. They focus on the short-term and not the long-term, seeing an extra $100 payment as a lost $100 in the present, as opposed to a saved $500 in the future.
However, if you can get over this mindset and start paying more than the minimum, you will do your future self a huge favor, helping with all of the following:
Shorten the Term and Lessen the Interest
Every extra dollar that you add to your minimum payment can help you get out of debt quicker than if you simply stick with the minimum. This is true for all debtsâa higher monthly payment means that more money goes towards the principal, which means there is less interest to compound.
Credit card debt is like a snowball gathering momentum as it rolls, and this is exacerbated every time you miss a payment and are hit with penalty fees. By paying more than the minimum, youâre taking a giant chunk out of that snowball and slowing its progression.
Youâll Improve Your Credit Utilization
Your credit utilization ratio is one of the most important parts of your credit report, counting for 30% of your total. This ratio takes your total available credit (such as a credit limit on a credit card) and then compares it to total debt (such as the balance on that credit card). The higher the number, the more of your credit has been used and the more your credit score will suffer.
Every time you pay more of your credit card balance, youâre reducing this score and significantly boosting your credit score.
Avoid Maxing Out Your Balance
Not only will a maxed-out credit card do some serious damage to your credit utilization score, but it can also have a direct impact on your credit score on the whole. Lenders donât want to see it and credit bureaus will punish you for it. If youâre still using the card and only paying the minimum, you may be stuck in a cycle of persistent debt, but by paying more and using it less, you can prevent that.
You May Get a Better Credit Limit
Credit card issuers monitor their customerâs activities very closely. If they clear their balances every month without issue, they are more inclined to increase their credit limit, offer them rewards, and generally provide them with good opportunities. If they are accumulating large amounts of credit card debt and only meeting their minimum payments, theyâll be less inclined to do any of those things.
It always helps to get on a creditorâs good side, because you never know when you will need that improve credit limit or access to that generous rewards scheme.
What Happens if you Only Make the Minimum Payment?
If you only pay the minimum, the debt will take a long time to clear and youâll repay huge sums of interest in that time. If we go back to the previous example and assume an APR of 20%, a balance of $5,000 and a minimum payment of 2%, you will repay over 400% in interest alone and it will take you decades to repay the debt.
Thankfully, very few credit card providers will actually let you pay such a small amount on such a substantial debt. But even if we increase the minimum payment to 5%, it still looks abysmal for the borrower. It would take them about 9 years to pay the balance, requiring $250 a month and paying close to $2,500 in interest.
Although itâs more realistic, this is still a poor option, especially when you consider the card will still be active and you may still be using it, which means that every time you make a repayment, youâre adding more debt and offsetting all your hard work.
Your credit score will not suffer if you only make the minimum payment. Providing you make it on time then you will build a respectable payment history, a stable credit report, and a credit score that is sure to impress lenders. However, it wonât look great for your finances as youâre giving yourself an expensive liability that will cripple your debt-to-income ratio and your credit utilization ratio for years to come.
Are There Any Advantages to Just Paying the Minimum?
The only advantage to paying just the minimum is that you will have more money in your pocket at the end of the month, which will allow you to make additional investments and purchases that would otherwise not be available to you. However, this is a pretty narrow-minded way of looking at it, because while you will have more cash in the long-term, it comes at the expense of many additional risks and obligations, not to mention thousands of dollarsâ worth of additional interest paid over the term.
What Happens if you Canât Pay the Minimum Payment?
If there is a late payment or a missed payment, your creditor may charge you a penalty fee or a penalty rate. If your payment is due for more than 30-days they may also report you to the credit bureaus, at which point a derogatory mark will appear on your credit report and your credit score will drop.
This can happen even with a single missed payment, which is why you should never simply skip a payment on the basis that youâll just double-up next time around.
Instead, contact your creditor, explain your situation, and see if there is anything they can do to help you. They may say no, but it doesnât hurt to ask, and, in most cases, they will offer you some kind of reprieve. After all, they want their money, and if they can increase their chances of getting paid by providing you with some leeway, theyâll often be more than happy to do it.
Some people believe that you can simply pay a few dollars and it will count as a minimum payment and not show on your credit report. This is a myth. Technically, any payment that doesnât meet the full minimum requirement can be classed as a late payment and can lead to fees and derogatory marks.
Resources to Lower Minimum Payments on a Credit Card
Itâs important to keep a close eye on your credit card statement and activity at all times. Monitor your spending, making sure it doesnât go overboard, and if you find yourself struggling to make payments at any time, checkout the following resources and options to get the help you need:
Credit Counselors: Speak with a trained expert who has helped many individuals in a similar position. They will discuss your finances and your debts and will help you to find a solution.
Debt Management: A debt management plan can help when youâre struggling to meet your debt obligations and have a huge debt-to-income ratio. They will provide assistance and help you swap multiple debts for a single consolidation loan.
Debt Settlement: An option that works best for individuals with multiple debts and missed payments. Itâs one of the cheapest ways to clear personal loan and credit card debt, as well as other forms of unsecured debt.
Debt Consolidation: Another consolidation loan option, this time with a long term, ensuring that you pay less per month but more over the term. This is a good option if youâre stuck in a tricky spot right now and need to reduce your outgoings.
In all the above cases, you can use the NMLS Consumer Access site to find a legitimate and reputable company or professional working within the financial sector. You can also use resources like the Better Business Bureau as well as the many guides, reviews, and help files right here on the Pocket Your Dollars website.
How to Reduce the Balance on a Credit Card Debt
One of the best ways to reduce your balance is to initiate a balance transfer. As the name suggests, this entails moving your balance from one card to another. Balance transfer cards entice you by offering a 0% APR on all transfers and this lasts for up to 18% with the best providers.Â
In that time, you wonât pay any interest on your balance, which means all your monthly payment will go towards the principal and you can reduce your debt in huge leaps as opposed to small steps.
These cards are not without their issues, however. You will need a good credit score to get a card that has a good APR and balance transfer offer. If you donât, and you fail to clear the balance during that introductory period, you may be paying more interest than you were before.
In most cases, though, these cards will be just what you need to ease the burden of mounting credit card debts and get back into the black. Take a look at our guide to the best balance transfer cards to learn more and discover how you can move your current balance to a card that has more preferable terms, in the short-term at least.
The Bottom Line: Clear that Balance
A minimum payment is the least amount you need to commit to a credit card balance. If credit card debt was a house party, the minimum payment would be the equivalent of showing up, saying your introductions, and then hiding in the corner for the rest of the night. If you really want to make an impact, you need to be proactive.
It doesnât have to be twice or thrice the size of your minimum payment. It doesnât have to be a consistent sum that you pay every month, but it does have to be something. Donât worry if itâs only 1% or 2% of the balance, because every additional payment helps. Just pay whatever you can afford, whenever you can afford it. A small amount of money today can save you a huge sum of money in the future.
Minimum Payments on a Credit Card is a post from Pocket Your Dollars.
Since the National Consumer Assistance Plan went into effect in 2017, public records must meet strict requirements in order to appear on consumer credit reports. Civil judgments and tax liens do not meet these new requirements, so they were removed from credit reports. At this point, the only derogatory public record that should appear on your credit report is bankruptcy. If a tax lien or civil judgment still appears on your credit report, you should dispute that record with the credit reporting agencies.
How Much Do Public Records Affect Credit Scores?
Bankruptcy can cause a FICO score to drop by 200 points or more. A filing may lower credit scores for seven to 10 years and be difficult to remove from a credit report unless any information is inaccurate.
The decision to exclude other public records slightly increased FICO scores for many consumers and resulted in increases of 20 to 40 points in some cases.
Bankruptcies and Your Credit Report
Bankruptcies are the one public record that are still included on your credit report. In most cases, they will remain on your report for seven to 10 years.
You can dispute an inaccurate report of bankruptcy or one being reported beyond the statute of limitations. Review your report for any inaccuracies and contact the credit bureaus to dispute inaccuracies if need be. If a credit bureau claims to have court verification of a bankruptcy, you should send a procedural letter to determine how they verified the public record on credit report. Follow up with the courts to determine whether the bankruptcy was actually verified.
âªÂ Learn more about when and why you should file bankruptcy and how doing so will affect your credit.
Civil Judgments and Your Credit Report
Civil judgments result when a creditor sues you for an outstanding debt and wins. That creditor then has more avenues for pursuing payment: they may now satisfy delinquent or outstanding debt through wage garnishment or by seizing funds from checking or savings accounts.
Judgments are no longer factored into credit scores, though they are still public record and can still impact your ability to qualify for credit or loans. Lenders may still check to see whether any outstanding judgments against a potential borrower exist. You should pay legitimate judgments and dispute inaccurate judgments to ensure these do not affect your finances unduly.
âªÂ Learn more about how to deal with civil judgments.
If a civil judgment is still on your credit report, file a dispute with the appropriate credit reporting agencies to have it removed.
Tax Liens and Your Credit Report
Tax liens are filed by the IRS when you donât pay your taxes. A lien is automatically filed when you owe more than $10,000. When the IRS files a tax lien against you, it essentially gives the agency first dibs on any payment you receive from selling or liquidating your assets to pay your debts.
While tax liens are no longer reported on credit reports, they can significantly impact your financial situation in ways that indirectly affect your credit score.
âªÂ Learn more about tax liens.
If a tax lien is being reported on your credit report, file a dispute.
How to Deal with Derogatory Public Records
Although judgments and tax liens are no longer filed on credit reports or factored into credit scores, these penalties can undermine your financial standing. If a derogatory public record is filed against youâ you should monitor the effects on your credit and ensure that information pertaining to your filing is accurate.
Check your reports regularly to ensure they are fair, accurate and up-to-date. You can watch for changes by getting your free Credit Report Card and credit score monitoring from Credit.com.
âªSign up now!
The post What Does Having a Derogatory Public Record on My Credit Report Mean appeared first on Credit.com.
In a recession itâs common for many people to rely on credit cards and loans to balance their finances. Itâs the ultimate catch-22 since, during a recession, these financial products can be even harder to qualify for.
This holds true, according to historical data from the Federal Reserve Bank of St. Louis. It found that during the 2007 recession, loan growth at traditional banks decreased and remained deflated over the next four years.Â
Credit can be a powerful tool to help you make ends meet and keep moving forward financially. Hereâs what you can do if youâre struggling to access credit during a weak economy.
Lending becomes riskier in a weak economy. Does this mean youâre completely out of luck if you have bad credit? Not necessarily, but you might need to take the time to understand all of your alternatives.
How Does a Financial Downturn Affect Lending?
Giving someone a loan or approving them for a credit card carries a certain amount of risk for a lender. After all, thereâs a chance you could stop making payments and the lender could lose all the funds you borrowed, especially with unsecured loans.
For lenders, this concept is called, âdelinquencyâ. Theyâre constantly trying to get their delinquency rate lower; in a booming economy, the delinquency rate at commercial banks is usually under 2%.
Lending becomes riskier in a weak economy. There are all sorts of reasons a person might stop paying their loan or credit card bills. You might lose your job, or unexpected medical bills might demand more of your budget. Because lenders know the chances of anyone becoming delinquent are much higher in a weak economy, they tend to restrict their lending criteria so theyâre only serving the lowest-risk borrowers. That can leave people with poor credit in a tough financial position.
Before approving you for a loan, lenders typically look at criteria such as:
Co-signers, if applicable
Down payment size (for loans, like a mortgage)
Does this mean youâre completely out of luck if you have bad credit? Not necessarily, but you might need to take the time to understand all of your alternatives.
5 Ways to Help Get Your Credit Application Approved
Although every lender has different approval criteria, these strategies speak to typical commonalities across most lenders.
1. Pay Off Debt
Paying off some of your debt might feel bold, but it can be helpful when it comes to an application for credit. Repaying your debt reduces your debt-to-income ratio, typically an important metric lenders look at for loans such as a mortgage. Also, paying off debt could help improve your credit utilization ratio, which is a measure of how much available credit youâre currently using right now. If youâre using most of the credit thatâs available to you, that could indicate you donât have enough cash on hand.
Not sure what debt-to-income ratio to aim for? The Consumer Financial Protection Bureau suggests keeping yours no higher than 43%.
For those with poor credit, a trusted cosigner can make the difference between getting approved for credit or starting back at square one.
When someone cosigns for your loan theyâll need to provide information on their income, employment and credit score â as if they were applying for the loan on their own. Ideally, their credit score and income should be higher than yours. This gives your lender enough confidence to write the loan knowing that, if you canât make your payments, your cosigner is liable for the bill.
Since your cosigner is legally responsible for your debt, their credit is negatively impacted if you stop making payments. For this reason, many people are wary of cosigning.
In a recession, it might be difficult to find someone with enough financial stability to cosign for you. If you go this route, have a candid conversation with your prospective cosigner in advance about expectations in the worst-case scenario.
3. Raise Your Credit Score
If your credit score just isnât high enough to qualify for conventional credit you could take some time to focus on improving it. Raising your credit score might sound daunting, but itâs definitely possible.Â
Here are some strategies you can pursue:
Report your rent payments. Rent payments arenât typically included as part of the equation when calculating your credit score, but they can be. Some companies, like Rental Kharma, will report your timely rent payments to credit reporting agencies. Showing a history of positive payment can help improve your credit score.Â
Make sure your credit report is updated. Itâs not uncommon for your credit report to have mistakes in it that can artificially deflate your credit score. Request a free copy of your credit report every year, which you can do online through Experian Free Credit Report. If you find inaccuracies, disputing them could help improve your credit score.Â
Bring all of your payments current. If youâve fallen behind on any payments, bringing everything current is an important part of improving your credit score. If your lender or credit card company is reporting late payments a long history of this can damage your credit score. When possible speak to your creditor to work out a solution, before you anticipate being late on a payment.
Use a credit repair agency. If tackling your credit score is overwhelming you could opt to work with a reputable credit repair agency to help you get back on track. Be sure to compare credit repair agencies before moving forward with one. Companies that offer a free consultation and have a strong track record are ideal to work with.
Raising your credit isnât an immediate solution â itâs not going to help you get a loan or qualify for a credit card tomorrow. However, making these changes now can start to add up over time.
4. Find an Online Lender or Credit Union
Although traditional banks can be strict with their lending policies, some smaller lenders or credit unions offer some flexibility. For example, credit unions are authorized to provide Payday Loan Alternatives (PALs). These are small-dollar, short-term loans available to borrowers whoâve been a member of qualifying credit unions for at least a month.
Some online lenders might also have more relaxed criteria for writing loans in a weak economy. However, you should remember that if you have bad credit youâre likely considered a riskier applicant, which means a higher interest rate. Before signing for a line of credit, compare several lenders on the basis of your quoted APR â which includes any fees like an origination fee, your loanâs term, and any additional fees, such as late fees.
If youâre trying to apply for a mortgage or auto loan, increasing your down payment could help if youâre having a tough time getting approved.
When you increase your down payment, you essentially decrease the size of your loan, and lower the lenderâs risk. If you donât have enough cash on hand to increase your down payment, this might mean opting for a less expensive car or home so that the lump sum down payment that you have covers a greater proportion of the purchase cost.
Loans vs. Credit Cards: Differences in Credit Approval
Not all types of credit are created equal. Personal loans are considered installment credit and are repaid in fixed payments over a set period of time. Credit cards are considered revolving credit, you can keep borrowing to your approved limit as long as you make your minimum payments.
When it comes to credit approvals, one benefit loans have over credit cards is that you might be able to get a secured loan. A secured loan means the lender has some piece of collateral they can recover from you should you stop making payments.
The collateral could be your home, car or other valuable asset, like jewelry or equipment. Having that security might give the lender more flexibility in some situations because they know that, in the worst case scenario, they could sell the collateral item to recover their loss.
The Bottom Line
Borrowing during a financial downturn can be difficult and it might not always be the answer to your situation. Adding to your debt load in a weak economy is a risk. For example, you could unexpectedly lose your job and not be able to pay your bills. Having an added monthly debt payment in your budget can add another challenge to your financial situation.
However, if you can afford to borrow funds during an economic recession, reduced interest rates in these situations can lessen the overall cost of borrowing.
These tips can help tidy your finances so youâre a more attractive borrower to lenders. Thereâs no guarantee your application will be accepted, but improving your finances now gives you a greater borrowing advantage in the future.
Have you ever applied for a credit card, car loan or mortgage? If so, then one of the first things the lender looked at was your FICO score. It has a major impact not only on getting approved in the first place, but also on the interest rate you will receive after approval.
On August 7, FICO announced some pretty major changes in how they will be calculating that ever-important number. Before you can understand how the changes will or won’t impact you, you need to have a firm grasp of the basics.
What is my FICO score?
Your FICO score, or credit score, is a number ranging from 300-850 that shows lenders how reliable you will be in repaying your debts. A bad score is anything below 560, not very good is 560-659, good is 660-724, very good is 725-759, and anything above 760 is classified as great. While it is best to be in the great range, you can sometimes qualify for the best available interest rates with 720 or above.
In order to calculate your credit score, FICO pulls information from your credit reports from the three major reporting agencies: Experian, TransUnion, and Equifax. When banks and other lending institutions consider your application, they look at several factors. The first is usually your FICO score, which will either get you in the door or get it slammed in your face, but after that they consider other aspects of your finances, such as income and the detailed history on the credit report itself.
What are the changes, and how will they affect me?
There will be four notable changes to how FICO evaluates your credit score once the announced new model is released. Some of them will be very good for some people, some of them will be bad for others, and some of them may prove to show negligible changes.
The first, and biggest, is that medical debts will no longer be considered when calculating your score. This is a huge relief. Many otherwise fiscally responsible people go into massive debt when a medical emergency happens. Others don’t even know they owe money on medical bills in the first place, as they thought their insurance was going to cover their costs. When they realize they owe money, the responsible consumers pay it back, but it still leaves a scar on their credit report and, therefore, their FICO score.
With this new change, your FICO score will not be impacted. In fact, if you have no other negatives on your credit report (which would mean you most likely have a halfway decent score), you can expect to see your FICO score increase by up to 25 points.
Changes will also be made in considering debts that you have paid off. Currently, after you’ve paid off a debt, it stays on your credit report for seven years. That will continue to be the case after FICO’s updates go into effect, but FICO will no longer look at those debts, even though they show up on your credit report. If you have consumer debts that you have paid off, and they’re the only thing holding you back, you may see your score improve, as well.
There will also be an update to consider the creditworthiness of people who do not have an extensive report, taking into consideration things beyond just paying your month-to-month bills on time. (A lot of times, the people you are paying those bills to don’t even report that anyways.) Depending on how this is done, it could be a boon for those who are unable to get credit not because they are irresponsible, but simply because they have never chosen to borrow money before.
The final update is not good news for those who hold consumer debt. If you owe money and it isn’t paid in full, you can expect to see your credit score take a hit.
Hold your horses – and your enthusiasm.
While FICO has announced that it will make these changes, the new model has not gone into effect. It will not be ready to release to lenders until late 2014 or early 2015. Even then, banks have to choose to adopt it. Thismodel will be FICO 9. FICO 8 was introduced in 2009, and some lending institutions still have not updated since FICO 7. Just because they are releasing a new model doesn’t mean that your lending institution will apply it to their evaluation process.
Another thing to remember is that while your FICO score gets you in the door, banks will look at your credit report. All of those things FICO ignores will still show up. If your medical debts are deemed too oppressive for you to possibly be able to pay for a mortgage on top of them, you may still be denied. And while FICO will ignore debt that has been paid off and closed, it will still stay on that pesky credit report for seven years for all of your potential lenders to see.
While these changes could be a great way to get your foot in the door with lenders, they’re not a holy grail to your credit problems. The same tried and true wisdom will still apply: Spend responsibly, make sure the information on your credit report is accurate and pay off any debts as quickly as possible.
Femme Frugality is a personal finance blogger and freelance writer. You can find more of her writing onÂ her blog, where she shares both factual articles and esoteric ruminations on money.
The post What Do New FICO Changes Mean for Me? appeared first on MintLife Blog.
Credit cards, interest rates, loans, even where you liveâthese all depend on your credit score. If you have a good credit score, youâre more likely to get better financial offers. But if you have a low or nonexistent score, the chances of getting prime financial offers are pretty slim.
If you have low or nonexistent credit, improving your credit can seem almost impossible. Because you donât qualify for the best financial offers, you canât get the opportunities you need to bump up your credit. Plus, youâll probably find yourself paying a lot more interest than youâd like.
This might feel like a no-win situation. But thereâs good newsâthere are alternatives to building credit besides credit cards. Those with poor or nonexistent credit can have the opportunity to build up their scores. Learn about good credit scores and how you can work to get your rating in that range.
What Is a Good Credit Score?
If youâre completely unfamiliar with credit, itâs time to learn where your credit score stands. Hereâs the breakdownâcredit scores range between 300 and 850. According to Experian, an average credit score for Americans is around 675.
Credit scores are ranked as bad, poor, fair, good or excellent. Experianâs numbers are based on a model called VantageScore. The VantageScore model is broken down to the following:
FICO scores are based on a slightly different model with a range of 300 to 850. The average FICO score in 2018 was 704. For FICO ratings, a good or excellent score is above 740. Hereâs the breakdown of FICO Score ratings:
Very good: 740-799
Very Poor: 300-579
How to Build Low or Nonexistent Credit
It is possible to get a credit card for bad credit. But youâll find that theyâll either have no rewards, higher interest rates or both. These are worth looking into, but you might want to consider other methods before you commit to a credit card. Here are some great options for building your credit scoreâthat arenât getting a credit card.
1. Get a CreditStrong Account
In a frustrating turn of events, building or rebuilding credit often requires that you have some credit to begin with. Thatâs where credit builder loans, such as the ones provided by CreditStrong, come in handy. Credit builder loans allow you to take out a loan without a hard credit pull. The money is placed in a locked savings account to secure the loan.
Once you make the required payments, the savings account is unlocked and you gain access to the funds. In the meantime, you get up to 24 months of positive payment reports to the credit bureaus, helping to build your score.
Each loan payment you make will be reported to all three credit bureaus each month, which will help build your credit history. Because 35% of your credit score is based on payment history, making on-time payments towards a CreditStrong account can improve your score.
2. Try Experian Boost
You already know that payment history makes up 35% of your credit score. Experian knows that, too. Thatâs why they launched Experian Boost earlier this year. This program allows you to include both your cell phone and utility payments in the calculation of your credit score.
Worried that youâll miss a payment or two? Missed payments will typically harm your credit score, but Experian only counts the payments youâve made on time. That means that any bill you donât pay on time wonât harm your score. While you should try to pay your bills on time, this is a life-saver if you accidentally slip up on a payment or two.
3. Improve Your Credit with Rent Track
When you have a low credit score, any payment you continually make on time helps. RentTrack is a great rent reporting tool that will track your rent payments, therefore helping you build your score. RentTrack is often used by property management companies, letting their tenants pay rent online.
How does this help your credit score? When you pay your rent, RentTrack offers to report your payments to all three major credit bureaus. If you choose to do, every payment you make will show up on your credit report. Make your payments on time, and youâll watch your credit score increase over time.
The post 3 Ways to Build Credit if You Can’t Get a Credit Card appeared first on Credit.com.
The national average credit card APR held steady this week after inching up two weeks in a row. This is the second consecutive week that the average APR for brand-new credit cards has registered 12 basis points above 16%, according to the CreditCards.com Weekly Credit Card Rate Report.
Meanwhile, this is the 46th consecutive week that the average new card APR has remained within rounding distance of 16%.
The average APR is still historically expensive
CreditCards.com has tracked the standard APRs of a representative sample of 100 online card offers every week since mid-2007.Â
Currently, APRs on brand-new credit cards are down considerably compared to recent years. For example:
The average yearly APR in 2019 was 17.57%.
In 2018, it was 16.8%.
In 2020, it was 16.32%.
But historically, interest rates on brand new offers are still quite high. For example:
In 2017, for example, the average yearly APR stood at 15.89%.
In 2016, it was 15.18%.
And between 2011 and 2015, it remained stubbornly within rounding distance of 15% every year.
When CreditCards.com first began checking interest rates, by contrast, new card APRs were even lower â in part because lenders had more freedom then to quickly hike cardholdersâ APRs once a brand-new card was opened.
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For example, the average lender advertised an 11.54% APR in 2008, according to CreditCards.com data. In 2009, the average credit card APR started at 12.34%. But at the time, a cardholder who opened a card with such a low rate was at higher risk than they are today to watch their credit card APRs go up quickly.
The Credit CARD Act of 2009 sought to protect cardholders from surprise rate hikes by requiring lenders to give anyone with an open credit card account at least 45 daysâ advance notice before hiking their APR. As a result, lenders appeared to become significantly more cautious about the starting rates they advertised. For example, in 2010, the average card APR climbed from 12.87% in January to 14.68% in December. Average rates then remained near 15% for several consecutive years.
Lenders clearly became more comfortable with revising new card APRs after 2016, though. Â When the Federal Reserve revises its benchmark interest rate, most new card APRs change by the same amount.
Lenders also began independently revising card offers more often, particularly between 2017 and early 2020. But the economy soured last spring, prompting the Federal Reserve to slash federal interest rates to near zero. As a result, lenders have become much more reluctant to significantly revise offers.
Majority of lenders appear to be avoiding major changes
None of the lenders tracked by CreditCards.com shook up credit card terms this week. But these days, thatâs nothing new. Most credit card issuers have become much slower than they were in recent years to dramatically alter credit card pricing. As a result, many of the most popular credit cards have appeared frozen in time for much of the past year.
Among the 100 cards checked weekly by CreditCards.com, for example, more than 90% of cards currently advertise the exact same APR that they advertised months ago. Meanwhile, a majority of cards included in the weekly rate report havenât advertised a new credit card APR since last spring.
U.S. Bank has remained the one exception: it has made a number of dramatic rate changes in recent months and has been responsible for most of the rate changes CreditCards.com has recorded since November 2020.
See related:Â How do credit card APRs work?
CreditCards.com’s Weekly Rate Report
6 months ago
Methodology: The national average credit card APR is comprised of 100 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)
Updated: February 10, 2021
Historic interest rates by card type
Some credit cards charge even higher rates, on average. The type of rate you get will depend in part on the category of credit card you own. For example, even the best travel credit cards often charge higher rates than basic, low interest credit cards.
CreditCards.com has been calculating average rates for a wide variety of credit card categories, including student cards, balance transfer cards, cash back cards and more, since 2007.
How to get a low credit card interest rate
Your odds of getting approved for a cardâs lowest rate will increase the more you improve your credit score. Some factors that influence your credit card APR will be out of your control, such as the length of time youâve been handling credit.
However, even if youâre new to credit or are rebuilding your score, there are steps you can take to ensure a lower APR. For example:
Pay your bills on time. The single most important factor influencing your credit score â and your ability to win a lower rate â is your track record of making on-time payments. Lenders are more likely to trust you with a competitive APR â and other positive terms, such as a big credit limit â if you have a lengthy history of paying your bills on time.
Keep your balances low.Â Lenders also want to see that you are responsible with your credit and donât overcharge. As a result, credit scores take into account the amount of credit youâre using, compared to how much credit youâve been given. This is known as your credit utilization ratio. Typically, the lower your ratio, the better. For example, personal finance experts often recommend that you keep your balances well below 30% of your total credit limit.
Build a lengthy and diverse credit history. Lenders also like to see that youâve been successfully using credit for a long time and have experience with different types of credit, including revolving credit and installment loans. As a result, credit scores, such as the FICO score and VantageScore, factor in the average length of your credit history and the types of loans youâve handled (which is known as your credit mix). To keep your credit history as long as possible, continue to use your oldest credit card so your lender doesnât close it.
Call your lender. If youâve successfully owned a credit card for a long time, you may be able to convince your lender to lower your interest rate â especially if you have excellent credit. Reach out to your lender and ask if theyâd be willing to negotiate a lower APR.
Monitor your credit report. Check your credit reports regularly to make sure youâre being accurately scored. The last thing you want is for a mistake or unauthorized account to drag down your credit score. You have the right to check your credit reports from each major credit bureau (Equifax, Experian and TransUnion) once per year for free through AnnualCreditReport.com.
When you are looking to buy a vehicle, the first thing you should do is apply for a preapproved loan. The loan process can seem daunting, but itâs easier than you think and getting preapproval prior to going to the car dealer may help alleviate a lot of frustration along the way.
Before you shop for a loan, check your credit report. The better your credit, the cheaper it is to borrow money and secure auto financing. With a higher credit score and a better credit history, you may be entitled to lower loan interest rates, and you may also qualify for lower auto insurance premiums.
Review your credit report to look for unusual activity. Dispute errors such as incorrect balances or late payments on your credit report. If you have a lower credit score and would like to give it a bit of a boost before car shopping, pay off credit card balances or smaller loans.
If your credit score is low, donât fret. A lower score wonât prevent you from getting a loan. But depending on your score, you may end up paying a higher interest rate. If you have a low credit score and want to shoot for lower interest rates, take some time to improve your credit score before you apply for loans or attempt to secure any other auto financing.
2. Know Your Budget
Having a budget and knowing how much of a car payment you can afford is essential. You want to be sure your car payment fits in line with your other financial goals. Yes, you may be able to cover $400 a month, but that amount may take away from your monthly savings goal.
If you donât already have a budget, start with your monthly income after taxes and subtract your usual monthly expenses and how much you plan to put in savings each month. For bills that donât come every month, such as Amazon Prime or Xbox Live, take the yearly charge and divide it by 12. Then add the result to your monthly budget. If youâre worried, you spend too much each month, find simple ways to whittle your budget down.
Youâll also want to plan ahead for new car costs, such as vehicle registration and auto insurance, and regular car maintenance, such as oil changes and basic repairs. By knowing your budget and what to expect, you can easily see how much room you have for a car payment.
3. Determine How Much You Can Afford
Once you understand where you are financially, you can decide on a reasonable monthly car payment. For many, a good rule of thumb is to not spend more than 10% of your take-home income on a vehicle. In other words, if you make $60,000 after taxes a year, you shouldnât spend more than $500 per month on car payments. But depending on your budget, you may be better off with a lower payment.
With a payment in mind, you can use an auto loan calculator to figure out the largest loan you can afford. Simply enter in the monthly payment youâd like, the interest rate, and the loan period. And remember that making a larger down payment can reduce your monthly payment. You can also use an auto loan calculator to break down a total loan amount into monthly payments.
Youâll also want to think about how long youâd like to pay off your loan. Car loan terms are normally three, four, five, or six years long. With a longer loan period, youâll have lower monthly payments. But bewareâa lengthy car loan term can have a negative effect on your finances. First, youâll spend more on the total price of the vehicle by paying more interest. Second, you may be upside down on the loan for a larger chunk of time, meaning you owe more than the car is actually worth.
4. Get Preapproved
Before you ever set foot on a car lot, youâll want to be preapproved for a car loan. Research potential loans and then compare the terms, lengths of time, and interest rates to find the best deal. A great place to shop for a car loan is at your local bank or credit union. But donât stop thereâlook online too. The loan with the best terms, interest rate, and loan amount will be the one you want to get preapproved for. Just know that preapproved loans only last for a certain amount of time, so itâs best to get preapproved when youâre nearly ready to shop for a car.
However, when you apply, the lender will run a credit checkâwhich will lower your credit score slightlyâso youâll want to keep all your loan applications within a 14-day period. That way, the many credit checks will only show as one inquiry instead of multiple ones.
When youâre preapproved, the lender decides if youâre eligible and how much youâre eligible for. Theyâll also tell you what interest rate you qualify for, so youâll know what you have to work with before you even walk into a dealership. But keep in mind that preapproved loans arenât the same as final auto loans. Depending on the car you buy, your final loan could be less than what you were preapproved for.
In most cases, if you secure a pre-approved loan, you shouldnât have any problems getting a final loan. But being preapproved doesnât mean youâll automatically receive a loan when the time comes. Factors such as the info you provided or whether or not the lender agrees on the value of the car can affect the final loan approval. Itâs never a deal until itâs a done deal.
If you canât get preapproved, donât abandon all hope. You could also try making a larger down payment to reduce the amount you are borrowing, or you could ask someone to cosign on the loan. If you ask someone to cosign, take it seriously. By doing so, you are asking them to put their credit on the line for you and repay the loan if you canât.
When co-signing a car loan, they do not acquire any rights to the vehicle. They are simply stating that they have agreed to become obligated to repay the total amount of the loan if you were to default or found that you were unable to pay.
Co-signing a car loan is more like an additional form of insurance (or reassurance) for the lender that the debt will be paid no matter what.
Usually, a person with bad credit or less-than-perfect credit may require the assistance of a co-signer for their auto financing and loan.
5. Go Shopping
Now youâre ready to look for a new ride. Put in a little time for research and find cars that are known to be reliable and fit into your budget. Youâll also want to consider size, color, gas mileage, and extra features. Use resources like Consumer Reports to read reviews and get an idea of which cars may be best for you.
Once you have narrowed down the car you are interested in, investigate how much itâs worth, so you arenât accidentally duped. Sites such as Kelley Blue Book or Edmunds can help you figure out the going rate for your ideal car. After youâre armed with this information, compare prices at different car dealerships in your area. And donât forget to check dealer incentives and rebates to get the best possible price.
By following these steps, youâll be ready to make the best financial decision when getting a car loan. Even if you arenât ready to buy a car right now, it doesnât hurt to be prepared. Start by acquiring a free copy of your credit summary.
It is always a good idea to pull your credit reports each year, so you can make sure they are as accurate as they should be. If you find any mistakes, be sure to dispute them with the proper credit bureau. Remember, each credit report may differ, so it is best to acquire all three. If you want to know what your credit is before purchasing a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.comâs free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter gradesâplus you get a free credit score updated every 14 days.
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