Interest rates are still at some of the lowest they’ve ever been — making it super tempting to finally get a new ride. Plus, all these crazy car deals are being advertised… how could you not take advantage?
Whether you’re eyeing a shiny new vehicle or a pre-loved one, there are a few things you need to get in order before you sign on the dotted line: your credit score and your car insurance. If either of them aren’t taken care of properly, you could end up paying an extra $7,600 — or more.
If you can afford the car, why does your credit score matter?
Financing a new or used car isn’t any different from getting a mortgage or taking out a personal loan — at least not when it comes to the interest rate.
People with better credit scores get better interest rates, period. WalletHub found that someone with fair credit will likely spend five times more than someone with excellent credit on the same three-year, $20,000 car loan. That’s an average of $5,997— a quarter of the car itself!
Even if you can afford the car, don’t make the mistake of paying 25% more just because your credit score is meh. That number is something you can fix, and you can start by checking it on a free website called Credit Sesame.
Within two minutes, you’ll get access to your credit score, any debt-carrying accounts and a handful of personalized tips to improve your score. You’ll even be able to spot any errors holding you back (one in five reports have one).
It’s free and only takes about 90 seconds to sign up. Use it to start fixing your credit, and you could save almost $6,000 on your car loan.
A required bill for your new car doesn’t have to be an expensive one.
The other way you could be wasting serious cash is through your car insurance. It’s easy to just keep your old insurance company when you drive your new car off the lot — but it could mean hundreds of dollars down the drain each year.
When you’re ready to buy your new car, check a website like Insure.com to compare car insurance prices. All you have to do is enter your ZIP code and your age, and it’ll show you your options.
People have saved an average of $540 a year — that’s an extra $1,620 while you pay off your three-year car loan. All it takes is a few minus to look at your options.
So before you decide to buy a car, make sure you have your credit score in check and your car insurance options lined up. If not, you could be making a very pricey mistake.
Whether your mailbox is stuffed full of past-due notices or your phone is ringing off the hook, you can’t ignore your creditors forever. And it’s always better to try and work out a deal before the situation becomes serious. If it gets worse, your debt gets sent to a collection agency.
Negotiating with creditors can help your finances in the long run and will definitely save your credit. Don’t worry about being nervous about trying to strike a deal. We’ve got you covered with the best tips for successfully working with your creditors.
Be Honest and Direct
Start the conversation with your creditor by explaining why you’ve fallen behind on your payments. Never lie or embellish the facts. Instead, come up with a brief summary of why you’ve endured economic hardship and how you’re working to move forward.
Maybe you lost your job and you’re currently looking for a new one. Perhaps someone in your family got sick unexpectedly and you’ve had major medical bills to catch up on. Or maybe you’re coming out of a costly divorce and are finally getting back on your feet. Keep your explanation limited to just a couple of sentences, otherwise, it might sound like you’re making excuses.
Always conclude with the fact that you’re ready to make things right and come to an agreement. If it’s easier for you, practice your short speech a few times before picking up the phone. That way you’ll sound more confident and avoid getting flustered when actually speaking with the creditor.
Leave Your Emotions at the Door
Sometimes representatives in the collections department are trained specifically to try and make you lose your cool. The guiltier you feel, the more likely you are to quickly agree to anything they say. These pressure tactics can be intimidating, but don’t let them get the best of you. Treat the entire negotiation process like it’s a business transaction because that’s really what it is.
At the end of the day, that person on the other end of the line is going to go home to a nice dinner and not think twice about the conversation the two of you had. You should do the same. Stay calm and professional. If you find yourself feeling bullied or losing your temper, quickly end the conversation and call back at another time.
You don’t have to come up with an elaborate story; simply excuse yourself and say that something has come up, then just hang up the phone. You can always try again later once you’ve got your head back on straight.
Know Your Rights
There’s a fine line between a creditor trying to bully you and actually threatening you in an illegal manner. That’s why it’s important to know exactly what your rights are in the negotiation process.
Consumer protection laws like the FDCPA are in place to ensure you are not overly burdened by creditors or collection agencies. For example, they may not call you before 8:00 a.m. or after 9:00 p.m.
You can also write them a letter requesting that they stop contacting you. They’re required to oblige, and may then only call to inform you of a specific action being taken upon your account.
If you feel like they have violated any of your rights, you can report it to the Consumer Financial Protection Bureau (CFPB), Better Business Bureau (BBB), or your state’s attorney general.
Keep Diligent Records
Tracking every step of the debt settlement process is vital; otherwise, you might get stuck in a “he said, she said” situation. And let’s face it, that’s probably not going to work out in your favor. Your first step is to read and save all of your mail you receive from your creditors.
You’ll also want to make copies of any letters you send out, just to have verification of each channel of communication. Be sure to send everything via certified mail so the creditor can’t claim they never received your letters.
In addition to keeping records of your mail, you’ll also want to take notes of everything that happens on your phone calls. Record the date and time of the call, as well as the name of the representative you speak with. Then write down the key talking points you discuss. This gives you a handy reference to use later and also helps keep you focused during the conversation.
Create a Financial Plan
Before you even contact a creditor to negotiate a deal, you need to come up with a game plan so you know exactly what you’re willing to offer. Most creditors would rather take one big payment than a monthly installment plan because it ensures they get paid quickly, instead of risking more missed payments.
This situation is actually better for you, too, because you avoid having to pay extra fees or interest on the new payments. But whichever type of plan you decide on, first take a look at your finances and figure out what exactly you can afford. You don’t want to put yourself in the position of not being able to make your payments again.
Do you have some cash set aside that you can offer as a lump sum? Is there anything you can cut out of your budget in order to make new monthly payments? Have a maximum dollar amount in mind so you can negotiate in your own best interest.
Avoid Going to Collections
Having your debt sent to a debt collector is best to be avoided if at all possible. Get started negotiating with creditors early so that you can work directly with them. Once your account is sent to collections, it’s noted on your credit report and can cause serious damage to your credit score.
While the impact on your credit score lessens over time, the collection stays on your credit report for seven years. That can really affect your future ability to get approved for loans or credit cards, and you certainly will pay for it in higher interest rates.
Demand a Contract
Once you’ve reached an agreement with a creditor, make sure they send you a written agreement stating all of the details of your arrangement. If they don’t, there is the possibility that they could make a different note on your account and make you go through a different payment process than the one you agreed on.
Get it in writing before you make a payment. Ensure they include the full amount you owe and any payment terms such as length of time (if doing a monthly plan), interest rate, and fees.
You should also have them agree to remove the late payment from your credit report. This is an easy step to repair your credit, and creditors are usually happy to do this for you, especially if you’re paying them a lump sum.
Work with a Professional Debt Settlement Company
In case you find yourself completely overwhelmed or unprepared for the negotiation process, consider getting help from a professional. Start by finding a reputable credit counseling agency or debt settlement company. They’ll take a look at your finances to help you decide the best path going forward to settle your debts. They can also call the creditor on your behalf to reach an agreement.
This can work out well because it’s your credit counselor’s job — unlike you, they aren’t emotionally involved in the situation. But you’re also a paying client, so it’s in their best interest to get you a good deal.
If you have so much credit card debt that you don’t think you’ll ever be able to repay it, you might consider talking to a bankruptcy attorney. Declaring bankruptcy comes with huge financial repercussions, so this is not a decision to be taken lightly.
If your debt burden stems mostly from student loans, you probably won’t be able to get those deleted through a bankruptcy. Make sure you exhaust all of your other options before filing for bankruptcy because it will take years to recover.
Move Forward with Better Credit
Once you’ve gone through the debt settlement process, it’s time to create a game plan for moving forward. Start working on repairing your credit so you can rebound from your debt as quickly as possible.
Credit repair takes time, so the sooner you begin, the sooner you’ll see results. There are a number of ways to remove negative items from your credit report, which will automatically contribute to a higher credit score.
On top of fixing your credit, you should also take a look at your finances to understand how you got into so much debt in the first place. You can’t help unexpected expenses that crop up because of life, but you can try to prepare for them. Pare down your budget so you can put extra money into your savings account for a rainy day.
Once you have a sizable nest egg set aside for emergencies, you can loosen the slack on your spending. Just remember to keep contributing to your savings and never charge more than you can pay off at the end of each month. If you can follow these simple steps, your debt problems will become a thing of the distant past.
Good credit is essential if you hope to borrow money one day for things like a new car or home. But good credit can also be important for smaller things like renting an apartment or even landing a new job. And one of the easiest ways to build the credit necessary for these things is by getting a credit card.
If you have no credit, or even bad credit, and you’re averse to getting a secured credit card to help improve your credit, there are other ways to go about establishing and building good credit.
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Here are three other options for building credit and improving your credit scores.
1. Get a Credit-Builder Loan
A credit builder loan is a loan with a set amount you pay back over a set period of time (referred to as an installment loan). Most have repayment terms ranging from six months to 18 months, and because these loans are reported to one or more of the three national credit reporting agencies, on-time payments will help build up your credit.
Here’s how it works: A lender places your loan into a savings account, which you can’t touch until you’ve paid it off in full, allowing you to build credit and savings at the same time. And because loan amounts for credit builder loans can be quite small (just $500) it can be much easier to make monthly loan payments.
Credit-builder loans are best for people with no credit or bad credit. But, if you have good credit but don’t have any installment accounts on your credit report, a credit-builder loan could potentially raise your score since account mix is another major credit-scoring factor.
2. Pay Your Rent
If you’re in the process of moving or need to do so in the near future, it’s a good idea to find a landlord who reports your rent payments to the major credit bureaus. Depending on what credit report or credit score is being used, these on-time monthly rent payments can give you a quick and easy credit reference and help you qualify for a loan (or at least another apartment down the road).
3. Become an Authorized User
Asking your spouse, partner or even your parent to add you onto one of their accounts as an authorized user could give your credit a boost. If the account they put you on has a perfect payment history and low balances, you’ll likely get “credit” when that account starts appearing on your credit reports. You won’t necessarily need to use the card to benefit from this strategy. It is a good idea to have your friend or family member check with their issuer to be sure that it reports authorized users to the three major credit reporting agencies (not all do).
Remember, one of the most important things in building good credit is making timely loan and bill payments. Bills like rent or utilities may not be universally reported to the credit bureaus, but if they go unpaid long enough, they can hurt your credit, especially if they go into collection. (You can see how any collections accounts may be affecting your credit by viewing your two free credit scores, updated every 14 days, on Credit.com.)
If your credit is in rough shape, due to a collection account or other payment history troubles, you may be able to improve your scores by paying delinquent accounts, addressing high credit card balances and disputing any errors that may be weighing them down. And remember, you can build good credit in the long term by keeping debt levels low, making timely payments and adding to the mix of accounts you have as your score and wallet can handle it.
[Offer: If you need help fixing your credit, LexingtonLaw can help you meet your goals.Learn more about them here or call them at (844) 346-3296 for a free consultation.]
It’s easy to get your credit report for free; in fact, you can get all three copies from each major credit bureau for no charge every 12 months. Unfortunately, while your credit history contains all the financial information contributing to your credit score, it doesn’t include the credit score itself.
Several websites, like Credit Karma and Credit Sesame, offer free credit scores, but they use their own calculation rather than the FICO score. And since the FICO score is the one used by most lenders in the country, it’s the one you’ll want to pay close attention to.
VantageScore 3.0, while less popular, is also a good option because it’s actually calculated by the credit bureaus, and its usage among financial institutions is increasing.
But unless you’re willing to pay for your FICO score or VantageScore, it’s difficult to get an accurate view of your credit score.
How to Get Free FICO Scores
Luckily, more and more credit card issuers are giving their customers free access to their personal FICO scores, and often even include credit monitoring service. Browse the list to see if any of your current credit cards provide this complimentary service.
If your credit card isn’t on the list but you’ve been considering getting a new credit card for other reasons, you can use these as a starting point to select the right one for you. Just remember that you never need to carry a balance on your credit card to take advantage of a free FICO score offer.
Which Credit Cards Offer Free FICO Scores?
Here is a comprehensive list of credit cards that offer a free FICO score. You’ll find out what type of card you need, or whether general bank membership is enough to qualify.
Who Can Access
American Express Offers FICO score to cardholders. Compares your current score to your previous month’s score, and shows what category you’re in.
Bank of America Gives cardholders their TransUnion scores from FICO. It shows you the trend of your recent FICO scores and how you compare to others nationally. You can see what is influencing your score, and also get notifications when your updated score is available.
Barclaycard US Also uses your TransUnion FICO score. You’ll receive an email alert whenever your score changes, plus information on why it has changed.
Chase Provides FICO 8 scores using your Experian credit report. In addition to your score, you’ll get an analysis on why your FICO score is at that number, plus information on how you can improve your score.
Citi Get your FICO score using information from your Equifax credit report. Provides a helpful chart with your score that shows how lenders interpret different score ranges.
Certain Account Holders
Commerce Bank Your FICO credit score is included on every monthly statement, along with why you scored that way and tips on improving your score. Also shows you how your score could potentially affect rates and terms.
Discover Comes from your TransUnion credit report. You’ll receive your free FICO score on your monthly statement and can also access it online. There you’ll also see the two largest factors affecting your credit.
First Bankcard You’ll get monthly access to your FICO 8 Bankcard Score, which is what banks use to analyze their customers. You can access your credit information online, where you’ll also see the major contributing factors to your FICO score.
Walmart Credit Card In addition to your monthly FICO score, you’ll also see the top two reasons impacting your number. Free service for those enrolled in online statements.
Cardholders Enrolled in E-Statements
Wells Fargo Currently offered to credit cardholders, and will soon include anyone with any line of credit with Wells Fargo, including a mortgage, car loan, student loan, or personal loan. Your free FICO score is offered through the bank’s app on your smartphone or tablet.
Anyone with a Consumer Credit Account
Credit Cards Offering Other Free Credit Scores
The credit cards listed below don’t offer FICO scores, but they do offer other reputable credit scores from some of the credit bureaus.
Who Can Access
Capital One (VantageScore 3.0) Capital One’s free credit monitoring tool is called CreditWise. Anyone can create an account to logon and access their credit score, either online or through the smartphone app.
US Bank (Experian) Cardholders get automatic access when they log into their accounts online.
USAA Bank (VantageScore 3.0) Both bank members and credit cardholders receive daily credit monitoring from Experian. You can see your current credit score as well as past scores, and you’ll get regular alerts on any changes.
Why is it important to check your FICO score?
Keeping track of your FICO score is an important part of maintaining your finances. It doesn’t matter if you’re actively working to repair your credit or are preparing for a major purchasing involving a loan. Whether you know you have good credit or aren’t entirely sure, the point is — you need to know.
Compare it to getting a dental checkup and cleaning every few months. You might not have any cavities, but you still go to prevent getting any in the future. Checking your FICO score works the same way.
If you find out your number is low, you can get the help you need to fix it. If your FICO score is on par, you know it’s a good time to get the best rates on a new loan, or refinance any current loans to a lower interest rate.
Why do your credit scores differ?
Even if you use the same scoring company, like FICO or VantageScore, you may receive a few different credit scores. It may seem strange that these numbers should differ, but in reality, it’s not uncommon at all.
That’s because you receive a separate credit score for each of the three credit bureaus: Equifax, Experian, and TransUnion.
Each credit bureau may collect slightly different financial data that contributes to your FICO score. In some cases, your creditors may only report information to only one or two of the credit bureaus.
It may seem complicated, but lenders view all three credit scores to get a more holistic look at your credit history. Typically they use your middle score to determine your loan terms.
If you’re applying for a loan with a spouse or someone else, the lender usually uses the lower of the middle credit scores. So if your middle score is a 680 but your spouse’s is just a 625, the lender will go with the 625 for your loan application.
How can you improve your FICO score?
The good news is, once you’ve accessed your FICO score, you’ve already taken the first and most important step in fixing your credit.
Knowledge is power and it can be especially helpful if you have access to information on why your credit score is where it is. Even if you don’t, it’s easy to look at your free credit report and see what negative items jump out.
Anything like late payments or delinquencies will quickly lower your FICO score. It’s best to get those accounts into good standing and continue to make payments on time.
Lower Your Credit Utilization
Lowering the amount of debt you owe is also a straightforward way to improve your credit score. It may not be easy to make those extra payments on your credit card each month, but lowering your credit utilization can have quick results if you’re trying to increase your credit score fast.
Remove Negative Items
You can also explore your options in getting derogatory items removed from your credit history.
It’s is possible to do on your own, but it’s also helpful to enlist a professional credit repair company, especially if you have several negative items. Reputable companies understand your rights when it comes to dealing with creditors and collection agencies.
While handling credit negotiations can potentially take a lot of time over the course of several months, a credit repair firm takes that burden off your shoulders.
Plus, you don’t have to deal with the emotional issues that come with trying to negotiate credit repair. Instead, you have a professional counselor who is highly trained to work on your behalf.
For a full list of great companies to work with, check out our list of reviews here.
Monitor Your Credit
Regularly checking your credit score is great for your financial health. And if you can take advantage of a free monitoring service through your credit card or bank, then you’re already one step ahead of most people.
Jump on the opportunity to keep a routine eye on your credit score. Not only does it help keep you up to date on important financial information, seeing that number on a regular basis can be a strong motivation to keep your spending and payments on the straight and narrow.
As you make another large purchase against your credit card, inching closer towards maxing out, you might not realize the negative ramifications this activity will have on your credit score. The same goes for making the odd late payment on your hydro bill or car loan payment. Mounting debt that is not paid off in time or in full can have a major impact on your credit score.
A bad credit score can have more negative consequences than you may think
So what’s the big deal about having a low credit score? These days many institutions – from loan officers, to businesses, to insurance companies – look to your credit history before making a move. You could find your low credit score putting you in a position where you can’t get approved for a loan, get a job, or even find a place to live. Here are 6 damaging side effects of having bad credit.
1. Your Loan Applications Might Not Be Approved
Lenders and creditors see borrowers with poor credit as high risk, which means they’ll be less inclined to lend you the money you need. Whether you’re looking for a mortgage to buy a home, or a loan to finance a new car, you might find your loan applications being denied.
2. You’ll Be Subject to High Interest Rates
If you do get approved for a loan, you’ll most likely end up being stuck with a really high interest rate. Since lenders see people with a poor credit score as risky business, they’ll make you pay for it by attaching your loan with a sky-high interest rate. The higher your interest rate on your loan, the more you’ll be paying towards interest rather than the principle over the long run of your loan period.
3. You’ll Be Subject to Higher Insurance Premiums
Even insurance companies check background credit scores. Their claim is that poorer credit scores are associated with an increased number of claims filed. This theory prompts insurance providers to check a person’s credit background. If they find that you’ve got a credit score that’s less-than-par, you’ll most likely be charged a higher premium, no matter how many claims you’ve actually filed.
Do you know the ramifications of having a bad credit report?
4. You Might Have a Tougher Time Landing a Job
Many jobs – especially ones in upper management or in the financial industry – have specific criteria that potential employees need to meet, including having a strong credit score. You might find it a lot more challenging to land the job you want because of your bad credit history, particularly if you’ve got exorbitant debts amounts outstanding, or even a history of bankruptcy.
5. Starting Your Own Business Might Be a Challenge
Not only will finding a job be more difficult with a low credit score, but even starting your own business might be a challenge. Many new businesses need the assistance of a bank loan to get started. With a low credit score, banks will be less likely to approve your loan application, even if your business idea is a great one.
6. You’ll Have a Harder Time Getting Approved for an Apartment
Even landlords check the credit history of potential tenants. If you’ve got bad credit, the landlord might be less inclined to approve a lease, and will sign it over to a tenant with good credit instead. Landlords, much like insurance companies and banks, make the assumption that those with poorer credit are more likely to be delinquent on monthly payments, which puts them at a greater financial risk.
The consequences of having poor credit may be a lot more extensive than you may have thought. Your best bet is to do everything you can to get your credit back into shape, which can be done a lot more easily with effective tools like those at Mint.com.
You can quickly and easily put your finances in order, with Mint doing all the organizing and categorizing of your spending on your behalf. By being able to see where all of your spending is going, you’ll be better able to make better spending decisions, which will only have a positive impact on your credit.