Best Buy Headlines Busy Week of Retail Earnings

This week will be a short but busy one on Wall Street.

U.S. stock markets are closed Thursday for the Thanksgiving holiday and trading will end early on Friday. However, there’s still plenty of action packed into the three days leading up to the holiday, with Best Buy (BBY, $136.81) among several retail companies set to report earnings.

According to the earnings calendar, the big box retailer will unveil its third-quarter report ahead of Tuesday’s open. Shares have been racing higher since early October – up roughly 30% to trade in record-high territory – and a positive reaction to earnings could keep the wind at the consumer stock’s back.

Analysts, on average, are looking for Best Buy to report an 8.3% year-over-year decline in earnings to $1.89 per share. Revenue is also expected to take a step back, with the $11.53 billion expected down 2.3% from what the company reported a year ago.  

Still, UBS analyst Michael Lasser (Neutral) feels Best Buy is “well positioned to report another set of solid results in the third quarter, even as it faces steep compares.”

He also believes Best Buy “continued to execute on a favorable industry backdrop in the third quarter” and that “strong vendor relationships” have been critical to the company navigating global supply chain disruptions.

However, “The key for BBY’s investment case is how will it perform into 2022 when spending is likely to shift away from the consumer electronics category,” Lasser says. “Its strategies can likely cushion the impact.” Among these strategies is the company’s recently launched Totaltech around-the-clock tech support membership program, which he believes “offers good near-term potential.”

Argus Research analyst Chris Graja (Hold) admits the company is facing some major challenges – COVID-19 disruptions, strong competition, and product innovation that is consolidating music, gaming and computing into lower-margin devices like smartphones and tablets, for instance – but it has also positioned itself well for the long term. 

“Best Buy’s online capabilities and curbside service are helping the company through the COVID-19 crisis,” Graja writes in a note. “We see this as a validation of the company’s investments in its e-commerce infrastructure and management’s ability to adapt.”

Oppenheimer analyst Brian Nagel agrees. 

“BBY performed well through the coronavirus crisis and capitalized upon stepped-up demand for consumer electronics and home office-type products, as workers and students adapted quickly to hybrid or fully at-home models,” he says. 

Nagel currently has a Perform (Hold) rating on BBY, but adds that he is “optimistic that as pandemic pressures continue to subside that a more-efficient and potentially more-profitable Best Buy model should emerge.”

Mantle Ridge Stake Grabs Attention Ahead of Dollar Tree Earnings

Dollar Tree (DLTR, $134.24) made headlines recently on reports activist investor Mantle Ridge took a stake in the discount retailer. The news was well-received on Wall Street, with DLTR stock surging more than 14% in reaction.

According to the Wall Street Journal – which first reported the story – Mantle Ridge is planning to push for pricing strategy changes at DLTR’s Family Dollar chain.

“This investor has a history of being deeply involved in situations where companies have been transformed through operational improvements,” says UBS analyst Michael Lasser (Buy). “The bottom line is that this development should mean that DLTR will now be held more accountable for producing consistent results. In this case, the upside potential for the shares is significant.”

Deutsche Bank analyst Krisztina Katai (Buy) agrees. She recently lifted her price target on DLTR to $146 from $96, saying “the added element of a new large shareholder with a clear focus on unlocking meaningful value by closing the profitability gap between Family Dollar and Dollar General (DG) should lead to a more patient investor base with a longer-term focus.” 

She adds that this now creates “one of the most compelling retail stories with an exciting narrative change underway.”

But what about DLTR’s third-quarter earnings report, due out ahead of the Nov. 23 open? Analysts, on average, are expecting earnings to arrive at 96 cents per share, down 30.9% on a year-over-year (YoY) basis. Revenues, meanwhile, are projected to rise 3.7% to $6.41 billion.

Deere Earnings Expectations Lowered After UAW Strike

Deere (DE, $348.84), which is famous for its tractors and riding lawn mowers, will report fiscal fourth-quarter earnings ahead of Wednesday’s open. 

“Similar to peers and consistent with retail trends, we believe DE results will reflect continued strong end-market demand, handicapped by production constraints as supply chain and labor dynamics worsened late in the quarter,” says Oppenheimer analyst Kristen Owen.

One part of the labor dynamics she refers to is month-long strike by thousands of Deere workers that began in mid-October after the company failed to reach an agreement with the United Auto Workers (UAW). The dispute was resolved on Nov. 17, when UAW members approved a new six-year contract that includes a 10% pay increase and $8,500 bonus, according to press reports.

However, the impact of the strike prompted Owen to lower her estimates for fiscal fourth-quarter earnings per share to $3.89 from $4.02 and revenue to $11.1 billion from $11.6 billion.  

Nevertheless, “we remain constructive on DE shares as we see secular tailwinds persisting and unaccounted-for upside in construction” due in part to the recent passage of the infrastructure spending bill in D.C. Owen has an Outperform rating on Deere, which is the equivalent of a Buy.

The pros, on average, are looking for $10.49 billion in revenues (+21.1% YoY) and earnings of $3.95 per share, which is 65.3% higher than the year-ago figure.

Source: kiplinger.com

What Is a Merit Scholarship & How to Get One

There are many avenues to fund higher education that one could take. Grants offer money to help college students cover the cost of their education, usually based on financial need.

Money received by grants does not typically need to be repaid. Student loans, on the other hand, refer to a lump sum of money that is loaned out for the purpose of covering educational costs upfront. Student loans require repayment on a specific schedule and with added interest.

In addition to grants and student loans, another possible way to fund your college education is to receive a merit-based scholarship. Merit scholarships are generally awarded based on some type of merit such as academic performance or achievement and usually do not need to be repaid. Unlike grants, merit scholarships are typically awarded independent of financial need.

What is a Merit Scholarship?

A merit based scholarship is awarded to an individual on the basis of academic excellence, or other non-academic criteria such as talent, and/or certain achievements. As mentioned, while some scholarships may review the financial needs of the student, it’s not typically the primary focus of the application.

Merit scholarships for college exist to acknowledge things like academic, athletic, or artistic promise and success.

They could also apply to specialty and niche interests, such as a specific degree program. The money could either come from the academic institution itself or an outside individual or organization.

Getting a Merit Scholarship

So what are merit based scholarships able to do for the total cost of your college education? These scholarships could help cover a portion of (and in certain cases, the full amount of) tuition, room, and board, therefore helping decrease the overall cost of college. Like grants, the money from scholarships does not need to be repaid.

Recommended: A Guide to Unclaimed Scholarships and Grants

Here are a few common types of merit scholarships:

Colleges and Universities

Many colleges and universities have merit aid awards that are offered to students. Programs may vary from school to school. Some schools may consider all students for a merit award without any further applications. In some cases there may be an additional application required. Select merit aid awards may be designed to cover the full cost of tuition, while others will only cover a portion.

Academic Merit Scholarships

Academic merit scholarships award money to students who demonstrate significant academic achievement in high school. Often, academic merit scholarships may consider a student’s GPA, standardized test scores, class rank or other factors.

Depending on the school, you may not need to submit or do anything extra to be awarded a merit-based scholarship. Instead, the school may decide based on your application alone. Note that the exact criteria considered can vary based on the school.

Athletic Merit Scholarships

NCAA Division I and II schools may offer athletic scholarships to select student athletes. If you’re interested in an athletic scholarship keep in mind that getting recruited can be a time intensive process. Depending on the sport you play you may need a highlight reel or video that shows off your skills. Coaches may also review your stats.

Most schools will also want to see your academic records and SAT or ACT scores as well. You might also consider reaching out to coaches at the schools you are interested in attending.

Merit Scholarship Options from Member Organizations

Member organizations are special interest groups, typically requiring some sort of membership fee. Some examples include the National Association of Flavors and Food-Ingredient Systems (NAFFS), Daughters of the American Revolution (DAR), and The Society of Women Engineers (SWE).

Oftentimes, these organizations provide scholarships to students. In some cases, they are awarded to members of the organization. One example of this is the Boy Scouts of America. In order to qualify for their Eagle Scout World Explorer, applicants must be an Eagle Scout.

Other times, awards are available to students who are pursuing a specific course of study. For example, the NAFFS offers an annual scholarship to “outstanding food science students .” While the DAR Richard and Elizabeth Dean Scholarship is awarded to students who are pursuing an undergraduate degree in American Studies. Scholarships from the SWE are available to applicants who are studying at an accredited university and pursuing a career path in engineering, engineering technology, or computer science.

Private Companies

Another source of merit scholarships is private companies. Companies like Coca-Cola, Burger King, Google, and more have annual scholarships. Like many other scholarship opportunities the application requirements and eligibility criteria will vary based on the company and/or scholarship. Here are a few examples:

Coca-Cola Scholars Program Scholarship

This program awards 150 scholarships annually worth $20,000 each . This scholarship is available to graduating high school seniors who plan to enroll in an accredited U.S. college or university.

Burger King Scholars Program

The Burger King Scholars program offers scholarships to high school seniors who have a GPA of at least 2.5 on a 4.0 scale, demonstrate community involvement, and plan to enroll in an accredited college in the U.S. Since it was established in 2005, the program has awarded over $50 million to 43,000 students.

Generation Google Scholarship

The Generation Google Scholarship program is targeted for students pursuing degrees in computer science. For the 2022-2023 school year, recipients will get a $10,000 scholarship. This scholarship is open to students enrolled in an accredited Bachelors, Masters or PhD program who are studying computer science or computer engineering, or another “closely related technical field.”

National Merit Scholarship Corporation

The National Merit Scholarship Corporation (NMSC), has run the National Merit Scholarship Program since 1955. This award is open to high school students who meet the NMSC’s eligibility requirements, which are published online here . Students interested in pursuing the National Merit Scholarship program must also take the PSAT/NMSQT®, generally during their junior year. This is the qualifying test to apply for the scholarship program.

How to Apply

The process for applying to a merit scholarship can vary quite dramatically from scholarship to scholarship. Some merit scholarships, such as those offered by colleges and universities, don’t require students to fill out any additional paperwork beyond their application to the school.

Applying for merit aid from a source other than your school can be more time consuming and will likely vary depending on the organization offering the award. In addition to an application detailing basic personal information, students may be required to write an essay or personal statement, gather letters of recommendation, or go through an interview process.

If you’re interested in applying for a private merit scholarship, check in with the organization directly so you can be sure that you understand exactly what the application requirements are.

What Can Merit Scholarships Pay For?

Frequently, if the merit scholarship is offered by the school, the award will go directly to pay your tuition bills. If there is any money left over after tuition is paid for, it can be used to pay for other educational expenses including room and board, books, or other fees. Each school will have their own procedures for how merit aid is awarded to students, so confirm any questions directly with the financial aid office.

Merit Scholarships and Income Taxes

Generally speaking, merit scholarships are not taxed by the IRS. According to the IRS, scholarships and grants are considered tax-free so long as the following conditions are met:

•   The student is pursuing a degree at an educational institution; and

•   The award money is used to pay for tuition and fees or other expenses related requirements at the educational institution, such as, fees, books, and supplies.

There are some situations in which a merit scholarship may be taxed. If a grant or scholarship meets the following criteria, it may be taxable, according to the IRS:

•   The scholarship is used to pay for incidental expenses such as room and board, travel, or optional equipment.

•   The scholarship is awarded as payment for teaching, research, or other services. This excludes money received for services required as a part of the:

◦   National Health Service Corps Scholarship Program

◦   Armed Forces Health Professions Scholarship and Financial Assistance Program

◦   or a comprehensive student work-learning-service program at a work-college , as defined in section 448(e) of the Higher Education Act of 1965.

If you have any questions about whether or not a scholarship you’ve received is considered taxable income, consider consulting with a tax professional who can provide advice specific to your personal circumstances.

Finding Merit Scholarships

Check in with your college or university to find out if there are any school-specific awards available and determine how to file an application (if an additional application is required). Online resources and databases abound to help you identify merit based scholarships across the United States. For students who are pursuing graduate degrees, there are also some scholarships and grants for graduate students.

It could be a good idea to make a running list or spreadsheet of all of the merit based scholarships that you are interested in, so you can keep the specific due dates and application requirements organized. This could potentially help relieve some stress as you go through the application process.

Consider Starting Early

Many merit-based scholarships look for demonstrated excellence over the course of an applicant’s entire four years of high school. Therefore, it could be a good idea to start thinking about what types of merit scholarships you’re interested in applying for as early as possible.

Maintaining Your Scholarship

It is important to note that some merit based scholarships could require the scholarship recipient to maintain a certain grade point average (GPA) and/or require specific campus or community involvement to continue receiving consistent scholarship funding.

If you do decide to apply for a merit based scholarship, it’s a good idea to be prepared to not only do the hard work to secure the scholarship but also maintain it once you get to campus.

Other Ways to Help Finance College Tuition

If you do not meet the requirements for any merit scholarships for college, there are still many financing options available to you. Often the first step for students looking to secure aid is by filling out the Free Application for Federal Student Aid (FAFSA® ). Students must fill this out in order to receive any federal aid, including federal grants and scholarships, work-study, and federal student loans.

The federal work-study program sets students up with part-time jobs where they can earn money to put towards their educational costs.

Recommended: Am I Eligible for Work-Study?

New federal student loans boast consistent fixed interest rates, expectations for repayment, income-driven repayment plans, and possible forgiveness programs. Depending on your level of need you may qualify for either subsidized or unsubsidized student loans. With a subsidized loan (for undergrads only), the federal government pays for any accruing interest on your loans while you’re in school; with an unsubsidized loan, you have to pay for the interest yourself.

If federal aid and merit based scholarships aren’t enough to cover the cost of a college education, private student loans could be an option to consider. These loans are offered by banks and private institutions. Students and their co-signers (if applicable) apply for private student loans as if they were applying to other types of loans, such as auto and home loans.

Since they are not beholden to the same criteria as federal loan terms, private student lenders are able to determine their own unique term lengths, interest rates, and repayment plans; thus, private loans could fill in any gaps between the cost of attendance and the amount of federal aid and scholarships they receive. However, because they don’t offer the same borrower protections as federal student loans, private student loans are generally considered only after all other sources of funding have been exhausted.

The Takeaway

Merit scholarships are awarded to students based on some sort of merit, such as academic or athletic. This money does not typically need to be repaid by student recipients. Some sources for merit scholarships include your college or university, member organizations, private companies, or the National Merit Scholarship Corporation.

If merit awards and federal aid aren’t enough to pay for college, private student loans may be an option to consider. If you think that private student loans could be a good option for you, you could consider SoFi’s private student loans. With no fees, flexible repayment plans, and a convenient online application, financing your education has never been easier. Keep in mind that, as mentioned, private student loans are usually considered as a last resort option because they don’t always have the borrower protections (like deferment) that federal loans do.

Ready to make a plan to finance college? Learn more about the options SoFi offers for private student loans.


SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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Source: sofi.com

9 Gifts That Will Be Impossible to Find Due to Supply Shortages

COVID-19 shuttered gyms last year and caused most people to shun public transportation. As a result, millions of non-cyclists rushed to buy new bicycles both for recreation and bike commuting. As demand has surged, the bicycle industry has struggled with factory closures in Asia, where most bicycles are produced, and shipping logjams.
As demand for print books has soared, the raw materials used to make books have been in short supply. Wood pulp, a key ingredient for paper making, and ink are both scarce. Many printing presses in the U.S. have also shuttered over the years as the publishing industry predicted the demise of print books and the rise of ebooks.
The 2021 holiday season is shaping up to be a disappointing one for gamers. The PlayStation 5 and Xbox Series X remain hard to find nearly a year after their initial release. Now, Nintendo just announced it’s cutting production of its Nintendo Switch by 20% for its 2021 fiscal year.

9 Gifts That Will Be Ridiculously Hard to Find This Year

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1. Gaming Consoles

You probably won’t have trouble finding shoes this season, but the inventory you find may be older and less popular designs. Also be prepared to shell out more. According to Footwear News, shoe prices were up 6.5% in September compared to one year ago.
Source: thepennyhoarder.com
You don’t need to worry about empty shelves at your local bookstore. If the book you’re planning to gift is a widely anticipated bestseller, you should have no trouble finding it. It’s the surprise hits that are causing booksellers anxiety, because they may not be able to get new copies in time for the holidays to accommodate demand.

Pro Tip
If you’re able to add a console to your online shopping cart, don’t wait to complete additional shopping. Check out immediately, as bots have a way of being faster than humans.

2. Bicycles

Demand for toys has been consistently high throughout the pandemic as parents sought to keep bored kids entertained from home. But for several months, manufacturers have been warning that toys could be hard to find this season. Materials like plastic and resin that are used to produce many toys are in short supply. Exorbitant shipping prices and a lack of warehouse space and truck drivers could add to shortages.
Retail forecasters are mixed on how bad the toy shortage will be. It will probably be tougher than usual to find 2021’s most popular toys. But as long as you’re not set on buying the season’s hottest toys, you should have ample options.

3. iPhone 13

It’s unlikely that stores will run dry on wine this season. But if you have your heart set on buying a specific bottle as a gift or for your own celebrations, have some alternatives planned. Also, alcohol tends to be popular as a last-minute gift, so shopping early could help you avoid shortages.
As of this writing in early November, Apple’s website listed estimated delivery dates of less than a week for its cheaper standard iPhone 13 and iPhone 13 mini. But for its pricier iPhone 13 Pro and iPhone 13 ProMax, expected delivery dates extend into mid-December.
Shipping costs are expected to peak Dec. 20-Dec. 21, according to Adobe Analytics. Last-minute gift buying will cost shoppers an average of per order.

A man proposes to his girlfriend on Christmas. Their dog jumps up in the photo.
Getty Images

4. Engagement Rings

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]
You’ve probably heard that holiday shopping will be a nightmare even the Grinch himself couldn’t dream up. Supply-chain troubles, shipping bottlenecks, and worker shortages will make it harder to find big-ticket items.

5. Cars

Unfortunately, consoles will still be hard to find after the holidays. Shortages are expected to continue into fall 2022 or even 2023.
Here are a few solutions for beating supply chain troubles this holiday season:
Apple has fared better with supply-chain shortages than many of its rivals because of its huge buying power and long-term agreements with suppliers. But even the world’s most valuable company is feeling the pinch of the global chip shortage.
Ready to stop worrying about money?

A little girl rides a pink toy car on Christmas Day.
Getty Images

6. Toys

COVID-19 brought diamond mining, trading and cutting to a halt in spring 2020. Yet demand for jewelry stayed surprisingly high. Demand will likely keep surging as a sense of normalcy returns and couples can safely plan vacations (where proposals often happen) and weddings again. Investors are also increasingly seeking out diamonds, putting more pressure on demand.
As a result, the average price of a new car topped ,000 in September for the first time in history, a 7.7% year-over-year increase, according to Kelley Blue Book. Even prices for traditionally affordable brands like Hyundai, Kia (up 15.4% year over year) and Mitsubishi (up 23.8% year over year) are surging. Meanwhile, the latest Consumer Price Index survey showed that used car prices rose 26.4% in the past 12 months.

7. Sneakers

The global chip shortage and shipping woes have hit the auto industry hard. Meanwhile, the pandemic fueled demand for vehicles as people avoided public transportation.
If you haven’t started your shopping yet, don’t panic. As long as you’re flexible, you’ll surely be able to find plenty of gifts. But if you have your heart set on buying one of these nine items, it’s time to start your hunt ASAP.

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Pro Tip
Wine will be in short supply this holiday season, but COVID-19 doesn’t get all of the blame. Droughts in California and other Western states have lowered the grape yield at many vineyards. But much of the vino winemakers do have is sitting around in oak barrels. That’s because glass bottles are in short supply thanks to the pandemic.

8. Surprise Bestsellers

MarketWatch reported in October that it now takes more than 70 days from the time a manufacturing order is placed until the bicycle arrives at a warehouse. Pre-pandemic, it took just 45 days. Many in the bicycle industry expect shortages to persist into 2022.
Apple is now expected to ship 10 million fewer of its new iPhone 13 than originally projected through the end of 2021. New iPads, MacBook Pros and the Apple Watch Series 7 are also expected to be in short supply.
Dealerships have razor-thin inventories right now. Available vehicles are often less popular models, yet they’re selling well above the sticker price. If someone you love is hoping to find a new set of car keys in their stocking, now is a great time to remind them that there’s always next year.

A group of friends hold wine as they take a selfie together on Christmas.
Getty Images

9. Wine

Meanwhile, demand is up. Holiday shoppers expect to spend 5 on average this season, more than they planned on in both 2019 and 2020, according to market research company The NPD Group Inc.
Car company commercials would have you think that it’s totally normal to wake up to the gift of a shiny new set of wheels on Christmas morning. We’re guessing that this is pretty rare, though. Which is good news because the 2021 holiday season will be an awful time to buy a car.

What to Do if You Can’t Buy the Gift You Want

The global chip shortage is just one factor. Demand for gaming devices has surged since the beginning of the pandemic, as people sought ways to entertain themselves at home. Adding to the frustration is the fact that humans are increasingly competing with bots to buy in-demand consoles. Then the bot-purchased gaming systems pop up at unofficial retailers at an exorbitant markup.
If someone in your life has their heart set on a hard-to-find gift, now is a good time to temper expectations. Remind your loved one that these are unusual times. Too many customers are chasing after too few goods, which means a lot of people will be disappointed. But also remind yourself that it’s not worth blowing your budget or going into debt just to give someone the perfect gift.

  • Don’t hold out for a bargain. It shouldn’t come as a surprise that holiday deals are expected to be stingy this year. Decide how much you’re willing to pay, and stick to it. If you find a sought-after item that you’re determined to give, don’t wait around hoping for a last-minute deal.
  • Buy gently used. Look to thrift stores, Facebook Marketplace and Craigslist for items like bikes and toys.
  • Give them an IOU. If someone has their heart set on something that’s back ordered, you could make them a certificate showing that it’s on its way. Granted, that won’t be as exciting as unwrapping a brand-new gaming console. On the flip side, though, you can extend the holiday magic into 2022.
  • Give cash or gift cards. If you’re over trying to hunt for the hottest gifts, there’s nothing wrong with gifting cash or a gift card instead.
  • Quit delaying. With many people doing holiday shopping in September and October this year, it’s a bit late to say “Shop early.” But if you’re procrastinating, consider this your warning: The longer you wait, the more painful shopping will be in 2021.

The footwear industry is also dealing with the same issues virtually every manufacturer is grappling with, like port congestion, worker shortages and Asia factory closures. In fact, Nike’s chief financial officer said on a Sept. 23 earnings call that the company lost 10 weeks of production since mid-July in Vietnam, where much of its production takes place. <!–

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Expect your choices to be limited if you’re buying someone a new pair of kicks this holiday season. Rubber and plastic are key materials for sneakers, and both are in short supply right now.

What Credit Score Do You Need to Buy a Car in 2021?

Because a credit score is an important indicator for determining a consumer’s creditworthiness when buying a car, those with excellent credit histories tend to have an easier time borrowing money on favorable terms compared to those with lower credit scores. However, industry data shows that high-risk borrowers remain viable candidates for auto loans. In other words, there is no universally defined credit score needed to buy a car.

Read on to learn how your credit score can affect buying a car, plus some tips for purchasing a car with a lower credit score.

What FICO® Score Do Car Dealers Use?

There are a few different scoring models that car dealers may use for determining a customer’s credit score. They may use the FICO Auto Score 10 , an industry-specific model featuring a score range from 250 to 900. The auto industry also may use VantageScore 3.0 or the newer VantageScore 4.0 model, which has a score range from 300 to 850.

No matter which scoring model is used, a bad credit score falls on the lower end of the range and a good credit score sits on the higher end of the range.

What Is the Minimum Credit Score To Buy A Car?

There may not necessarily be a minimum credit score required to buy a car. Consumers with deep subprime credit scores from 300 to 500 have obtained financing for new and used vehicles in the second quarter of 2021, according to the credit bureau Experian’s State of the Automotive Finance Market report for that period. Although the percentage of borrowers in this category is very low, this indicates that even those with the lowest credit scores still may have access to auto financing.

Average APR by Credit Score Ranges

Consumers from all credit score categories have obtained auto loans in 2021, but car buyers with excellent credit histories tended to secure the lowest annual percentage rate (APR) financing, according to Experian’s Q2 report. When assessing what is a good credit score to buy a car, Experian’s data confirms that consumers in the super prime and prime categories obtain the lowest interest rates on average for financing.

Quarterly financing data on new vehicle purchases in the second quarter of 2021 shows the following average APRs by credit score ranges:

•  Deep subprime (300-500): 14.59%

•  Subprime (501-600): 11.03%

•  Near prime (601-660): 6.61%

•  Prime (661-780): 3.48%

•  Super prime (781-850): 2.34%

How to Buy a Car With a Lower Credit Score

Obtaining a loan to purchase a new or used vehicle when you don’t have great credit can be cumbersome, but it’s not impossible. Here are some ways a consumer with poor credit may be able to obtain auto financing:

Make a Large Down Payment

Offering a large down payment on a vehicle purchase may allow car buyers to obtain more reasonable rates and better terms for financing, resulting in more affordable monthly loan payments. By putting more money down at the time of purchase, lenders also may view the loan as less risky, thus increasing your odds of approval.

Get Cosigner Assistance

Buying a car with the assistance of a cosigner is another way to potentially bolster your chance of securing favorable financing. A cosigner agrees to share the responsibility of repaying the loan, effectively promising the lender that if you don’t make the payments they will. If the cosigner is creditworthy, it puts the buyer in a much better position to obtain financing than going it solo.

Consider a Less Expensive Car

Especially if you are buying a car with bad credit, it is important to know how much you can realistically afford to spend — and then stick to that budget, even if the dealer tries to upsell you. Additionally, finding a less costly car will reduce the amount you need to borrow, and it may be easier to get approved for a smaller loan amount than a larger one.

Benefits of Good Credit When Buying a Car

The benefit of a good credit score when buying a vehicle is that you may secure lower interest rates compared to consumers with poor credit. Unless a consumer buys a vehicle outright with cash or receives 0% APR financing, the consumer will eventually face monthly principal and interest payments until they’ve paid off the loan balance in full. Auto financing terms may vary in length, with some maturing at 60 months, 72 months or 84 months.

Car loans with a high APR may cause consumers to pay a long-term premium above and beyond the actual sales price of the vehicle.

How to Monitor and Keep Track of Credit Scores

There are a number of ways you can check your credit score, including through your credit company or another financial institution where you have an account, as well as through a credit service or credit scoring website. Contrary to what you may expect, your credit report does not include your credit score, though it does provide valuable information about your credit history and debts, which is why it can still be helpful to read over your credit report before making a major purchase like a car.

Credit scores can fluctuate over time depending upon financial circumstances, and credit score updates occur at least every 45 days. That’s why it’s important to take a look at where your score stands right before you begin the process of car shopping.

Also keep in mind that it’s common for credit inquiries to occur when you’re shopping around to see what auto loan terms you qualify for. While soft inquiries don’t affect your credit score, hard inquiries, such as those that happen when you’re comparing rates for an auto loan, can ding your score. However, most major credit scores will count multiple car loan inquiries made within a certain period of time — typically 14 days — as one inquiry.

What’s Expected in 2022?

Based on the trends outlined in Experian’s Q2 report for 2021, prime borrowers with good credit in 2022 may continue shifting away from used vehicles in favor of new vehicles. Experian’s research also shows that subprime financing remains at near-record lows, with just a fraction of car loans in 2021 going to consumers in the deep subprime risk category. These trends could continue into 2022.

The Takeaway

While it is possible to buy a vehicle with bad credit in 2021, consumers in the subprime or deep subprime risk categories may want to explore ways of improving their credit scores to help secure financing with more favorable terms. As far as what credit score you need to buy a car, any score is potentially sufficient for obtaining financing.

If you want to check your credit or work to improve your score before buying a car, SoFi Relay is a user-friendly app that allows you to easily monitor and keep track of your credit score.

Stay on top of your credit score with weekly updates.

Photo credit: iStock/tolgart


Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
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Source: sofi.com

3 Ways to Make Money from a Leased Car

To make up for the massive deficit of used cars, dealerships have resorted to emailing lessees with whom they are currently under contract, offering to end the lease early and pay a pretty sum for a buyout. San Francisco’s ABC 7 told a story of a woman offered ,000 to end her lease early.
The beauty of buying the leased vehicle from the dealer at the end of your lease is that they can’t jack up the price. Check your lease agreement for the lease buyout wording; in it, the dealership should have spelled out exactly what you will pay to purchase the car from them. This is called the guaranteed purchase option price.
Now is a great opportunity to make some quick and serious cash by selling your lease. But before you sign on the dotted line, consider a couple of caveats:
But what’s happening right now is that leased vehicles are worth considerably more than they were originally estimated to be at the end of their terms. As a lessee, even though you don’t own the vehicle, you hold all the power because that increased equity belongs to you … if you handle the end of lease strategically.

An Auto Shortage Means Higher Prices for Used Cars

Alternatively, you could try other nearby dealerships that sell vehicles of the same make. They may offer you more than the dealer from which you leased the vehicle. That’s the beauty of driving a leased vehicle in this shortage; you have the power to start a potential bidding war.
When you lease a vehicle, you never really own it — the dealer does. So you might think that you have no equity in the vehicle.
An option that lessees have long exercised during their leases has been selling their leases to a third party, like Carvana, Vroom or CarMax. For example, you could take your leased 2020 Honda Pilot and sell the vehicle — lease agreement and all — to CarMax. You’d immediately stop making payments, and you’d have a nice check if the vehicle was able to fetch enough money to cover the rest of your payments and then some.
But you’d be wrong.
And that’s no isolated incident. In January 2019, there were just under 3 million used cars available in the U.S. And earlier this fall? It was down to 2.3 million for a loss of nearly 33%.
However, directly in response to the used car shortage, many lenders (branches of the automakers themselves) have begun to put a stop to this, legally prohibiting lessees from selling their contracts to third parties. Instead, they either have to return the vehicle to the dealership or buy it from the dealership at the end of the lease.
MacDonald does offer one exception: “If you’ve already locked down a new car to purchase, in that case, ending a lease a month or two early may be worth the cash incentive.”

How to Make Money Off Your Leased Car

You will be leaving money on the table if you do. Instead, explore one of these options for making money off your leased car:
So how is this possible?

“Prices are way up,” confirms Johnson. “That car you leased a while back could actually net you a nice profit if you find a dealership that wants to come to the table and strike a deal with you.”
Timothy Moore covers bank accounts for The Penny Hoarder from his home base in Cincinnati. He has worked in editing and graphic design for an automotive marketing agency, a global research firm and a major print publication. He covers a variety of other topics, including automotive, insurance, taxes, retirement and budgeting and has worked in the field since 2012 with publications such as The Penny Hoarder, Debt.com, Ladders, WDW Magazine, Glassdoor and The News Wheel.
We expect this list to grow as the used car shortage continues.

1. Sell the Lease to a Third Party

As of right now, Leasehackr is reporting that the following lenders are prohibiting third-party lease sales:
If you are not part of a multi-car family and do not have access to affordable and efficient public transportation, getting rid of your vehicle may not be the right move.
“When I went to buy a new RAV4, the dealership would only make a deal if I agreed to trade in my 2015 Honda Civic,” says Stewart. “They said they couldn’t handle the loss of a single vehicle on their lot, given the major shortages going on.”
Source: thepennyhoarder.com

  • Acura Financial Services
  • BMW Financial Services
  • Ford Credit
  • GM Financial
  • Honda Financial Services
  • INFINITI Financial Services
  • Lincoln Automotive Financial Services
  • Mercedes-Benz Financial Services
  • MINI Financial Services
  • Nissan Motor Acceptance CompNY
  • Southeast Toyota Finance
  • Volvo Car Financial Services
  • Tesla Finance

Finally, consider if you’re ready to part with the car. At the end of the day, you work hard for a paycheck that affords you nice things. If a car to you is just a way to get from point A to point B and you couldn’t care less what make and model you’re sitting in, sure, end the lease.

2. Buy the Car and Sell It

The fallout from COVID-19 continues to cause supply chain shortages in multiple industries. With steel and computer chip shortages, the automotive industry has not been immune.
If you’re fortunate, you may not have to do much work at all. Don’t scoff when your dealer calls asking to buy you out of a lease early. Take a look at the offer, calculate what you think you could make trying to sell the vehicle on your own and determine if just simply selling the lease to the dealer is the right move.
Chances are good you may leave a little money on the table this way, but it’s certainly much less of a hassle to just sell to the dealer than buying the vehicle and selling privately.
A second word of caution: This strategy applies to a lease buyout at the end of a lease contract. Early buyouts typically do not have guaranteed purchase option prices, meaning the dealer can charge you more for the vehicle. There may also be an early buyout fee.
To put it bluntly, “dealers are hurting for inventory,” says Kyle Johnson, senior editor for The News Wheel.
To determine how much your vehicle is worth, try out Kelley Blue Book, which can estimate the value of your car based on model, year, features and condition. You can also check out dealer websites to see how much similar vehicles are selling for.

3. Sell the Lease Back to a Dealer

A word of caution: You will need to pay sales tax and title fees when purchasing the leased vehicle, and if you can’t immediately sell the car, you need to be OK with the funds you spent to buy out the lease being illiquid until the vehicle sells.
The No. 1 advice we can give: If you are currently leasing a car, do not just turn it in at the end of a lease as originally planned.
In fact, some experts say that taking advantage of dealership incentives for ending leases is a bad idea for this very reason. “My recommendation would be: don’t do it,” says Kyle MacDonald, Director of Operations at Force by Mojio. “No matter how much you can earn in the moment, with the state of the market right now, there’s no guarantee you’d be able to find a replacement easily.”
And because of the huge demand for used cars, your lease vehicle should easily be able to command a large amount of that “and then some” cash when you sell it to a third party.

What to Consider Before Selling Your Leased Car

In fact, if you are currently leasing a car, even if you are just a year in and have several years to go, you might be able to get out of the lease and walk away with several thousand dollars.

You May Be Without a Car

The amount of money you pay for a leased vehicle over the duration of the contract is typically the difference between the car’s initial value and the estimated residual value at the end of the lease term. In that sense, you are merely renting a vehicle from a dealership, and at the end of the contract, the dealership intends to sell the vehicle as a used model.

New and Used Vehicle Prices Are at Record Highs

Don’t let automakers have the final say. An easy enough way around the prohibited third-party lease sales is to simply buy the car from the dealership at the end of your lease and then turn around and sell it to whomever you want.
If you do sell and need to replace the vehicle with something new, be ready to pay those premium prices that you were charging when selling your lease. What goes around comes around.
In fact, this gives you more earning potential. Once you own the car, you can see what CarMax or Carvana will pay for it, but you can also try to sell it privately for even more money.

You Leased That Car Because You Liked It

Megan Stewart of Cincinnati recently purchased a new Toyota RAV4, but the dealer was so desperate for used cars, there was an unusual stipulation to the deal.
That means fewer new cars rolling off assembly lines and thus a larger demand for used cars. The problem? Dealerships cannot keep up with this demand.
According to Cars Direct, the top five selling cars of 2018 are being sold used for over 40% than would have been expected pre-pandemic. For example, a 2018 Nissan Altima has a nearly 50% market value increase which translates to a more than ,000 jump. Think about that if you are turning in a 2018 Altima this year.

How to Avoid Rental Car Fees – 12 Steps to Stop Extra Hidden Charges

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Dig Deeper

Additional Resources

Perhaps the worst part of any vacation or business trip comes right near the beginning. After a dreary flight and long wait at the car rental counter, the clerk pushes over a stack of paperwork with a price at the bottom. And almost without fail, it’s much higher than the advertised price.

Car rental companies have a whole bag of tricks to pump up that bottom line. They inflate the bill with loads of fees and add-ons like insurance or toll collection — sometimes without bothering to tell you they’re add-ons. 

To save money on car rentals, you need to beat the agencies at their own game. Learn to spot their sneaky tricks for padding the bill and have your own set of tricks for avoiding the extra charges.

How to Avoid Rental Car Fees

The key to avoiding all the hidden fees and add-ons is to know what the most common rental car fees are. The more you know about the extras the rental companies try to add to the bill, the easier it is to plan to avoid them.

1. Skip the Rental Car Insurance if You Can

When you rent a car, the car rental agency usually tries to get you to pay extra for insurance coverage. There are three primary types:

  •  Collision damage waivers, which cover your costs if you’re in a fender-bender
  •  Personal accident insurance, which covers medical expenses
  •  Personal effects coverage, which covers loss or damage to your belongings

If you buy full-coverage insurance from the rental car company, you can expect to pay $30 per day or more. But there’s a good chance you don’t need it. In most cases, you can get coverage for your rental car through another source, such as:

  • Your Auto Insurance. Many auto insurance policies include rental car damage coverage. Some cover accidents and personal effects too. But you must pay any deductible out of pocket, and an accident can increase your rates. That could still happen if you use a separate insurer, but it doesn’t always.
  • Your Credit Card. Many credit cards offer free rental car insurance when you use them to pay for a rental. With it, you don’t have to file a claim on your insurance. But it usually excludes liability coverage. In most cases, you need to use your own insurance for that.
  • Your Union or Trade Association. Many labor unions and trade associations offer rental car insurance as a perk for members. If you belong to one of these groups, check to see what your benefits include. 
  • Third-Party Insurance. You can also buy car rental insurance from a third party. Companies like RentalCover.com offer insurance for as little as half the price rental car agencies charge. 
  • AAA. Discounts available from AAA vary throughout the country. If you’re a member, check your local AAA site to see whether a discount on rental car insurance is one of its perks.

2. Check the Car for Damage

Even if you pay for insurance, the rental car company can still charge you for minor damage to the car. When you return it, the company checks it for problems like dents, scratches, and stains on the upholstery. Then it bills you for the cost of fixing them.

To avoid paying for damage you didn’t cause, inspect the car carefully before driving it off the lot. Typically, the clerk gives the car a quick once-over with you, but this check is often perfunctory. It pays to make your examination more thorough.

Inspect the car inside and out, and take photos to document its condition. Include a date and time stamp on the image. That way, if the company tries to bill you for damage you didn’t cause, you can prove it was already there before you drove away. 

3. Avoid Airport Rentals

Don’t pick up your rental car at the airport if you can avoid it. While the base rate at the airport rental kiosk may be lower than at a rental location in the city, taxes and fees push the final price higher. 

For instance, airports typically charge rental agencies a concession fee for using their premises. Some also charge separate fees for airport security and the use of shuttle buses. Rental companies pass all these fees on to customers. All told, they increase the bill by around 20% or more.

There are several ways to get from the airport to an alternate rental location. In some cases, you can get into the city via low-cost or free public transportation. Failing that, you can hire a cab or call an Uber or Lyft. The savings on the rental can easily offset the cost of the ride.

One drawback of renting your car in town rather than at the airport is that you’re likely to have a smaller selection of vehicles to choose from. That increases the chances you won’t get the exact car you want. So if you book your ride in town, it’s crucial to do it early.

4. Bring Your Own Car Seat

If you’re traveling with a child, you need a child car seat for the rental car. Rental agencies are happy to supply these — for a stiff fee, of course. 

Most companies charge between $10 and $15 per day for this add-on. There’s usually a per-trip cap on the charge, but you could still pay close to $100 for a weeklong trip.

You can avoid this cost by bringing your own car seat from home. If that’s not possible, it might be cheaper to buy an inexpensive car seat when you reach your destination. 

You can find both infant and booster car seats for under $60 at Walmart. However, that’s only an option if you can leave your child with someone while you pick up the car seat.

5. Don’t Pay for Satellite Radio

Another perk car rental companies like to charge extra for is satellite radio. For instance, Enterprise charges a fee of $5.99 per day or $24.99 per week.

But if you’re like most people, you already have a smartphone capable of storing plenty of music for your trip. Rather than paying extra for satellite radio, load your phone with your favorite tunes and podcasts. 

You can connect your phone to the car stereo and use voice commands to select music safely while driving. Technology how-to site MUO (Make Use Of) has a guide to playing music from your smartphone over your car speakers.

6. Watch for Toll Charges

Car rental companies even find a way to charge you extra for tolls. Most rental cars come with a toll transponder device you can use at cashless toll booths, such as E-ZPass. But when you use it, they charge a convenience fee in addition to the cost of the toll itself. 

Fees for toll transponder use vary by company. For instance, Hertz charges a fee of $5.95 for each day you pay tolls with its PlatePass transponder. 

With Avis, you pay a flat $17 per rental, even if you never pass through a single toll booth. On top of that, with either company’s transponder, you automatically pay the highest undiscounted rate at every toll booth you use.

To avoid this fee, opt out of the rental company’s toll collection system. With most companies, you can just leave the transponder in its shielded case. 

Next, you need an alternative way to handle tolls. In some cases, you can avoid them altogether by using map apps to plan a route with no toll roads. 

If you can’t do that, the next simplest thing is to pay all tolls in cash. However, some toll roads, particularly bridges, no longer have cash toll booths. 

In some places, it’s possible to prepay these tolls online. Check the local transit authority website to see if that’s an option in the area where you’re traveling.

Another alternative is to take the toll transponder off your own car and bring it on your trip. If you don’t have a toll transponder, it might be worth buying one just for the trip. You can pick up a prepaid E-Pass transponder (which works with both E-ZPass and Florida’s SunPass) for under $20. That’s less than you’d pay for four days’ worth of Hertz’s PlatePass.

7. Check the Mileage Limits

Car rental contracts often limit the number of miles you can put on the car each day. For instance, the budget rental car company U-Save allows you to drive only 100 miles per day outside New York, New Jersey, and Connecticut. Every mile over this limit costs $0.35 extra.

Some rental agencies, such as Budget and Avis, provide unlimited mileage on some car rentals. However, other contracts include a mileage limit. You can’t assume your car comes with unlimited miles unless it specifically says so in the rental agreement.

When you pick up the car, read the contract carefully to find out the mileage limit and where it applies. Then do your best to plan your driving to stay under the limit.

8. Skip the Second Driver

It can be handy to list your spouse, child, or travel companion as an additional driver on your car rental. That way, you don’t have to do all the driving yourself.

But some companies charge a second-driver fee. The amount varies based on the company and the state where you rent the car. So before signing up a second driver, check to see if there’s a fee and how much it is.

If you’re going to put just one driver on your car rental contract, ensure it’s someone over age 24. Some car rental companies impose a surcharge for any driver under 25 years of age. Many companies prohibit people under 20 from driving their cars at all.

9. Fill It Up Yourself

If you return your car with less than a full tank of gas, the rental agency refuels it for you — at a price much higher than you’d pay at a gas station. Some rental companies charge as much as $10 per gallon plus a refueling fee.

To avoid these exorbitant prices, fill up the car before you return it. Try to do so within 10 miles of the rental location since some car rental services charge you extra if you refuel too far away from the building. 

Use GasBuddy to find the gas station with the lowest price per gallon within that radius. And use your best gas rewards credit card to pay for the purchase. 

Keep the receipt from this final fill-up after you return the car. That way, you can prove you refueled the vehicle and show the address of the gas station where you did it. The receipt protects you if the rental company tries to claim the tank wasn’t full when you returned the car.

10. Don’t Prepay for Gas

Supposedly, you can avoid refueling fees by prepaying for your gas when you rent the car. You pay for the gas that’s in the tank when you pick up the car, and you can return it with the tank at any level you like. The pitch is that it saves you the hassle of refueling before you return the vehicle.

However, when you do that, you’re still paying the rental agency’s price for gas. Some agencies charge less for gas when you prepay, but the price is probably still higher than a gas station’s.

Moreover, the price the rental agency lists for its prepaid gas may not be the real price. Taxes and fees can add $0.20 or more (in some states, much more) per gallon. But agencies don’t always include those fees in the quoted price.

Also, most car rentals don’t give you a discount for the gas that’s in the tank when you return the car. There’s no penalty for bringing it back empty, but there’s no reward for bringing it back full. Unless you completely drain the tank, you’re buying the company’s gas for them.

11. Return the Car Where You Picked It Up

It can sometimes be convenient to return a rental car to a different location than where you picked it up. But some car rental companies charge a drop-off fee or drop charge when you do. Drop fees vary based on the company, location, and time of year.

When booking a rental online, play around with the pickup and drop-off locations to see how the price varies. It might be worth rearranging your itinerary to allow you to pick up and return the car in the same spot if the savings are substantial.

12. Avoid Late Fees

If you return your car late by as little as one hour, many rental car agencies charge you for a whole extra day. You can avoid that problem by including a little wiggle room in your schedule. 

When you book the car, reserve it for a few hours longer than you think you need it. That way, you don’t need to rush to get it back on time.

Padding your schedule has other advantages too. In some cases, rental companies charge a lower base rate per day for a longer reservation, so adding extra time could lower the price. And if you return it early, some companies grant you a refund for the time you didn’t use.

But that isn’t always the case. For instance, Enterprise doesn’t refund you for unused days if you had a prepaid reservation. 

Other companies, such as Thrifty, charge you an early return fee if you drop off the car a full day early. And sometimes, a company may charge you a higher per-day rate because your shorter rental no longer qualifies for a discount.

So if you find yourself returning early from your trip, call the car rental company and ask what it will cost to return the car early. Depending on the answer, it could be worth keeping the car and bringing it back the next day.

Likewise, if you have to return the car late despite your best efforts, call the car rental company and ask what the late fee is. In some cases, it’s cheaper to extend your rental for an extra day rather than pay the fee.


Final Word

When it comes to saving on car rentals, avoiding fees is only half the battle. You also want to get the lowest possible rate on the rental car.

The best way to do that is to do your homework before renting. Start by figuring out what type of car you need for your trip, and don’t let the rental companies upsell you on a larger, pricier model. 

Next, shop around. Tools like AutoSlash make it easy to compare prices across different rental car companies and find the best rate. Remember to factor in discounts from loyalty programs and other sources, such as AAA and AARP.

Finally, maximize your savings by paying for the car and its gas with your best travel rewards credit card.

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Source: moneycrashers.com

Why did my credit score drop after paying off debt?

Couple reviewing finances.

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Paying off debt is wise and satisfying, so you may be surprised to find your credit score dropped after making a payment. Because credit scores are calculated using a variety of factors, the drop could have occurred for several reasons. The most common reasons credit scores drop after paying off debt are a decrease in the average age of your accounts, a change in the types of credit you have, or an increase in your overall utilization. 

It’s important to note, however, that credit score drops from paying off debt are usually temporary. In general, the benefits of paying off debt outweigh the downsides of a reduced credit score. If your debt has a high interest rate, the amount you owe will continue to grow over time, so reducing the balance or paying it off entirely could save you a significant amount of money.

Still, you can make strong financial decisions by understanding why paying off debt can reduce your credit score in the short term—and you can work toward a higher credit score over time.

Your credit score is calculated using several factors: payment history, credit utilization, credit age, number of inquiries and types of credit. Paying off debt could affect one or more of these factors, which could explain the drop in your score.

Read on to learn why your credit score may have dropped after you pay off debt, other reasons your credit score may be lower, and a few ideas for improving your credit score. 

How paying off debt could affect your credit score

Your average account age may have decreased

One ranking factor for your credit score is the length of your credit history, which includes the average age of your accounts. 

If you pay off your oldest account and close it, the average age of your accounts will drop, which could lead to a decrease in your score.

While closed accounts will stay on your credit report for seven to ten years after you close them, they are viewed differently than open accounts. 

Over time, your length of credit history and average account age will increase, so the drop that comes from paying off debt is likely temporary.

You may now have fewer types of credit

Another ranking factor for your credit score is the types of accounts you have on your report. In general, the credit bureaus who report your credit history want to see that you’re responsibly using several different types of credit. 

For example, your credit report may list a few credit cards and an auto loan. If you pay off and close the auto loan, your credit mix now has less variety since it only contains credit cards. This could lead to a temporary drop in your credit score.

That said, it’s not necessary to go out of your way to take on as many different types of credit as possible. Instead, use different types of credit when you need them, making sure to pay on time. Over time, your credit score will recover with responsible use of credit.

Your credit utilization may have increased

An additional factor that affects your credit score is utilization, which is simply the amount of credit available to you that you’re actually using. For example, if your only account is a credit card with a $1,000 limit and you have a balance of $200, you’re using 20 percent of your available credit. 

In general, lenders want to see that you’re using 30 percent or less of your available credit, as this signals that you’re able to manage your finances without leaning too heavily on credit.

If you pay off a credit card debt and close the account, the total amount of credit available to you decreases. As a result, your overall utilization may go up, leading to a drop in your credit score.

As a rule of thumb, it’s often helpful to keep older accounts open even if you don’t use them often, unless they involve an annual fee or there’s another good reason to close them. 

Other reasons your credit score could drop after paying off debt

Although the most common reasons for a score drop after paying off debt are listed above, there are a few other possibilities.

Other reasons your score may drop after paying off debt

Here are some things to keep in mind if you notice a change in your score after paying off debt: 

  • You paid off an older collections account: In some cases, making payments on an old collections account can lead to the collection agency changing the date of the debt. Since the debt resurfaces as a newer account on your credit report, it may make a larger impact on your score.
  • Not enough time has passed since paying off the debt: The credit bureaus may not get information about your debt payment for 30 days or more, so you’ll want to check your credit report to see whether the account is marked as paid off.
  • Your score drop is unrelated to paying off debt: Although your credit score may drop after paying off debt, that may not be the reason your score dropped. Credit scores are a complicated calculation, and there could be many other reasons for a change in your score. For example, you may have applied for a new line of credit, have a missed payment on a different account, or have inaccurate information on your credit report.

In any case, if you notice a credit score drop, you’ll want to make sure to get a copy of your credit report. After looking at your report for each of the three credit bureaus—TransUnion®, Experian® and Equifax®—you’ll have a better idea of the information they’re reporting about you.

In addition to seeing whether your debt is shown as paid off, you’ll also want to pay close attention to any negative items or inaccurate information listed on your credit report. Unfair negative items can have a damaging effect on your credit score, and federal law allows you to dispute any items on your credit report that you can prove are inaccurate. 

Filing a dispute to challenge false information is an important part of the process of repairing your credit and improving your score. For support in looking over your report and disputing inaccurate information, consider working with a credit repair consultant at Lexington Law Firm, who can assist with every step of the process. Having an accurate and fair credit report is an important first step in working toward your credit score goals.


Reviewed by Alexis Peacock, Supervising Attorney at Lexington Law Firm. Written by Lexington Law.

Alexis Peacock was born in Santa Cruz, California and raised in Scottsdale, Arizona. In 2013, she earned her Bachelor of Science in Criminal Justice and Criminology, graduating cum laude from Arizona State University. Ms. Peacock received her Juris Doctor from Arizona Summit Law School and graduated in 2016. Prior to joining Lexington Law Firm, Ms. Peacock worked in Criminal Defense as both a paralegal and practicing attorney. Ms. Peacock represented clients in criminal matters varying from minor traffic infractions to serious felony cases. Alexis is licensed to practice law in Arizona. She is located in the Phoenix office.

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Source: lexingtonlaw.com