Adoption is an emotional process and can come with a hefty price tag. Depending on the type of adoption, the total cost can range from less than $1,000 to $60,000 or more.
While some employers have family-building benefits that may include adoption assistance, such as reimbursements and paid leave, adoptive parents more commonly cover these expenses themselves.
Putting cash aside in savings is the most cost-effective way to pay for adoption, but loans can also help cover the costs. Learn more about how adoption loans work, how to compare financing options and other payment methods to consider.
Adoption loans
Adoption loans are personal loans that you can use to pay for expenses such as agency costs, medical and travel expenses and court fees. An adoption loan is money you borrow and repay with interest over a set amount of time, typically two to seven years. Compare adoption loans from banks, credit unions and online lenders to find one with a low annual percentage rate and monthly payments that fit your budget.
Bank loan
Who it’s best for: Existing bank customers with good to excellent credit (a score of 690 or higher).
If you have a good relationship with your bank and strong credit, consider applying for a personal bank loan. Banks typically have low rates and perks for existing customers. In addition, most banks allow borrowers to apply in person at a branch location or online.
Credit union loan
Who it’s best for: Members of a credit union and those with thin credit profiles.
Credit unions can offer low rates and fees on personal loans. Applicants are typically assessed on their whole financial picture when qualifying for a loan, so those with fair or bad credit (scores of 689 and lower) may qualify more easily with a credit union. You must be a credit union member to apply.
Online personal loan
Who it’s best for: Prospective parents who need fast funding and prefer managing their finances online.
Online loans provide a complete online application and funding process. These lenders offer loans to borrowers across the credit score spectrum. However, a higher credit score typically means a lower interest rate. If you need funds quickly, some online personal loan lenders can approve and fund a loan within a few days.
Most online lenders let you prequalify to preview rates and terms on potential loans. It only requires a soft credit check, meaning there’s no harm to your credit score. In addition, prequalifying with multiple lenders lets you compare different loan options to find a low rate and monthly payments that fit your budget.
Loan amount
Interest rate
$5,000-$100,000.
7.49% – 24.49%.
$2,000-$35,000.
9.95% – 35.95%.
$2,000–$50,000.
8.99% – 35.99%.
$5,000-$100,000.
8.99% – 25.81%.
Nonprofit loans
Who it’s best for: Families with a financial need or aligned interests with an organization’s mission.
Some nonprofit organizations or foundations offer loans to prospective parents of adoptees. These loans can cover all or a portion of the adoption cost and come with little or no interest. Organizations such as A Child Waits Foundation may require you to have a co-signer and show evidence of financial need when applying for a loan.
How to compare loan options
Here are factors to consider when deciding between loan options.
APR: The annual percentage rate is the loan’s interest rate plus fees. You can use the APR for an apples-to-apples comparison between loan options. The loan with the lowest APR is the least expensive option.
Monthly payment: A loan’s monthly payment is based on the loan amount, APR and loan term. Payments typically start 30 days after receiving the loan funds. Look for a loan with payments that fit comfortably into your monthly budget.
Fees: Some personal loan lenders charge origination fees from 1% to 10% of the loan amount. Some may also charge a late payment fee.
Loan term: Since the adoption wait time can range from a few months to several years, keep the repayment term in mind when deciding how long you want to repay it. A longer loan term can mean lower monthly payments but higher interest costs.
Other ways to pay for adoption
Family and friends
Family and friends can be a valuable lifeline when it comes to growing your family. Consider talking to family and friends who may offer a low- or no-interest loan or a portion of the money as a gift. Crowdfunding is another way friends and people in your community can help raise funds.
HELOC
A home equity line of credit is a revolving line of credit based on the value of your home. With a HELOC, you can draw money as you need and pay it back monthly, usually at lower rates than a personal loan. It can be a good option if you aren’t sure how much you’ll need upfront. Your home is collateral on a HELOC, which means the lender can take it if you fail to make payments.
Grants
An adoption grant — funds that don’t need to be repaid — is another way to pay for adoption. Organizations such as WAT! (We Adopt Too) Black Family Adoption Assistance, Gift of Adoption Fund and Helpusadopt.org offer grants to cover adoption expenses. With organizations like these, you’ll need to check deadlines and eligibility requirements, like parental status and financial need. Upon applying, you may need to pay a fee, provide references and show proof of an approved home study.
It’s been some time since I’ve done mortgage Q&A, so without further delay, let’s explore the following question: “Do you need 20% down to buy a house?”
If you chat with anyone older than 50 (maybe 60), they’ll probably tell you that you need to (or should) put 20% down if you want to buy a house.
For them, it’s the normal, or should I say traditional, down payment needed to secure a mortgage.
And while it might be conventional wisdom when it comes to home buying, it’s not necessarily the reality anymore.
In fact, the median down payment is just 12%, per the National Association of Realtors (NAR) 2021 Home Buyer and Seller Generational Trends report. Despite this, a lot of people still seem to think you need 20% down to purchase a home.
You Don’t Need a 20% Down Payment…
A few years back, the NAR 2017 Aspiring Home Buyers Profile report found that 39% of non-owners believed they needed more than 20% for a mortgage down payment on a home purchase.
And 26% assumed they needed to put down 15-20%, while 22% said they needed a down payment of 10-14% in order to buy. None of those answers are true.
A 2020 study from NAR also had a whopping 35% of respondents going with the 16% to 20% down payment tier, easily the number one answer.
In reality, you may not even need a down payment if you take out a certain type of home loan, or receive gift funds for the down payment.
Even if a down payment is required, it’ll be a lot less than 20% in most cases, most likely less than 5%.
Last year, the typical down payment for first-time home buyers was just 7%, while it was 17% for repeat buyers, per NAR.
It’s common for repeat buyers to use the proceeds from their original home to buy a replacement, making it easier to come up with a larger down payment.
Conversely, first-timers often have a tough time coming up with funds because they can’t tap into home equity.
You’ll notice both figures have moved lower over the years, though average down payments have ticked higher recently, perhaps due to home buyer competition in this hot housing market.
20% Down Payments Used to Be the Norm
Your parents probably put down 20% or more when they bought a house
But back then home prices were a lot lower than they are today (and interest rates a lot higher)
You might only need to put down 3% or 3.5% when you purchase a property these days
But there are still key advantages to putting down at least 20% like no mortgage insurance and a lower interest rate
Back in the day, it was customary to come in with 20% down (or more) when purchasing a property.
But property values were significantly lower those days, and mortgage rates a lot higher.
Times have changed as home prices skyrocketed and mortgage lenders got more competitive (and less risk-averse).
Leading up to the housing crisis seen in the mid-2000s, a zero down mortgage was a common theme. In fact, there were lenders that named themselves after that lack of a down payment…
Of course, we all know what happened next – home prices tanked and low down payment options began to evaporate.
That led to increased FHA loan lending, which requires only 3.5% down if you have at least a 580 FICO score.
And over time, Fannie Mae and Freddie Mac introduced a competing product that allows for loan-to-value ratios (LTVs) as high as 97% (just 3% down).
So we’ve kind of come full circle, though we’re not quite at the zero-down stage just yet.
Though lenders have offered mortgages with just 1% down, such as Quicken, Guaranteed Rate, and United Wholesale Mortgage thanks to the use of grants.
Should You Put Less Than 20% Down on a Home?
You may not need to put 20% down on a home purchase in many cases
But it will cost you more money monthly if you don’t via a higher rate, PMI, and a larger loan amount
It may also make your offer less desirable to home sellers if they have competing bids with larger down payments
So it can beneficial to put down more, especially in a seller’s market
We’ve already answered the original question. You don’t need a 20% down payment to purchase a home.
In fact, you don’t need any down payment in some cases if you consider a home loan from the VA or USDA, both of which offer 100% financing.
You also don’t need to put down 10% or even 5% thanks to widely available programs from the FHA and Fannie and Freddie.
The median down payment is quite a bit lower, around 12% at last glance, and even lower (6%) for the 22 to 30 age cohort.
This age group also said saving for the down payment was one of the most difficult steps of the home buying process.
Now assuming you can muster a 20% down payment, should you come in with less?
This answer is a bit more elusive because it depends on a variety of factors, which include your household balance sheet and your financial goals.
Perhaps it’s better to frame the question the other way around.
Why You Should Put 20% Down on a House
In short, the less you put down on a home, the more you pay each month via your mortgage payment. This happens for three main reasons:
– Larger loan amount (less down means more financed) – Higher mortgage rate (rates tend to rise as down payments fall) – Mortgage insurance (added cost to account for risk)
If you put down less than 20%, you wind up with a bigger loan amount (obviously), a higher mortgage rate (usually) because of pricing adjustments, and you have to pay mortgage insurance to protect the lender.
This means your monthly housing costs go up, but you keep more cash in-hand, or at least not in your house.
Let’s assume the home you want to purchase is selling for $350,000 and you plan to take out a 30-year fixed mortgage. This comparison chart shows us how things might look.
3% Down vs. 20% Down: The Math
$350,000 Home Purchase
3% Down Payment
20% Down Payment
Down payment
$10,500
$70,000
Loan amount
$339,500
$280,000
Mortgage rate
4.125%
3.875%
Monthly P&I payment
$1,645.39
$1,316.66
PMI
$125
n/a
Total monthly cost
$1,770.39
$1,316.66
Difference
+453.73
As you can see from the chart above, the 3% down mortgage payment is roughly $454 more expensive each month thanks to those three things I mentioned.
That higher payment equates to an additional $27,223.80 spent over the course of five years.
Additionally, because the loan balance and mortgage rate are higher, more of your payment goes toward interest every month.
After 60 months, the 3% down mortgage would have a balance of $307,684.69, whereas the 20% down mortgage would be whittled down to $252,738.50.
The tradeoff is basically more money in your pocket versus the home, and the ability to buy more house now in exchange for a higher monthly payment.
This assumes you lack the down payment funds, but can afford the higher payments, which can be a common scenario for young high-earning individuals without significant savings (HENRYs).
At the same time, I’ve argued that it’s possible to buy more house if you put more money down because less income is required.
This assumes income is the problem and not assets, which can result in debt-to-income issues, which are prevalent and often grounds for denial.
Of course, it’s entirely possible for a low-down payment to be voluntary, for a homeowner who wants to park their money elsewhere.
That decision really comes down to how you value your housing investment, and if you think you can do better putting the money in the stock market or some other place.
For those who don’t have that choice, take comfort in the fact that you don’t need a 20% down payment to buy a home, or anywhere close to it.
But you will pay extra for that convenience, and you might have more hurdles to clear, such as convincing a seller to take your offer when another prospective buyer offers to put down 20%.
Alternatively, you could get a gift for a portion of the down payment and get the best of both worlds.
Can You Put More Than 20% Down on a House?
You can put as much down as you’d like (or even buy all-cash to avoid the mortgage entirely)
There are advantages to putting down more than 20% on a home purchase
Such as a lower mortgage rate thanks to fewer pricing adjustments
And an even stronger offer if buying a home in a hot market
Also a lower monthly payment and much less interest paid
You sure can. It’s generally possible to put down as much as you’d like on your home purchase, though if you put down too much you could run into issues with minimum loan amounts from lenders.
Of course, this probably isn’t going to be an issue in most cases with property values so high these days.
I’ve heard of home buyers putting down 50% just because they are debt-averse, but again, most folks don’t have that type of cash lying around.
The obvious benefit of putting a large down payment on a house is that you’ll have a smaller mortgage balance and pay less interest as a result.
You’ll also enjoy lower monthly payments, which will free up cash for other expenses or investments.
Conversely, you’ll have that much more money locked up in your property, which you’ll only be able to access if you sell or take out another home loan.
When it comes to mortgage rate pricing, it’s possible to obtain a slightly lower interest rate when you put down more than 20%, though it likely won’t be much.
We’re talking .125% to .25% lower depending on the scenario in question, so there are diminishing returns, especially when interest rates are already low.
But if you have bad credit the pricing impact can be greater with a larger down payment, so in those cases it could make sense to put down more than 20%, assuming you’ve got the cash available.
However, once you’re at 65% LTV (35% down payment) the pricing incentives tend to stop, so there wouldn’t be a benefit mortgage rate-wise after that threshold.
In summary, consider how much money you want locked up in your home, what your money could be doing (earning) otherwise, and how much it’ll cost you to put less down.
Lastly, don’t forget home sellers favor those who come in with larger down payments!
Read more: 2021 home buying tips to get the deal done.
Pros of Putting Down 20% on a Home Purchase
– Smaller loan amount – No mortgage insurance required – Lower mortgage rate – Pay less interest over the life of the loan – Ability to tap equity or take out a HELOC – Lower closing costs – Better chance of getting your offer accepted in a hot market – More lender choice and loan options available
Cons of Putting Down 20% on a Home Purchase
– Requires a lot more money up front – May make you house poor (little leftover for repairs/maintenance) – Money tied up in the home that could lose value (and thus access to it) – Could invest that money elsewhere for a better return – Inflation makes dollars worth less over time – Difference in monthly payment may not be all that substantial
There has probably been at least one point in everyone’s life when they have engaged in a bad money habit. However, it’s best to realize your bad money habit now rather than later!
I believe it’s much better to realize your problem as soon as you can so that you can take action towards changing for the better. Doing so can help you improve your financial situation for years to come.
Understanding your bad money habits and making a change can help you stop living paycheck to paycheck, eliminate debt, pursue your passion, save for your goals, reach retirement, and more.
Here are several bad money habits that may be making you broke.
Keeping up with the Joneses – what a bad money habit!
I’m sure almost everyone, at one point in their life, has felt the need to keep up with the Joneses.
Whether you are five years old and want that new toy everyone is playing with, or if you are 40 years old and are feeling the need to upgrade your house, car, etc., everyone has experienced it.
The problem with this is that keeping up with the Joneses can make you broke.
VERY broke.
When trying to keep up with the Joneses, you might spend money you do not have. You might put expenses on credit cards to (in a pretend world) “afford” things. You might buy things that you do not care about. The problems can go on and on.
This can lead to a significant amount of debt.
Keeping up with the Joneses is not worth it because:
You will never be happy, no matter how much money you spend.
You will constantly compare yourself to EVERYONE.
You will go into debt because that’s the only way you feel like you can keep up.
You will have a loan payment for everything because that’s the only way you can “afford” everything.
You won’t have any money leftover for retirement, an emergency fund, etc. because you’re spending it all on things you do not need.
Instead, you should figure out why you want to keep up with the Joneses, think about your own life and your own goals, realize that jealousy won’t get you anywhere, and try your best to live within your means.
Related:
Letting your emotions take control of your spending.
Emotional spending is a bad money habit that many people take part in. It’s one you should stop, because it doesn’t cure any problems.
According to NerdWallet, the average US household (who has debt) has an average credit card debt of $15,611, and I’m sure some of that is due to emotional spending.
Emotional spending occurs for many different reasons. You may have had a bad day at work, a fight with your loved one, and so on. You might even be spending because you are so stressed out about the amount of spending you have done.
To end your emotion spending habit, I recommend:
Figuring out the amount of debt you have. You’ll most likely be shocked, and hopefully this will persuade you to change your spending habits and the way you deal with stress.
Understanding why you spend when you’re stressed. In order to stop stress spending, you need to really think about why you have this problem. Without understanding your problem, you might just keep falling into the same cycle over and over again.
Thinking about your financial goals, so that you can stay motivated.
Finding different ways to deal with stress.
Sticking to a budget.
Not facing your debt.
Too many people never face their debt and don’t even know how much debt they have.
By not thinking about your total debt figure, it may seem less real and a way to run away from it. However, that will catch up to you in many ways, such as high interest charges, a bad credit score, numerous phone calls from debt collectors, possible paycheck garnishments, and more.
The first step to paying off your debt is to face it. You should add up your total debt, learn more about the debt you have, and create a plan to eliminate it.
Ignoring the importance of financial education.
Many people do not fully understand how credit cards work, how to improve their credit score, and more. However, if more people were educated on financial issues, this could lead to less debt, better managed budgets, and more.
I recommend diving into a good personal finance book, bookmarking your favorite financial blogs, staying up-to-date on the latest things going on in personal finance, and more.
Thinking you don’t need a budget.
Too many people go without a budget, because they believe they don’t need one. Sadly, many people believe that budgets are only for “poor” people, people who are horrible with money, and so on.
But, that just isn’t the case, at all. Nearly everyone needs some form of budget, even if that means just comparing your income and your expenses each month.
Budgets are great, because they keep you mindful of your income and expenses. With a budget, you will know exactly how much you can spend in a category each month, how much you have to work with, what spending areas need to be evaluated, among other things.
Budgets have helped people reach their goals, pay off debt, make more money, retire, and more.
Believing you’re invincible.
While I always try to stay positive and am a firm believer in the power of positive thinking, I do believe that everyone should have an emergency fund. However, many people have no emergency fund whatsoever, and this is a bad money habit.
There are many reasons to have an emergency fund:
An emergency fund can help you if you lose your job. No matter how stable you think your job is, there is always a chance that something could happen.
An emergency fund is wise if you do not have great health insurance or have a large annual deductible.
An emergency fund is a good idea if you have a car and need repairs.
An emergency fund is a need if you own a home. One of the lucky things that homeowners often get to deal with is an unexpected home repair. Having an emergency fund can help you if your basement floods, if a hole forms in your roof, and more.
Emergency funds are always good to have, because they give you peace of mind when something costly happens in your life. Instead of building onto your stress, you will know you can still afford to pay your bills and worry about more important things.
Being afraid of investing.
One of the biggest bad money habits is that far too many people are afraid of investing and never start.
Here are some reason to invest:
You can retire one day.
You never know what may happen in the future, so preparing now is important.
You can allow your money to grow over time.
I always say, the first thing you need to do if you want to start investing is to just jump in. You’ll never learn unless you make an attempt.
Read more at The 6 Steps To Take To Invest Your First Dollar – Yes, It’s Really This Easy!
If you are new to my blog, I am all about finding ways to make and save more money. Here are some of my favorite sites and products that may help you out:
Start a blog. Blogging is how I make a living and just a few years ago I never thought it would be possible. I earn over $70,000 a month online through my blog and you can read more about this in my monthly online income reports. You can create your own blog here with my easy-to-use tutorial. You can start your blog for as low as $3.49 per month plus you get a free domain if you sign-up through my tutorial.
Sign up for a website like Ebates where you can earn CASH BACK for just spending like how you normally would online. The service is free too! Plus, when you sign up through my link, you also receive a free $10 gift card bonus to Macys, Walmart, Target, or Kohls!
Answer surveys. Survey companies I recommend include Survey Junkie, Swagbucks, Pinecone Research, and Harris Poll Online. They’re free to join and free to use! You get paid to answer surveys and to test products. It’s best to sign up for as many as you can as that way you can receive the most surveys and make the most money.
Save money on food. I recently joined $5 Meal Plan in order to help me eat at home more and cut my food spending. It’s only $5 a month (the first two weeks are free too) and you get meal plans sent straight to you along with the exact shopping list you need in order to create the meals. Each meal costs around $2 per person or less. This allows you to save time because you won’t have to meal plan anymore, and it will save you money as well!
I highly recommend Credible for student loan refinancing. You can lower the interest rate on your student loans significantly by using Credible which may help you shave thousands off your student loan bill over time.
Cut your TV bill. Cut your cable, satellite, etc. Even go as far to go without Netflix or Hulu as well. Buy a digital antenna (this is the one we have) and enjoy free TV for life.
Try InboxDollars. InboxDollars is an online rewards website I recommend. You can earn cash by taking surveys, playing games, shopping online, searching the web, redeeming grocery coupons, and more. Also, by signing up through my link, you will receive $5.00 for free just for signing up!
Find a part-time job. There are many part-time jobs that you may be able to find. You can find a job on sites such as Snagajob, Craigslist (yes, I’ve found a legitimate job through there before), Monster, and so on.
Lower your cell phone bill. Instead of paying the $150 or more that you spend on your cell phone bill, there are companies out there like Republic Wireless that offer cell phone service starting at $10. YES, I SAID $10! If you use my Republic Wireless affiliate link, you can change your life and start saving thousands of dollars a year on your cell phone service. I created a full review on Republic Wireless as well if you are interested in hearing more. I’ve been using them for over a year and they are great.
Credit card pre-approval makes signing up for your first credit card a lot easier.
The credit card marketplace is crowded, and every issuer is advertising to get your attention. But they may not tell you (or only tell you in the fine print) which cards you’re actually likely to get approved for, or which will score you the best interest rates.
A little research into good credit cards can help you cut through the noise, and the pre-approval process helps you narrow down which cards are the best fit for your (cloth or virtual) wallet. It’s a low-risk opportunity to pick the credit card with the features you want — and to make sure you qualify.
What’s Ahead:
What is pre-approval?
Credit card companies are always on the lookout for new customers. One way they find potential cardholders is by pre-screening credit reports from the major credit bureaus.
They identify consumers whose credit scores and reports are in the ballpark of what the company looks for — like no bankruptcies, no delinquencies for several months, and a score below the company’s minimum cutoff.
Then they’ll send a pre-approval card offer to these consumers.
It’s important to remember that pre-approval doesn’t mean you’re automatically qualified for the card. But it does mean you’ve made the “first cut” by fitting the credit card issuer’s most basic requirements.
What’s the difference between pre-qualification and pre-approval?
Some issuers use the term “pre-qualified” instead of “pre-approved.” Though these terms are sometimes used interchangeably, they describe different types of offers based on who initiates the process.
Pre-qualification for a card means the customer (you) makes the first request.
If you’re interested in a specific card, you can go to the company’s website and fill out some basic info. The company responds by showing you the cards and offers you might qualify for if you made a formal application. At that point, you’re “pre-qualified” and can decide whether or not to apply.
Or a lender may invite you to find out if you pre-qualify for their card (through an advertisement, for instance). This isn’t pre-approval, since the lender hasn’t screened your credit yet to see if you’ve made the first cut.
Pre-qualification may be the route to take if you’re brand new to credit — without a credit score, you’re probably not getting on pre-approval mailing lists.
Pre-approval means the credit card company reaches out to you first because you meet their basic requirements. Once they’ve scanned consumers’ credit scores, they let certain consumers know they’ve been “pre-approved.”
Lenders often tap into their existing customer base to find people to pre-approve, as well. If your current bank is rolling out a new credit card, for example, they might send you a pre-approval offer.
Which is better, pre-approval or pre-qualification?
Neither of these processes is better than the other, or more likely to get you final approval. They’re just different ways to review your credit card options.
For both pre-approval and pre-qualification, you’ll go through a soft credit check — a check that doesn’t impact your credit score. This means both processes are relatively risk-free.
The hard credit check, the one that knocks a few points off your score, doesn’t happen until you fill out the longer application for the card.
Read more: Soft pull vs. hard pull – how each affects your credit
How do I get pre-approved for a credit card?
Respond to an offer from a credit card company
If you have time to pick a card and don’t have a lender you prefer, you can wait for the credit card company to come to you.
Companies do still send offers by snail mail, though not as much as they once did. So it’s worth taking a look at any mail offers before dropping them in the recycling bin.
Pre-screened offers are different from the general mailings that companies send to everyone on their marketing list. Look for the words “pre-approved,” “pre-qualified,” or “pre-screened.” The offer may include an invitation code you’ll need to apply for the card online.
One advantage to applying for a pre-approval offer is that they’ll sometimes give you an introductory deal associated with the offer, like a sign-up bonus or a few extra months of 0% interest.
These deals aren’t always advertised to the general public, so they’re a nice pre-approval perk.
Request pre-qualification on a credit card company’s website
Inquiring about a pre-qualification offer may be the best way to get credit card pre-approval if:
You’re new to credit and opening your first credit card.
You’re rebuilding a low credit score.
You want to go through a certain bank or apply for a specific card, and you haven’t received an offer.
You want to check out a wider range of card options.
Most major card issuers that offer pre-qualification have an online link to a simple form. Usually, you won’t enter more than your:
Name.
Address.
Date of birth.
Social security number.
Why is it important to get pre-approved or pre-qualify?
If you’re shopping around and considering lots of different cards, pre-qualification is a risk-free way to compare initial offers before you fill out any applications.
The pre-approval stage allows you to:
Rule out any cards or issuers that you don’t qualify for, so you don’t waste time applying.
Figure out the interest rate range you’re likely to get.
Compare potential sign-on bonuses, loyalty rewards, and other credit card features.
Double-check the card company’s requirements for cardholders, which are more detailed than their pre-approval requirements.
When you take the next step of a formal application, you’re officially applying for new credit. This means the company is required to run a hard credit check. They’ll ask your permission first.
Hard credit checks do show up on your credit score, usually knocking it down only 10 or 20 points. That’s not a huge deal if it happens once in a while.
But if you apply for credit pretty frequently — more than two or three times in six months — your credit score takes a bigger drop.
With pre-approval, you can make sure you’re only committing to the hard credit check if you’re likely to be approved for new credit.
Picking the right credit card to apply for
As a savvy MoneyUnder30 reader, you probably know this already, but I’ll remind you just in case: pre-approval or pre-qualification doesn’t mean the card is the best fit for your needs and lifestyle.
First, spend some time figuring out what you want in a credit card. I suggest asking yourself questions like:
Are you likely to use it for big expenses like travel, or everyday costs like groceries?
Do you want a card where the rewards category matches up with the way you spend?
Is your main goal to start building credit?
Once you know what’s important to you, you can use the pre-approval process to find cards that are a good match.
This is especially helpful if your credit card pre-approval offer suggests multiple cards from the same company. These cards will all have slightly different terms, so take the time to do your research about their differences.
Read more: Best credit cards for young adults & first-timers
How do you apply for a credit card after you’re pre-approved?
The pre-approval or pre-qualification process doesn’t require much info.
You’ll usually enter your name, birth date, address, and your social security number (either the last four digits or the whole number) to confirm your identity.
The official application is a lot more thorough. At a minimum, be prepared with:
Income information. You may or may not need to submit proof of income, depending on the issuer. But you’ll at least have to estimate how much you earn every year.
Housing payment information. This should include how much you’re paying in rent or mortgage a month.
Employment status.
Income details for a co-signer, if someone is co-signing for the card with you.
Read more: How to apply for a credit card (and approval requirements)
What credit score do you need?
It depends. There’s no minimum score that applies to all issuers, so if you have any credit at all, it may be possible to pre-qualify for a card. Of course, the better your credit is, the more offers will be available.
If you don’t have a credit history, it’s a little trickier. Some card issuers consider alternative credit data, like income and work history, to determine financial responsibility.
Read more: What credit score do you need to get approved for a credit card?
After you get approved
If you make the final cut and get approved, not just pre-approved, it’s time to double-check your card terms.
Credit card companies are required to provide the same terms listed in the initial pre-approval offer if they accept you. This means you should get the same interest rate, fee, or bonus that was stated in the offer. Many pre-approvals show a range of interest rates, so they’re required to give you a rate somewhere within that range.
Read more: The best credit cards – MU30’s top picks
Are you guaranteed approval when pre-approved for a credit card?
Not necessarily. A pre-approval or pre-qualification is an invitation to apply, not a guarantee of acceptance. It means there’s a strong chance you’ll meet the standards for cardholders, but the lender needs to know more before actually extending you credit.
Can you get denied after pre-approval?
Remember, pre-approval is just the first step in the process. You can get denied after submitting a formal application, even if you were pre-qualified or were pre-approved.
According to a 2019 report, only around 40% of credit card applicants made the final cut and got approved for a card.
When you officially apply, you’re giving credit card issuers a lot more information about your financial status than you did in the pre-screening stages. This means they’ll judge you a little more strictly.
Here are some of the most common reasons pre-approved candidates get their applications declined:
Your monthly or annual income doesn’t meet the issuer’s minimum cutoff.
Your reported payments are too high relative to your income.
Your credit data has changed significantly since the pre-approval offer.
You’ve taken on debt or missed several payments since the pre-approval offer.
Your income has dropped since the pre-approval offer.
The lender should send you a letter telling you why they made the decision, so it won’t be a mystery.
What if I can’t get pre-approved for a credit card?
If you don’t get any card pre-approvals or pre-qualifications, don’t sweat it. Credit lenders may be looking for cardholders who fit a particular financial profile, and that doesn’t reflect on your general creditworthiness. You still have a number of options.
Try pre-qualifying with another credit card company. Their terms may be more generous or suited to what you need.
Apply anyway. This is a risk because the issuer will run a hard credit check. But if you have stable employment, good income stats, or a co-signer with strong credit, these factors may make up for a less-than-perfect credit score.
Work on improving your credit. Make rent, bill, and loan payments on time. If you’re brand new to credit, you can take out a credit builder loan (as long as you’re able to pay it back on schedule!). Or ask a trusted family member or partner if you can be an authorized user on their account.
Read more: How to build credit the right way
Apply for a secured credit card
For credit newbies, secured credit cards are a nice bridge into the world of credit, and a lot of major card issuers offer them.
You’ll “secure” the card with a deposit — this amount can vary, but think around $200 — which gives you access to a credit line up to that amount. Then you spend just as you would on any other card.
After several months of responsible use, you’ll usually be eligible to transition to an unsecured credit card from the same company.
Read more: Best secured credit cards
Credit card companies that offer pre-approval
Most of the bigger credit card names have pre-approval or pre-qualification forms that are easy and quick to fill out online.
Keep in mind you may not be able to seek pre-approval for every card in the lender’s collection, but they’ll offer a decent range of cards to choose from.
Summary
Whether you’re getting your first credit card or adding one to your collection, it’s worth going through the pre-approval process first. You’ll save time, preserve your credit, and hopefully end up with a great card that will help you achieve financial stability.
A less-than-stellar credit score doesn’t automatically disqualify you from refinancing your mortgage. Fortunately, there are several options to refinance your mortgage with a bad credit score.
Here’s what you need to know about lender credit standards and the steps you can take to refinance with a lower credit score.
What Credit Score Is Needed to Refinance?
Every lender has a different set of criteria for credit scores and refinancing. To refinance a conventional mortgage, most lenders look for a credit score of at least 620.
Some government programs may require a credit score of at least 580 and some may have no minimum at all.
For example, most Federal Housing Administration (FHA) loans require a credit score of at least 580. The Department of Veterans Affairs (VA) doesn’t set a minimum credit score.
As a general rule of thumb, the higher your credit score, the more likely you are to qualify for a mortgage refinance.
However, your credit score isn’t the only determining factor. If you have a higher debt-to-income (DTI) ratio and loan-to-value (LTV) ratio and minimal cash on hand, the credit score requirement may increase.
How to Refinance a Mortgage with a Bad Credit Score
It may be possible to refinance your mortgage with a bad credit score, without needing to improve your credit profile first. You should explore all of your refinancing options to find the one that makes the most sense for your situation.
1. Chat with Your Existing Mortgage Lender
Talk with your lender about your refinance options with a bad credit score. If you’ve made timely mortgage payments, your lender may be able to work with you even with a bad credit score.
Your lender could offer you a portfolio refinance, which is originated and kept by the lender rather than being sold on the secondary market. Because of this, portfolio refinance loans oftentimes have relaxed qualification standards.
It’s still a good idea to speak with multiple lenders, apply and compare quotes, even if your current mortgage lender says you’re eligible to refinance.
2. Use a Cosigner
Another option is to use a friend or family member as a cosigner on your mortgage refinance loan. Your cosigner must be at least 18 years old, have a valid Social Security number, and meet all minimum requirements for the loan.
Keep in mind that the cosigner is taking a major risk and is legally responsible for your debt if you stop making payments. This could also hurt your cosigner’s credit score.
3. FHA Refinance Programs
The FHA offers several refinance options for homeowners with bad credit. An FHA loan is a mortgage that is backed by the U.S. government and issued by a bank or other approved lender.
Here are some options:
FHA rate-and-term refinance: The FHA rate-and-term refinance requires a credit check and a minimum credit score between 500 and 580, depending on your LTV ratio. You also need to prove that you’ve made 12 consecutive monthly mortgage payments on time.
FHA streamline refinance: An FHA streamline refinance has two options: credit qualifying and non-credit qualifying. A non-credit qualifying streamline refinance doesn’t have a minimum credit score but you may pay a higher interest rate. With a credit qualifying streamline refinance, the lender will run a credit check and verify your DTI ratio.
FHA cash-out refinance: You can borrow up to 80% of your home’s value with a credit score as low as 500, but some lenders may require a higher score.
FHA 203(k) refinance: This is a type of refinancing that enables homeowners to combine renovation expenses into the total amount of the new mortgage. The FHA accepts credit scores as low as 580, although some lenders might require a score of 620 or higher to qualify for a 203(k) refinance loan.
4. VA Refinance
Servicemembers, veterans, or qualifying spouses may qualify for a VA loan backed by the federal government and issued by private lenders. The VA has no minimum credit score requirement, but the lender may require a credit score of 620 or higher.
There are two VA refinance options:
VA streamline refinance: If you’re eligible, you can refinance with bad credit with an Interest Rate Reduction Refinance Loan (IRRRL). The IRRRL must be used to refinance your existing VA-backed home loan and while the VA doesn’t require a new credit check, the lender may be different.
VA cash-out refinance: You can use the VA cash-out refinance to tap your home’s equity, but you must meet the VA’s — and the lender’s — credit and income requirements.
5. USDA Streamlined Assist Refinance
The USDA’s Streamlined Assist program gives current USDA direct and guaranteed home loan borrowers with low or no equity the ability to refinance for a lower interest rate and lower monthly payments. No credit review is required, but you must have made at least 12 consecutive mortgage payments and meet income eligibility standards.
How to Improve Your Credit Score to Refinance a Mortgage
There are several things you can do to improve your credit score before refinancing your mortgage.
Raising your credit score by just 20 points can potentially lower your monthly mortgage payments and save you thousands on interest.
Here are a few options:
Check your credit report: You can check your credit report for free once per year with the three major credit bureaus — Experian, Equifax, and TransUnion — to see what’s keeping your credit score so low. You can also check for errors, unauthorized charges, and fraud, which could be lowering your credit score. If you find any issues, you can dispute them with the credit bureau.
Pay down debt: Your DTI is another factor that lenders will consider. Try to keep your DTI under 43%.
Make payments on time: Your credit score is heavily influenced by your payment history. A single missed payment can significantly lower your credit score. Payment history accounts for 35% of your FICO credit score.
Save money: Build your savings to make a larger down payment or keep the extra cash reserves to potentially lower your level of risk to lenders.
Explore Your Refinance Options with Total Mortgage
Even if you have a low credit score, this doesn’t mean that you are disqualified from refinancing your loan. Consult with a Total Mortgage advisor to explore all your mortgage refinance options.
Find an expert near you or apply for a refinance loan online!
A new policy for mortgage borrowers from U.S.-government-backed institutions has inspired mostly right-wing criticism suggesting the changes benefit individuals with lower credit scores at the expense of borrowers with higher credit scores, but proponents suggest that’s an incomplete characterization of the situation.
Critics of U.S. President Joe Biden are calling him out for his administration requiring some home … [+] buyers to pay higher mortgage fees.
AFP via Getty Images
Key Facts
Beginning Monday, the Federal Housing Finance Agency altered the loan fees charged to Americans with mortgages from Fannie Mae and Freddie Mac, which provide more than half of all mortgages in the U.S.
According to the Urban Institute, out of 81 types of borrowers classified by down payments and credit scores, the FHFA increased the fees of 23 groups—mainly those with excellent credit scores—by as much as 75 basis points and slashed the fees of 45 groups—largely borrowers with fair scores and lower down payments—by as much as 200 basis points.
Criticism of the plan has escalated in recent days: On Monday, 34 high-ranking financial officials across 27 states sent a letter to Biden claiming the “unconscionable policy” would “further depress” the real estate market and “unfairly cost” middle-class Americans “millions upon millions of dollars.”
But some experts disagree: Jim Parrott and Janneke Ratcliffe of the Urban Institute think tank’s Housing Finance Policy Center point out a separate policy forces borrowers with a down payment of less than 20% to buy mortgage insurance—allowing the FHFA to charge them less because their loans are less risky and making it so less-qualified buyers are still ultimately paying higher fees.
The FHFA is “not raising fees on borrowers with good credit to lower them for those with bad credit,” Parrott explains, arguing the agency is instead “raising fees on loans there is little reason to discount so that it can better serve those who need the help.”
FHFA head Sandra Thompson has also addressed the “misunderstanding,” saying much of the hostility focuses on separate recently announced policies, which ended upfront mortgage fees for low- and middle-income first-time home buyers and upped fees for mortgage seekers for second homes.
Chief Critic
Railing against “President Biden’s mortgage socialism rule,” Rep. Barry Loudermilk (R-Ga.) tweeted Tuesday that borrowers with a credit score of 680 and above with mortgages from Fannie Mae and Freddie Mac will “see a spike in your borrowing costs” to fund the mortgages of individuals with worse credit. It’s unclear what Loudermilk, who sits on the House’s financial services committee, is referring to, as less than half of the down-payment-based groupings of borrowers with credit scores 680 and above saw fee hikes beginning Monday.
Big Number
About $3,200. That’s how much more a borrower in the most-affected qualifying group buying a new home at the average U.S. sale price of $516,500 will pay under the new FHFA rules. These borrowers with credit scores between 720 and 759 taking out a mortgage for between 80% and 85% of the home’s value will pay a 75-basis-point higher fee. Despite the changes, however, the fees remain far greater for individuals with lower credit scores. Borrowers with credit scores over 780 now pay a 0.4% fee for loans worth 75% to 80% of the home price, while borrowers with credit scores below 640 pay a 2.8% fee on the same mortgage.
Contra
“It’s not the case that every category of person with good credit will pay more. There’s not that sort of direct relationship here and it does not affect any particular category of borrower across the board,” George Washington University professor Vanessa Perry told Bloomberg last week.
Key Background
The FHFA policy updates come at a particularly tenuous time for the housing market. Hovering near a two-decade high, 30-year mortgage rates were 6.4% as of last week, more than twice as high as they were at the beginning of last year—before the Federal Reserve started hiking interest rates in its attempt to slow inflation.
Further Reading
What You Need to Know About the Biden Administration’s New Mortgage Fees (Bloomberg)
Spinning Federal Mortgage Fees (Wall Street Journal)
Would you like to open a checking account, but you’re worried that your bad credit and past banking history might get in the way? With these issues, it can be difficult to open a new bank account.
20 Best Bank Accounts for Bad Credit
Regardless of your banking history, there are numerous banks and credit unions that offer bad credit checking accounts, all with unique features and benefits.
1. Chime
Our Top Pick
No minimum opening deposit or monthly service fee
Over 60,000 fee-free1 ATMs
Get paid up to 2 days early with direct deposit2
No credit check or ChexSystems
With Chime®, a bad credit score is no longer a deal-breaker. They offer an award-winning financial app and debit card with no credit check.
You can open a Chime Checking Account online with no monthly fees. And by that, we mean no overdraft fees, no monthly maintenance fees, no foreign transaction fees, and no minimum balance fees—ever.
Chime also offers a new way to build your credit with the Chime Credit Builder Secured Visa® Credit Card7. It’s a secured credit card with no annual fees, no credit checks, and no interest1 charges.
They offer access to over 60,000 MoneyPass® and Visa® Plus Alliance ATMs. Plus, you can get your paycheck up to 2 days earlier with direct deposit. You can also deposit cash for free at over 8,500 Walgreens.
Chime is definitely the best option on this list.
2. U.S. Bank
$400 sign-up bonus
Monthly service fee can be waived
Over 40,000 fee-free ATMs
$25 minimum opening deposit
U.S. Bank is now offering the Bank Smartly® Checking account, a popular choice that can be applied for online in 26 states throughout the U.S.
If you’re based in any of the following states – AR, AZ, CA, CO, IA, ID, IL, IN, KS, KY, MN, MO, MT, NC, ND, NE, NM, NV, OH, OR, SD, TN, UT, WA, WI, or WY – you’re eligible to apply.
By opening a Bank Smartly® Checking account and a Standard Savings account, and completing qualifying activities, you have the potential to earn up to $400. Subject to certain terms and limitations. Offer valid through June 20, 2023. Member FDIC.
The account itself provides a variety of benefits, including a complimentary debit card that can be locked or unlocked if ever misplaced or stolen. U.S. Bank ATMs offer free transactions, as do over 40,000 MoneyPass Network ATMs.
Although U.S. Bank uses ChexSystems, it’s typically known to be more accommodating with its regulations than many other banks. Unless there’s a history of fraud or any money owed to U.S. Bank, opening a checking account is a possibility.
The checking account requires just a $25 minimum opening deposit, with a monthly service fee of $6.95. The monthly fee can be waived by maintaining a minimum balance of $1,500, or by having a minimum monthly Direct Deposit of $1,000.
3. GO2bank
4.50% APY on savings up to $5,000
No minimum opening deposit
Build credit with no annual fees
Overdraft protection up to $200
GO2bank is a neobank developed by Green Dot, is a neobank developed by Green Dot, a well-established fintech known for its prepaid debit cards and banking services.
The bank offers a checking account with savings subaccounts known as vaults, and the best part is that there is no minimum balance required to open an account online.
The savings account offers an attractive 4.50% APY on savings up to $5,000. Additionally, you can deposit cash at any of the 90,000 retail locations or withdraw funds from any of the 19,000 fee-free ATMs.
You can also use the mobile app’s check deposit feature to deposit checks directly into your checking account.
With direct deposit, you can even receive your pay up to 2 days early or your government benefits up to 4 days early. Opt-in for overdraft protection and be eligible for up to $200 in coverage with eligible direct deposits.
Responsible use of the GO2bank Secured Visa Credit Card can also help you build your credit over time.
If you receive a payroll or government benefits direct deposit in the previous monthly statement period, your monthly fee is waived. Otherwise, it is only $5 per month.
4. Chase
$100 bonus after 10 purchases in 60 days
No credit check or ChexSystems
Over 16,000 fee-free ATMs
$4.95 monthly fee
Chase is one of the most popular banks in the U.S. And now, they offer an account called Chase Secure Banking that doesn’t require a credit check, doesn’t use ChexSystems, and doesn’t charge overdraft fees.
Account holders also get access to over 16,000 ATMs, free online bill pay, and free money orders and cashier’s checks.
With 4,700 locations across the country, this is an excellent option for anyone who prefers having access to physical branches.
Opening a Chase Secure Banking account comes with a $100 cash bonus when you use the card for 10 purchases within 60 days.
Account approval is immediate and you’ll receive your debit card within days. There is a small monthly service fee of $4.95; however, there is no minimum deposit to get started.
5. mph.bank
Earn 4.70% APY on unlimited savings
No minimum balance to open
Get paid up to two days early
Free withdrawals at over 55,000 ATMs
mph.bank, created by Liberty Savings Bank, F.S.B. and a Member FDIC, is a banking option that truly stands out for its unique approach. MPH, which stands for ‘Makes People Happy’, is not just a slogan – it’s a philosophy that permeates every aspect of their banking services.
They offer five different bank accounts, but the standout offering is their Future Account. This account lets you earn an impressive 4.70% APY on your savings, with no minimum balance to open and no maximum balance for the rate.
Alongside this, mph.bank offers a Spend account that allows you to receive your paycheck two days earlier.
Accessing your money is easy with mph.bank, as they are part of the Allpoint network, offering you free access to over 55,000 ATMs.
In addition to these features, mph.bank has a host of financial tools available. From planning for your future to managing your finances on one page, mph.bank ensures that you have the necessary resources at your fingertips.
6. Current
No credit check or ChexSystems
No minimum deposit or maintenance fees
Get paid up to two days faster
Overdraft up to $200 without any overdraft fees
Current is one of the fastest-growing mobile banking solutions in the U.S., with over one million members. However, Current is a financial technology company, not a bank. Most importantly, Current does not use ChexSystems or pull your credit.
Some features of the Current mobile app and debit card include fee-free overdraft protection of up to $100, 40,000 fee-free Allpoint ATMs, and no minimum balance or hidden fees.
You can also get paid up to two days sooner with direct deposit and earn up to 15x points, and get cashback.
7. Walmart MoneyCard
No monthly fee with direct deposits of $500 or more
Earn up to 3% cash back on purchases
Overdraft protection covering up to $200 with eligible direct deposits
2% APY on savings
The Walmart MoneyCard is a prepaid debit card that offers a robust alternative to traditional checking accounts.
This card stands out with its cash back rewards program, offering up to 3% cash back when shopping at Walmart.com, 2% at Walmart fuel stations, and 1% at Walmart stores, up to a total of $75 each year.
Users can also enjoy the peace of mind offered by the overdraft protection feature, covering up to $200 for purchase transactions with opt-in and eligible direct deposits.
The ASAP Direct Deposit feature is another great perk, allowing users to receive their pay up to two days earlier and benefits up to four days earlier.
Additionally, with the Walmart MoneyCard, you can earn a 2% APY on savings and have chances to win cash prizes each month. The monthly fee of $5.94 can be waived with a direct deposit of $500 or more in the previous monthly period.
8. Revolut
No monthly fee
Earn up to 4.25% APY on savings
Cash withdrawals at more than 55,000 ATMs
Commission-free stock trading
Revolut is a financial app that comes with a prepaid debit card from Visa or Mastercard. However, you don’t need to wait for the physical card to get started. You can use the digital card right away on Apple Pay or Google Pay.
The Revolut debit card gets you fee-free access to over 55,000 ATMs, and no cost out-of-network ATM withdrawals up to $1,200 per month. You’ll also get 10 zero-fee international transfers per month.
This account offers cashback, discounts from top brands, a savings account, and more. Plus, your funds are insured by the FDIC for up to $250,000.
* Please note that Revolut is frequently updating its products and features, see the Revolut Terms and Conditions for the latest offerings.
* Revolut is a financial technology company. Banking services provided by Metropolitan Commercial Bank, (Member FDIC).
9. TD Ameritrade
No monthly fee
Unlimited fee refunds for U.S. ATMs
Free TD Bank debit card
Free checks and unlimited check-writing capabilities
TD Ameritrade offers a brokerage account with a comprehensive cash management checking account. As a client, you get unlimited checks. Once you open the brokerage account, you can complete the checking account application online.
A Cash Management account also gives you access to free online bill pay, as well as a free debit card with nationwide rebates on all ATM fees.
In addition, there is no monthly fee if you maintain a $100 minimum daily balance. However, it’s important to note that a TD Ameritrade checking account is not FDIC-insured or bank guaranteed.
10. Albert
No minimum balance
Cash advances up to $250
No maintenance fees
Free ATMs at over 55,000 locations
Albert is an innovative fintech banking platform that presents a powerful alternative to traditional bank accounts.
It sets itself apart with its attractive cashback rewards program attached to its free Mastercard debit card, making it your perfect shopping companion.
Moreover, it offers an around-the-clock personal finance help feature, “Ask a Genius”, ensuring you’re never in the dark about your money matters.
In addition, with Albert, you can have your paycheck up to 2 days early thanks to the direct deposit feature. This takes financial planning to a whole new level by ensuring you’re always ahead.
Albert is also a cost-saving alternative. There are no minimum balance requirements, no monthly maintenance fees, and you enjoy access to more than 55,000 ATMs, fee-free if you’re a Genius subscriber.
Finally, Albert ensures your money’s safety with FDIC protection up to $250,000. This adds an extra layer of security to your funds, allowing you to bank with confidence.
11. SoFi
With the SoFi Checking and Savings account, you won’t have to worry about being charged any overdraft fees, minimum balance fees, or monthly fees.
Plus, it offers free access to ATMs at over 55,000 locations within the Allpoint® Network. Similar to Chime and Current, you can get your paycheck up to two days sooner when you set up direct deposit.
You’ll also get a 1% APY on your checking and savings accounts and up to 15% cash back at local establishments with your SoFi debit card.
12. Navy Federal Credit Union
If you are an active-duty or retired member of the military, including the Armed Forces, National Guard, Coast Guard, or Department of Defense, you may be eligible for Navy Federal Credit Union membership.
NFCU doesn’t utilize ChexSystems or EWS. They also offer a free checking account alternative with no monthly service fees for those with qualifying direct deposits.
Additionally, NFCU offers its members convenient access to over 30,000 ATMs situated at both credit unions and retail locations across the United States and Canada through the CO-OP Network.
13. Aspiration
With the Aspiration Spend & Save account, you get an online checking account and savings account that has the potential to earn up to 5% APY.
Aspiration also offers unlimited cash withdrawals at over 55,000 ATMs. The minimum initial deposit is $10. Deposits are FDIC insured and you can get paid up to two days sooner.
The Aspiration debit card is made from recycled plastic. Deposits are 100% fossil fuel-free. And this online bank even gives you the option to plant a tree with every card swipe.
14. Southwest Financial Federal Credit Union
Southwest Financial presents a reliable banking option that prioritizes the financial wellbeing of its members. With no monthly service fees, it offers a cost-effective solution to managing your everyday finances.
Opening an account is easy and requires no minimum deposit. As a member of Southwest Financial Federal Credit Union, you enjoy the convenience of accessing your funds through a shared network of ATMs.
15. FSNB
FSNB (formerly Fort Sill National Bank) offers a hassle-free Basic Checking account to its customers, with a $5 minimum deposit requirement.
With the Basic Checking account, you need to maintain a minimum daily balance of $75. Otherwise, you’ll be charged a monthly fee of $5.50.
This account comes with a host of convenient features, including a Visa CheckCard that allows you to make purchases and withdraw cash at ATMs worldwide. Additionally, FSNB offers free online banking services, giving you access to your account from the comfort of your home or office.
16. Wells Fargo
Wells Fargo’s Clear Access Banking offers a practical, accessible checking account designed to suit various banking needs. While there is a $5 monthly service fee, this fee is waived for primary account owners aged 13 to 24.
With a minimal opening deposit of just $25, setting up Clear Access Banking is straightforward and affordable. As an account holder, you’ll have the convenience of accessing your funds through Wells Fargo’s extensive network of 13,000 ATMs and 5,300 branches across the country.
17. United Bank
United Bank has locations in Maryland, Ohio, Pennsylvania, Virginia, West Virginia, and Washington, DC. You can open a bank account with a $50 minimum initial deposit. You do not have to maintain a minimum balance and they don’t charge monthly fees.
You can also upgrade to rewards checking, where you earn cashback rewards on debit card purchases. You also get discounts on movies, theme parks, and prescriptions. The monthly service charge is $10, but you can have it waived if you reach 15 purchase transactions monthly or have a minimum of $500 in regular deposits.
18. Huntington National Bank
Huntington has locations in Arizona, Colorado, Illinois, Indiana, Michigan, Minnesota, Ohio, South Dakota, and Wisconsin.
Huntington Bank uses ChexSystems, but you can still qualify for a checking account as long as you don’t owe the bank any money. However, applicants with an EWS record may not qualify.
For Huntington’s basic account, there is no minimum opening deposit and no minimum balance requirement.
19. Varo
Varo is an online-only bank that offers a hassle-free banking experience with no monthly fees. As a Varo customer, you’ll gain access to early direct deposit payments, which means that your funds will typically be available on the same day they’re received.
Varo Bank knows that just because you need second chance banking doesn’t mean you want sub-standard service. The checking account comes with a free Visa debit card, access to over 55,000 Allpoint ATMs, and free paper check mailing.
20. Regions Bank
You’ll need a minimum opening deposit of $50 to open a Simple Checking Account at Regions Bank. This account doesn’t come with too many bells and whistles. However, it’s a suitable option for anyone with bad credit who wants a basic checking account.
Regions Bank will lower your monthly maintenance fee from $8 to $5 if you sign up for online statements. And you’ll have the option to open a savings account through Regions Bank as well.
What is a bank account for bad credit?
A bank account for bad credit is a type of account designed for people with negative banking records. These people are usually turned away from traditional banks and credit unions because of past instances of bounced checks, overdrawn accounts, or unpaid non-sufficient fund fees.
Fortunately, some financial institutions provide bad credit bank accounts that offer basic banking services such as a debit card, online banking access, and check writing privileges. Direct deposit is also available with some of these bank accounts, which makes it easy to access your income sources.
Bad credit checking accounts are typically easy to open, with minimal fees and most importantly, no credit checks or ChexSystems reports.
How do banks evaluate new account applications?
Opening a bank account can be a straightforward process, but it’s not uncommon for applicants to be turned down or offered limited options. That’s because financial institutions have criteria they use to determine who qualifies for a bank account and what type of account they can offer.
One of the most important factors that banks consider when you apply for a new account is your banking history. To assess this, most banks will check your ChexSystems report, which is a database of your past banking transactions. This report includes information such as any unpaid fees or overdrafts, closed accounts due to fraudulent activity, and other negative marks.
If you have a negative history in ChexSystems, such as unpaid fees or a history of overdrafts, it can be more challenging to open a bank account. In some cases, the bank may decline your application altogether or offer you a limited account that doesn’t allow you to write checks or use a debit card.
Another factor that banks make consider is your credit history. Some banks may pull your credit report from the three major credit bureaus Equifax, Experian, and TransUnion, but most don’t.
Your credit report is typically accessed by credit card issuers and lenders to assess your creditworthiness when you apply for loans or credit cards. But for bank accounts, your ChexSystems record is generally more important.
What is ChexSystems?
ChexSystems is a consumer reporting agency that collects user data from banks and credit unions. One of the things this data is used for is to create consumer reports that financial institutions can use to screen customers.
When attempting to open a new bank account, most financial institutions will pull your ChexSystems report. This report will show your past banking history including overdrafts, bad checks, check fraud, negative balances, or excessive withdrawals.
If you’ve had any of these issues in the past five years, it will likely be on your ChexSystems record. Fortunately, there are several reputable banks that don’t use ChexSystems or check credit to qualify customers. There are also numerous banks that offer second chance checking accounts for people with bad credit.
Can you open a bank account with no credit check?
Opening a no-credit-check bank account is easier than ever, with plenty of reliable banking services to choose from. There are two types of bank accounts for bad credit: banks that don’t use ChexSystems and second chance checking accounts.
Banks that Don’t Use ChexSystems
Some banks simply do not use ChexSystems to evaluate new accounts. These banks offer no-credit-check bank accounts for people with bad credit or a negative banking history.
The good news is that these accounts come with the same features as regular bank accounts offered to everyone else. You can expect to have access to online banking, direct deposit, and a debit card.
Second Chance Checking Account
With a second chance bank account, financial institutions may conduct a credit check or refer to ChexSystems, but they’re willing to give you a second chance regardless of your banking history. Second chance bank accounts usually come with a monthly maintenance fee.
The best second chance checking accounts still have some of the same features as ChexSystems banks and credit unions, such as overdraft protection, online banking, and bill pay. Additionally, it should be possible to upgrade to a standard checking account after demonstrating responsible banking habits.
What to Look for in a Bad Credit Checking Account
If you’re struggling with poor credit history, you might be wondering how to find a checking account that meets your needs while also helping you rebuild your financial reputation. Fortunately, there are several banks that offer checking accounts for bad credit. Here are some key factors to consider:
No Credit Checks
The first thing to look for is a bank or credit union that doesn’t look at your credit report or ChexSystems record when opening a checking account.
Many institutions also offer “second chance” or “fresh start” checking accounts designed specifically for individuals with poor credit or past banking issues. These checking accounts provide an opportunity to rebuild your financial standing, and often offer the option to upgrade to a traditional checking account after a certain period of time.
Low or No Minimum Balance Requirement
When you’re trying to rebuild your credit, every dollar counts. Look for a checking account that doesn’t require you to maintain a specified balance. This way, you won’t be charged fees for falling below a certain balance threshold. This will help you keep more money in your pocket and avoid unnecessary expenses.
Reasonable Account Fees
It’s important to be aware of the fees associated with checking accounts, especially if you have bad credit. Be sure to compare the monthly maintenance fees, overdraft fees, and any other charges associated with the account.
Many online banks offer checking accounts with no monthly fees or waive them if certain conditions are met, such as maintaining a minimum account balance or setting up direct deposit.
Online and Mobile Banking Features
In today’s digital age, having access to online and mobile banking is essential. Look for a checking account that offers a user-friendly mobile app and website, enabling you to manage your money on-the-go. These features should include the ability to check your balance, transfer money, pay bills, and deposit checks remotely.
Account Alerts and Notifications
Opt for a checking account that offers customizable account alerts and notifications. These can help you stay on top of your account activity, track your spending habits, and avoid a potential overdraft fee. You can typically set up alerts for low balance, large transactions, or unusual activity.
Overdraft Protection
Overdraft fees can be a significant burden, especially for people with bad credit. Look for a checking account that offers overdraft protection, which can help you avoid costly overdraft fees. Some banks may offer linked accounts, lines of credit, or small-dollar loans to cover overdrafts.
FDIC or NCUA insurance
Ensure that your checking account is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). This insurance protects your cash deposits up to $250,000 per account holder in case the bank or credit union fails.
Opportunities for Financial Education
Finally, look for a financial institution that offers resources and tools to help you improve your financial literacy. This might include budgeting tools, educational articles, or workshops. The more you understand about managing your money, the better your chances of rebuilding your credit and maintaining a healthy financial future.
Bottom Line
Having poor credit doesn’t mean you can’t get a bank account. But, it does mean that your selection will be somewhat limited. We also show you how to clear your name and remove yourself from ChexSystems so that you can get a bank account anywhere.
It may take some time to get your name removed. Meanwhile, some of the banks we’ve listed above are just as good, if not better, than any account on the market right now. So, it’s a good idea to start with one of those.
Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank N.A. or Stride Bank, N.A.; Members FDIC. Credit Builder card issued by Stride Bank, N.A.
1. Out-of-network ATM withdrawal fees may apply with Chime except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.
2. Early access to direct deposit funds depends on the timing of the submission of the payment file from the payer. Chime generally make these funds available on the day the payment file is received, which may be up to 2 days earlier than the scheduled payment date.
7. To apply for Credit Builder, you must have received a single qualifying direct deposit of $200 or more to your Checking Account. The qualifying direct deposit must be from your employer, payroll provider, gig economy payer, or benefits payer by Automated Clearing House (ACH) deposit OR Original Credit Transaction (OCT). Bank ACH transfers, Pay Anyone transfers, verification or trial deposits from financial institutions, peer to peer transfers from services such as PayPal, Cash App, or Venmo, mobile check deposits, cash loads or deposits, one-time direct deposits, such as tax refunds and other similar transactions, and any deposit to which Chime deems to not be a qualifying direct deposit are not qualifying direct deposits.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
When you are trying to tighten down the hatches on your spending, you are doing everything possible to stick to your budget.
You are determined to stick to your budget this time around. But, you always hear that budgeting can be hard.
Well, here are some quick budgeting tips that will make sure to stick to your budget.
As most new budgeters learn, they struggle to stick to a budget for their monthly expenses. It is a natural process everyone goes through.
Budget, if you are looking for an easy button, then learn which payment type is best if you are trying to stick to a budget.
Especially if you spend a lot of time on social media, studies have shown you are more likely to overspend. So, you must learn which payment type will have you stick to a budget.
Then, you may be wondering and wanting help deciding which payment type is best for you.
The Optimal Solution Payment Type Solution
The most efficient payment type is something that is instantaneous and there are no fees associated with the transaction.
Cash is the most efficient payment type: Cash payments are usually the most efficient and convenient way to pay for goods or services.
Credit cards can be a less favorable option: Credit cards tend to have high-interest rates and can lead to financial disaster if used irresponsibly.
Debit cards are a great way to keep your spending within your budget: Debit cards should be considered a top priority for budgeting because they keep you within your spending limits.
Developing a budget will help you avoid financial disaster: A budget helps you stay organized and make informed decisions about which payment method works best for you.
Today, there are so many options on which payment type to use in today’s online world.
1. Cash
Cash is a payment type that can be used to reduce debt spending. It is versatile and can be used for a variety of expenses, such as groceries, medical bills, and gym memberships.
Cash is an excellent choice for people just starting to budget and save.
It is more restrained than credit or debit cards. The envelope method of cash budgeting can be used to train your brain to reduce spending. Cash is the most traditional payment method and has the fewest drawbacks. However, you need a safe place to store your cash, and some stores may not accept it.
Benefits of Cash:
Cash is an excellent payment type when your financial goals are to reduce debt spending.
Cash is a finite payment method that prevents you from overspending.
You have a set amount of money to spend each month, so there’s no chance of overspending.
Easy to track with the envelope method: Utilizing the envelope method ensures that you are tracking your spending (i.e groceries, gas, medical bills) and making sure that you aren’t overspending.
Cash is a quick and easy way to pay for goods and services.
No Fees. No maintenance fees or interest rates as credit cards. Cash is just plain cash – printed paper of currency.
You can avoid high fees associated with card transactions: There are no associated fees when paying with cash, making it the cheapest option overall.
Cash discounts may be available. Since you are paying with cash many small businesses offer a cash discount of 2-5%.
You can use cash at any store: No need to carry around extra cards or checks.
It’s easy to get cash: You can easily get cash and make extra cash.
There’s no need for bank account details: No need for bank account details means you’re free from identity theft risks and other inconveniences that come with having a bank account.
Cash allows you to skirt some financial regulations: Because cash payments don’t fall under the purview of many financial regulations, businesses can take advantage of loopholes in the law that allow them to charge higher interest rates on loans or engage in shady business practices. (highly recommended to stay above book)
Cons of Cash:
Possibility of losing or stolen cash: Keep your cash in a safe place!
You need a safe place to store your money: Another disadvantage of using cash is that you may need a safe place in which to keep it – some stores don’t accept it as a payment method.
Why Choose Cash?
Total control over your money, so there’s little chance of unexpectedly running out of funds.
Cash is a great way to stay on budget, as you can easily track your spending and see where you need to cut back.
Unpleasant to spend money with cash, which can help train your brain to reduce spending.
Cash is a quick and easy way to pay: Using cash eliminates the need for banks, credit cards, or other forms of payment.
Verdict: Paying with cash is the best method for budgeting and saving.
Overall, cash is a great payment type when it comes to budgeting. You can immediately see how much money you’ve spent and what needs to be cut back.
You can’t make impulsive buying decisions with debit cards or credit cards.
With a finite amount you can spend, cash is an excellent choice to prevent overspending. According to research, paying with cash can feel unpleasant, which can train your brain to reduce spending as much as possible.
2. Credit cards
Credit cards offer a number of benefits, including convenience, cash back, and the ability to make large purchases or pay bills in case of emergency. However, credit cards also come with credit card debt and can lead to overspending and financial problems if not used carefully.
For many, credit cards are the easiest way to blow your budget because you don’t have control over how much money you spend.
It is possible to overspend with credit cards if you are not mindful of what you charge.
On the flip side, this is a preferred method as many credit cards also offer rewards programs that give you cash back or points for purchases. If you make the conscious decision to use credit cards, you must make payments on time to avoid penalties.
Benefits of Credit Cards
Credit cards are convenient: Convenient to use and don’t have to worry about losing cash.
Use a credit card if you are disciplined and have strict spending habits: If you are disciplined and have strict spending habits, then using a credit card can work well for budgeting purposes.
Flexibility on larger purchases: Some benefits that come with having a credit card include more cash flow as well as being able to make larger purchases.
Credit cards provide support in times of crisis: Many credit cards offer extended services that can help like 24-hour fraud protection, lost wallet services, traveler’s insurance, and many other benefits – check each issuer for details.
$0 Liability on Unauthorized charges: Your credit card company will not be held responsible for any charges that were not authorized by you. This means that if you did not authorize a charge in person, online, or otherwise, you will not be responsible for it.
Fraud protection: Check your credit card issuer, but many offer fraud protection.
New card introductory APR is helpful to pay down debt: The introductory APR for the new card may not last long.
Payments on balance transfer should be manageable: Make sure that the payments on your balance transfer are manageable.
Points: You can accrue points along with your spending which can be a great perk.
Credit card interest rates are significantly lower than payday loans: Interest rates on credit cards are usually much lower than payday loans.
Due Date is After your statement closes. Since your bill cycle is at least another 21 days between the closing date for your statement and the due date, it gives you flexibility. Personally, I still account for the credit card bill in the same month that it was accrued.
Cons of Credit Cards
Potential for credit card debt: When using a credit card, be aware of your credit limit and the interest rate that you will have to pay on your debt. Also one of the categories of debt.
Credit limit often leads people to spend money: The credit limit often leads people to spend money by giving them a false sense of security, when they should stick to a budget and pay attention to their credit card statement and the billing cycle.
Credit card overspending can lead to debt: Consider the purchase if it is essential or delay it if possible.
Ability to easily purchase something you cannot afford. Buying something that you don’t have the money saved up for will cost you interest fees associated and maybe even with a credit card balance transfer.
There are a number of fees associated with a balance transfer: Transfer fee, interest on new purchases charged to the card.
Your introductory APR may not be valid if you make too many payments late: If you fall more than 60 days behind on payments your introductory APR might be canceled and you may face higher interest rates.
Credit score can suffer from debt: When you carry a credit card balance or don’t pay your monthly bills on time, you will lower your credit score.
Avoid carrying a balance: Pay your statement in full each month to avoid paying interest and maximize your grace period.
Key Takeaways on Credit Cards
Make sure to pay attention to the dates: Don’t spend more than you can afford, and make sure you’re making your minimum monthly payments on time so that your debt doesn’t increase over time.
A credit card can be used for budgeting only if you’re very disciplined: If you know that overspending is NOT an issue and you pay the credit card’s monthly balance in full, then using a credit card is fine.
Credit card transactions usually take several days to register in the feedback system: Something to look out for!
You can step back into debit cards or cash if needed: If credit cards are not for you, there are other options available such as debit cards or cash
3. Debit cards
Debit cards are a good option if you want to stick to a budget because the predetermined amount of funds can help you stay within your means. Additionally, debit cards are more convenient than cash and just as accepted as credit cards in most places.
A debit card works more similarly to cash than to credit cards.
They provide an easier way to track your spending and avoid having to carry a lot of cash.
Pros of Debit Cards:
No Need to Carry Cash: A debit card is better than cash because you don’t have to carry a lot of paper money and change around, and they’re also safer.
Debit cards are faster and easier to use: Debit cards work just like credit cards – withdrawing cash, making purchases, and paying bills – but they are linked directly to your bank account, so there is no need to carry around a separate cash envelope wallet or purse for them.
A debit card is a good option if you want to stick to a budget: Debit cards come with a predetermined amount of funds that you can spend from your bank account just like cash.
Tracking payments is easy with debit cards: Your debit payments will appear on your issuer’s dashboard, which you can monitor anytime from any location.
Convenience: Debit cards are more convenient to use and faster than needing to write a check or carry around cash. Plus they don’t add to your debt.
Shopping online is easy. You can use your debit card to make online purchases with your bank account, and digital banking tools make tracking your spending easy.
Points: Some debit cardholders can earn points for spending on their cards, which can be redeemable for rewards such as cash back or gift cards. This is new to compete with credit cards.
Fraud protection is typically offered for free with most debit cards—meaning if your card is stolen or used without your permission, you can get your money back.
No impact on your credit report. When you use a debit card, the funds are actually withdrawn from checking or savings accounts so there is no credit reporting occurring.
Cons of Debit Cards:
An overdraft on a debit card can happen when a purchase exceeds the amount of money in the checking account, leading to overdraft fees.
Funds on hold with fraudulent charges. If your account gets hacked, your losses will be limited since most banks protect their users against fraudulent charges and online purchases with their accounts. However, those funds will be held while they investigate and you may be liable for $50.
No chance to improve your credit score. Since you are not borrowing money, you are unable to improve your credit score.
Debit cards are a great way to keep your spending within your budget and avoid overspending which can lead to many detrimental issues.
Regardless of the overdraft fee, debit cards are still better than cash because they’re safer and easier to carry around.
4. Checks
Checks… do people still write checks? Why yes they do!
Checks offer a few benefits as a payment method, even though they are slowly being replaced by more modern options.
This can help you keep track of your spending and make sure you do not overspend. Additionally, if you ever need to dispute a charge, having a check can be helpful in proving what you paid for.
What is a check?
A check is a written, dated, and signed instrument that directs a bank to pay a specific sum of money to the bearer from the check writer’s account. The date is usually written in month/day/year format. The signature of the check writer is usually on the line below “Pay to the order of.”
There are three main types of checks:
A cashier’s check is a check guaranteed by a bank, drawn on the bank’s own funds, and signed by a cashier.
A certified check is a personal check for which the bank has verified that there are sufficient funds to cover the payment.
A personal check is one that you write yourself and that is not guaranteed by the bank.
Pros of Checks
Checks are still a payment option: Checks are one of the traditional payment methods, but it is slowly dying out because of modernization.
Physical written record. It can be helpful to have physical copies of checks in addition to digital records through the bank.
You need to make both digital and physical copies of the check: Save check stubs but also transfer the information to a budgeting system.
Cons of Checks
Saving check stubs is helpful, but you still need to transfer the information to a budgeting system: Useful for tracking spending, but you’ll likely want more detailed records than just check stubs.
Not as convenient as credit or debit cards.
5. Apple Pay or Apple Cash
Apple Pay is easy to use and convenient since you only need to connect your smartphone to your cards and bank accounts via the app.
It is easy to use since you just hold your phone up to the reader and wait for the payment screen to appear.
You can even get cash back with apple pay.
Pros of Apple Pay:
Apple Pay is easy to use and convenient: You only need to connect your iPhone to your cards and bank accounts via the app.
You don’t need to carry any extra cards or cash: No need for additional cards or cash when you’re out and about
You can use Apple Pay on different devices: You can use Apple Pay on your iPhone, iPad, and Mac.
Transactions are secure: Your transactions are secured with Touch ID or a passcode.
Set up Spending Limits for each user. This way you can make sure you (or others with authorized access) are not spending more than you intended. Learn how.
Protection of Data during transactions. Your actual credit card number is changed to a different digital number, which allows limits your card number’s exposure.
Cons of Apple Pay:
Not widely accepted (yet). This method of payment is 100 percent guaranteed. While many stores offer apple pay, not all do quite yet.
The same rules apply if you load apple pay with a debit or credit card drawbacks include late fees, interest rates, and overspending: Keep that in mind when choosing Apple Pay as your payment method.
6. Mobile wallets like Google Pay, Samsung Pay, Venmo, or Zelle
Mobile wallets are digital payment systems that allow you to pay for items with your smartphone. Many people find mobile wallets are very convenient and becoming a traditional method of payment (such as credit cards).
With mobile wallets, you are making digital payments without having to carry around cash or cards using just your smartphone.
Mobile wallets are easy to use and provide instant payment convenience, making them perfect for shopping online.
Pros of Mobile Wallets:
Mobile wallets use credit cards and debit cards: Connect your smartphone to your bank accounts and use it for digital payments.
Mobile wallets are easy to use and convenient: Instant payment convenience makes them perfect for shopping online as well.
No need for cash or cards: No need for cash or cards.
Strong secuirity features provide privacy and security features that ensure your personal information is safe from data breaches and unwanted charges.
You can make purchases without having to show your identification: You can make purchases without having to show your identification.
Additional Layer of Security. Additionally, mobile wallet data is protected with verification, such as fingerprints.
Cons of Mobile Wallets:
With Zelle and Venmo, it is easy to send money to the wrong person or add an extra zero and send more money from planned. More often than not, it is difficult to recover your money.
You need to be disciplined when using a mobile wallet: Pay attention to late fees and interest rates, as well as the amount you spend in a month.
7. Prepaid Cards or Gift Cards
A prepaid card or a gift card could be right for you. The advantage of these is the mere fact that you reached the limit is enough to deter overspending.
It can make you think twice about whether you need to purchase an item or not.
Pros of Prepaid Cards and Gift Cards
Easy to use: Prepaid and gift cards are easy to use and manage your finances with.
The mere fact that you reached the limit is enough to deter overspending: It can make you think twice about whether you need to purchase an item or not.
No strings attached: No need to worry about any fees associated with the prepaid card once activated.
Privacy: The prepaid card does not track your spending or use any personally identifiable information.
Credit Score Doesn’t Matter: Your credit score does not matter when obtaining a prepaid card.
Cons of Prepaid Cards or Gift Cards
Losing a prepaid card is not a fun experience. Contact the prepaid card issuer right away to protect the funds on the prepaid card.
Fraud protection: Consider whether your prepaid card issuer offers any theft or fraud protection, as not all providers offer this feature.
Prepaid cards have limits on how much money you can load onto them, which can be frustrating if you need to make a large purchase.
8. PayPal
PayPal is a very convenient way to pay for items online or in person. It is widely accepted and used by many people.
PayPal is a digital payment service that offers convenience and ease of use. You can use them to send money to people or pay for online purchases.
However, because these services can only be used online, they should not be relied on as your sole method of budgeting and tracking expenses. Instead, consider Paypal in combination with another budgeting tool, like a spreadsheet or app, to get a fuller picture of your spending.
Pros of PayPal:
PayPal is one of the most popular online payment methods: Widely accepted and used by many people.
You can use them to send money to people or pay for online purchases: Help you review your spending prior to purchase.
Cons of Paypal:
EasyTarget for phishing scams. A phishing scam is when someone tries to trick you into giving them your personal information, like your password or credit card number. They might do this by sending you an email that looks like it’s from PayPal, but it’s not. Or they might create a fake website that looks like PayPal. If you enter your information on these sites, the scammers can then use your account to make purchases or send money to themselves.
Reputation for poor customer service. This is evident in their customer service ratings, which are some of the lowest in the industry. The majority of complaints against PayPal revolve around poor service received when asking for assistance with fund freezes and account holds.
9. Cryptocurrency (ie: Bitcoin)
Cryptocurrencies offer a new and innovative way of handling payments. They’re not yet widely accepted, so there’s potential for businesses to get in on the ground floor with this new technology.
However, because cryptocurrencies are so new, it’s uncertain if they will be regulated or not. This could pose a challenge for businesses down the road.
Pros of Crypto
Not subject to the same regulations as traditional currency, which makes them appealing to those who want to avoid government intervention.
The valuation of Crypto changes rapidly. If you are smart with crtyple this is a great way to spend your crypto coins.
Cons of Crypto
Cryptocurrencies are not accepted everywhere: Cryptocurrencies are not accepted by most organizations yet, which it makes it difficult to use them in day-to-day life.
It’s unclear if cryptocurrencies will be regulated: It’s uncertain if cryptocurrencies will be strictly regulated or not. This poses a challenge for those who want to use them as a payment method.
Bitcoin and other cryptocurrencies are still in their infancy: Bitcoin and other cryptocurrencies have only been around for a few years, so they may still face challenges in the future.
Here are the most popular budget apps today:
Other Payment Methods:
ACH payments
ACH Payments is an excellent way to pay bills and other financial obligations: You can easily set up a billing cycle for recurring payments, making it safe and convenient.
Fewer people are aware of your transactions when using ACH payments, reducing the chances of fraud or theft.
Key Facts:
Fewer people know about your transactions when using ACH payments, reducing the chances of fraud or theft.
Your checking account information is not shared or accessed by the system in any way.
You can quickly pay bills and other expenses with ACH payment: Financial institutions offer this as part of their deals.
When setting up recurring bills with ACH payment, you are aying your bills on time is important for maintaining a good credit score.
Pay attention to your check account balances: Make sure you have enough funds in your check account to avoid paying overdraft fees.
Money orders
A money order is a document that orders the payment of a specified amount of money. Money orders are convenient because they can be bought at many locations, including post offices, banks, and convenience stores.
To get a money order, you will need to fill out a form with the payee’s name, the amount of the payment, and your contact information. You will then need to purchase the money order with cash or a debit card.
To cash a money order, you will need to take it to a bank or post office. You will need to show identification and sign the back of the money order. The teller will then give you the cash for the payment.
More secure than cash: Money orders are more secure than cash because they don’t require a bank to make the transaction.
Less convenient: money orders are less convenient because you must purchase them in person.
Able to trace. They are also more secure than cash because they can be traced if lost or stolen.
Wire Transfers
Wire transfers are a more secure way to transfer money than traditional methods like checks and cash. These are sent through the banking system and are usually processed within two business days.
Typically, wire transfers are used when sending and receiving large sums of money (over $10000).
More secure than cash: Wire transfers are more secure than cash as the bank verifies there is enough money to make the wire transfer.
Fees involved with using a wire transfer. Most institutions charge for handling a wire transfer.
What method of payment is best?
Cash is the most widely accepted form of payment, but debit and credit cards are very popular.
The payment method that is best for you depends on which one helps you to stick to your budget and spend less money. The goal is to be financially stable.
What method is best for sticking to a budget?
There are several different types of budgeting methods that people use in order to manage their finances. Many people focus on using the 50/30/20 method, in which each percent corresponds to a different category of expenses.
There are plenty of budgeting tools available today to make sure you stick to your budget.
You need to find what works best for you. At the end of the month, you want to spend less than you make. That is the winning combo!
1. Budgeting App
There are many budgeting tools available online, which can be helpful as it can be easier to track your progress and budget over time.
You can use various popular budgeting apps like Quicken, Qube Money, or Simplifi.
These apps can help you track your spending, set goals, and stay on track with your budget.
2. Paper and Pen or Simple Spreadsheet
Some people find that they prefer using a simple spreadsheet or paper budget. This may be due to personal preference or because they find it easier to understand and use.
Additionally, using a paper budget may help you stay more organized as you can physically see where your money is going.
Options to get you started include our own budgeting spreadsheets or using an automated system like Tiller.
3. Envelope budgeting method
The cash envelope system is a good way to stick to a budget because it is rigid and based on envelopes and cash. You can’t get more money until your cash payday. So, this system helps you track your spending and budget better.
However, using only cash can have drawbacks as having large amounts of cash on hand can be risky.
The envelope method gives you a sense of control over your spending and makes it more tedious to write down your transactions. If you find writing down your transactions tedious, the envelope method may be too much for you.
4. Know Your Budget Categories and Track expenses
Tracking expenses is essential to move ahead financially: Knowing what you have spent in each category will help you make better financial decisions.
Be specific with your budgeting categories. Don’t make it too complicated. Always remember to include household items, clothing, and groceries when tracking expenses.
5. Prioritize your Budget Plan
A budget can provide a realistic picture of your finances, help reduce stress related to money matters, and guide you toward achieving your goals.
Creating a budget can help ensure that you are able to meet your financial obligations and still have money left over for savings and other goals. A budget can also help you track your spending so that you can make adjustments if necessary.
Make a budget plan: This will help you stay on track and make sure that you are spending your money wisely.
You decide where to spend money: A budget helps you set future goals and achieve your financial goals.
Creating a budget can help reduce stress: If you tend to get stressed about money matters, creating a budget can give you peace of mind.
A budget has other benefits beyond financial ones: If you want to achieve something in life, creating a budget can help guide you in the right direction.
See where to cut back spending. You can also look at your past spending habits to see where you can cut back. Sometimes it may be necessary to save more in order to achieve long-term goals, like buying a house or having a wedding. Always be mindful of your budget when making payments and spending money.
It’s a three-step process that involves basic math: Making a budget is simple and requires only basic math skills.
Stay on track: Making a budget plan will help you stay organized and keep track of your expenses.
A budget plan will help you stay on track and make sure that you are using the best payment type for your budget.
Making a budget is an easy way to save money. By following a few simple steps, you can keep track of your expenses and make sure that you are spending your money wisely.
Which type of payment is best for sticking to a budget?
One of the main pros of using cash as a method of payment is that it is the most efficient way to keep track of your finances. This is because it is very easy to budget when you are only dealing with cash.
However, many people prefer debit or credit cards are the best type of payment. They are more convenient than cash and can help you keep track of your spending. However, if you have a bad credit history or a low credit score, credit cards may not be the best option for you.
Cash payments are the most efficient: Most convenient and easiest to keep track with cash envelopes.
Credit cards allow you to accrue points along with your spending: These are a great benefit and one that can be a perk if handled well as part of your budgeting process. As long as pay them off in full each month to avoid credit card debt, high-interest rates, and other negative consequences.
Debit cards are also a good option for sticking to a budget. They can be used like credit cards but with less risk of debt.
Cash-based payments are a newer option and are more reliable: May not have as many negative consequences as other payment methods such as credit cards or loans.
What Not to Use when you are Trying to Stick to a Budget
You need to steer clear of these types of payments if you want to be financially stable person.
Personal loans
Personal loans are a risky way to budget. However, if you need the money for an emergency or unexpected expense, a personal loan can be a lifesaver.
There are many risks to consider and other ways to lower your spending before resorting to a personal loan.
Loans can cause budgeting problems: Loans can mess up your budget and make it difficult to stick to spending plans.
Taking out a personal loan just for the sake of having money can disrupt your budgeting: Consumers often borrow money in order to pretend they’re doing better financially than they really are.
Borrowing money is usually not a good idea: When you borrow money, you may find that you cannot handle seeing low checking account balance, which can lead to deeper debt problems.
Payday Loans
Payday loans are a bad option for someone looking for a long-term solution. They are expensive, and there is a high chance that the person will not be able to pay back the loan.
The interest that is charged is also high, and it can add up quickly.
Write bullet points about what happens with a payday loan
Payday loans can trap people in a cycle of debt, as they are often unable to pay back the loan in full on the due date.
When someone takes out a payday loan, they are borrowing money from a lender in a short amount of time, usually two or three days.
Payday loans are often expensive, with interest rates that can be above 300%.
Debt Consolidation Loans
Debt consolidation can be a good way to manage your debt because it can result in a lower monthly payment and extended payments may impact your financial plan. You can use a debt consolidation calculator to estimate how much debt you can afford before taking out a consolidation loan.
Debt consolidation loans also provide convenience because they have lower interest rates than payday loans. However, be careful when consolidating your debt because it is possible to overspend and lose your introductory APR.
You may be able to pay off your debt with one monthly payment: A consolidation loan often results in a much lower monthly payment than all of your previous monthly payments combined.
Extended payments may impact your financial plan: Take a look at how these extended payments will impact your financial planning.
You can estimate how much debt you can comfortably afford: use this tool – Tally .
It is possible to overspend with debt consolidation: If you spend more money than you planned on your day-to-day expenses, this could increase your debt. Consider if the purchase is necessary or if it can be delayed.
You may lose your introductory APR: If you fall more than 60 days behind on payments, you will likely lose your introductory APR and may even trigger a penalty interest rate.
You need to be careful when transferring a balance: Transferring a balance can also forfeit your grace period and you’ll need to pay interest on new purchases charged to the new card.
What type of payment method is best for sticking to a budget?
There are a variety of payment methods available, and each has its own benefits and drawbacks. It’s important to choose the payment method that’s best suited for your business and budget.
A payment method that allows you to stick to a budget is the best option.
FAQs
There are three main types of payment methods: cash, debit cards, credit cards, and cash-based payments.
The envelope budgeting method is a simple way to create a budget. You will need envelopes and divide your money up into the different categories that you spend money on. You will then put the corresponding amount of money into each envelope. This method can be helpful if you have a hard time sticking to a budget.
The zero-based budgeting method is a more methodical way to create a budget. With this method, you track every penny that you earn and spend. This can help you to see where your money is going and make adjustments accordingly.
A debit card is a plastic card that is linked to a checking account. Customers can spend money by drawing on funds they have already deposited. An overdraft on a debit card can lead to overdraft fees, which have high-interest rates.
A credit card is a plastic card that allows customers to borrow money up to a certain limit in order to purchase items or withdraw cash. Using a credit card can help build credit or improve your credit score.
There are a few different ways to use a credit card. You can use it to check your balance and review your spending history, which can be helpful in staying accountable.
Credit cards also offer online tools which make the analysis of your spending easier which can be helpful in tracking your budget.
Finally, you can use a credit card to rebuild your credit score by using it responsibly and paying off the balance in full each month.
Which payment type can help you stick to a budget?
When it comes to choosing a payment type that will help you stick to a budget, there is no one-size-fits-all solution.
The best payment method for you will depend on your specific needs and preferences.
When you are creating a budget, it is important to consider which payment type will help you stay on budget. Different payment types work better for different people, so it is important to experiment and find the one that works best for you.
As I stated for me, I have learned how to use credit cards to maximize cash back. But, I learned how to budget with cash when first starting.
Please pay attention to your budget and how it changes over time, as different payment types may work better at different stages of your life.
Consequently, I hope that this guide has given you a better understanding of the different payment types available and helped you narrow down your options. There are a variety of payment types that can help you stick to a budget, so it’s important to research each one carefully.
I highly recommend using an app to track your expenses and know where you spend your money. By developing a budget and choosing the right payment type, you can stick to your financial goals.
Know someone else that needs this, too? Then, please share!!
Monitoring your credit score sounds about as appealing as writing a term paper.
But having good credit is crucial for everything from getting a loan to getting an apartment. Which means if your credit score is on the lower end, you’ll need to be proactive — not just by monitoring it, but by actively working to improve it.
The problem? There’s a lot of conflicting info out there about what you should do to improve your credit score. Which tactics will actually make a difference, versus the ones that just sound like they’ll work?
Here’s what you really need to know about improving your FICO score, which holds the key to so many financial dreams.
What’s Ahead:
1. Target Collections Accounts First
“If your credit history includes unpaid bills that are in collections, work to pay those off [first] if possible,” says Kelley Long, a member of the National CPA FinLit Commission at the AICPA.
Letting an account get so late it goes to a collections agency is never a good thing for your credit, but the good news is the credit scoring algorithms will reward you for paying these accounts in full.
With collections accounts, the key is to get everything in writing. Request a letter stating that they received your payment in full and that they will update your credit report to show this.
In some cases, a collections agency may be willing to negotiate and settle your debt for less than the full amount. Again, you’ll want to get something in writing showing that the debt was settled and the account closed. But keep in mind this kind of arrangement may appear on your credit report as a settlement, which could be less positive than if you paid in full.
Read more: When Does an Account Go to Collections, and How To Avoid It
2. Pay Off Debts That Are Close to the Credit Limit
Even if you pay your credit card bill on time, it’s never a good idea to hold a balance near the maximum limit. The magic ratio is 35%, says Kevin Gallegos, vice president of Phoenix operations with Freedom Financial Network.
“If you have a credit card with a limit of $10,000 and you owe $3,500 on it, that’s 35% utilization,” he notes. “Anything over 35% is considered high and can [negatively] impact credit scores. Over 50% will have a definite negative impact on a credit score, and a maxed-out card will very negatively impact the score.”
Read more: What’s Your Credit Utilization Ratio?
3. Get a Higher Credit Limit (If You Can)
Believe it or not, requesting a higher credit line with an existing account can actually help your credit score, says Gail Cunningham, a spokeswoman with the non-profit National Foundation for Credit Counseling (NFCC).
“Or, open a new line of credit. The idea is that you’ll owe the same amount of money but it’s against a higher credit line, thus the ratio of credit-to-debt improves,” she explains.
“This option may not help you if you’re already having credit problems, however, because it takes good credit to get more credit. If, however, your credit score is in the high 600s or low 700s and you want to improve it even more, you may be able to find a credit card that offers a good chance of approval for your credit score range.”
She adds, “I’d caution, however, that this strategy only works for a person who’s very disciplined — and knows they won’t charge more simply because they have access to a higher credit line.”
In other words, take it easy at the mall with that credit line increase.
Read more: What Credit Score Do You Need to Get Approved for a Credit Card?
4. Look for Non-Credit Accounts That Will Report Payments to the Credit Bureaus
John Ganotis, Founder of CreditCardInsider.com, makes this remarkable point: “Rebuilding your credit doesn’t always have to involve a line of credit.”
One way is to put a utility service in your name.
“Call your providers to find who reports to the credit bureaus.”
You don’t even need to go direct to the providers if you don’t want to. Experian Boost is a free service that credits you for on-time utility payments — think cellphone, internet, cable, heating, electricity, water, etc. You just connect your bank account and let Experian do the rest.
Another is to report your living expenses to the credit bureaus, including your rent.
“Experian and TransUnion now include rent payments [in assessing FICO scores] when reported through online third party services.”
Read more: Build Credit By Paying Rent
5. Avoid For-Profit “Credit Repair” Companies
Some businesses charge a hefty sum to “repair” your credit, but they can actually do more harm than good, says Carl Robins, Vice President and Mortgage Banker with PrivatePlus Mortgage in Atlanta.
“What they don’t tell the consumer is that they’re signing up for a service to improve their scores that lenders — and current underwriting guidelines for mortgage transactions — won’t accept if there are still unresolved credit disputes on their credit report.”
He adds, “They also don’t explain the cumbersome process to have unresolved disputes removed from credit reports to qualify for a home purchase or refinance their current mortgage.”
If you feel like you need help managing your credit, look towards non-profit counseling options like the NFCC.
How to Get Approved for a Credit Line with a Less-than-Perfect Credit Score
If you follow the steps above and continue to pay all your bills on time, your credit score will improve.
Unfortunately, however, it takes time. Improving your credit score from below average (mid 600s or less) to good (720 or better) may take a couple of years. If you’re hoping to buy a home or take out other new credit in the meantime, it may be a challenge.
Here are some things to keep in mind:
1. Don’t Apply for New Credit Recklessly
The credit bureaus take note every time you apply for credit, and doing it too often will further hinder your efforts to improve your credit score.
Keep in mind that there are factors other than just your FICO score that are taken into account when you apply for a credit card, such as your income and credit utilization ratio.
Avoid applying for new credit unless you absolutely need it or are confident you will be approved.
Read more: Why You Could Be Denied a Credit Card Despite Your Excellent Score
2. Work with a Community Bank or Credit Union
If your credit score isn’t what it should be, a relationship with a community bank or credit union can really come in handy.
“A banker who knows you can perhaps look behind the poor credit history,” says Charlie Crawford, President and CEO of Private Bank of Buckhead in Atlanta. “They’ll look at the big picture rather than just a score or some other stand-alone piece of information.”
Best of all, a community banker can be straight with you and let you know your chances of being approved before you actually apply. Waiting as little as a couple months while you make some tweaks to your credit usage or budget may mean the difference between being approved or denied for a mortgage, and a knowledgable banker can tell you that.
Read more: Credit Unions vs. Banks: Think Local, Save Money?
3. Consider Secured Credit
“Establishing some cash-secured credit is one way to demonstrate your ability to pay while not putting a new bank loan at risk,” says Crawford.
If your credit score is in the low 600s, you may consider a secured credit card to help you establish a new credit line and have timely payments reported to the bureaus.
A secured credit card works just like a regular credit card except you first have to deposit money in a savings account to “secure” your credit line. Most secured credit cards can be converted to traditional credit cards (and you get your security deposit back) after a period of responsible use.
Read more: When To Consider a Secured Credit Card
The Bottom Line
The road to improving your credit isn’t always easy, but it’s well worth it. Consumers with good credit scores pay thousands less in interest over their lifetime and avoid hassles when getting jobs, apartments and, of course, loans.
While you might be intimidated, it doesn’t have to be hard!
I learned how to build credit at 18 by opening a credit card offer that came in the mail. My first credit card had a small limit around $300.
I never maxed it out, and there were really no benefits. But, it didn’t have a monthly fee, and it helped me learn how to build credit fast.
My credit score is now over 800 and considered excellent.
I don’t rely on my credit score and credit history, but I know that it impacts my life in many different areas — from insurance, to loans, to my cell phone bill.
Whether you want to believe it or not, your credit score can play a major role in your family’s life.
While you shouldn’t go crazy and completely obsess over learning how to improve your credit score, it is important to learn what you can about your credit score and the impact it may have on your life.
Your credit score can influence the interest rate you receive on a loan or your home mortgage, finding a rental home, attaining certain jobs, your insurance rates, and more.
Because of this, I think that a credit score can be used to a person’s advantage.
Even though your credit score can impact your life in a big way, that doesn’t mean it’s hard to build your credit history and credit score. Yes, it can be easy to wreck your score, but it’s easy to learn how to build your credit score back up.
Check your credit score with Credit Sesame for free!
How to build credit.
What is a credit score?
Before we begin, I want to talk more about what a credit score is. If you want to learn how to build a credit score from scratch, then starting here is the key to understanding what you’re working with.
A credit score is a three digit number that shows others your creditworthiness, and is often used as an indicator to show how risky you are.
There are three main credit bureaus, which is why you may occasionally see different numbers. The main three (Equifax, TransUnion, and Experian) calculate scores depending on the information they have about you, so your history and score may be slightly different at each of them.
Related: How Do Credit Cards Work?
What is a good credit score?
Lenders and people who are checking your credit score usually have varying opinions about what a good credit score is.
In general, though, a good credit score is usually 720+. The higher your number, the better your credit score.
Is 600 a good credit score?
A 600 credit score is below average. But, do not fret. There are ways to increase your credit score.
Is it easy to hurt your credit history?
Learning how to build credit and improving your credit score usually take more work and time than it does to damage your credit score.
You may be hurting your credit score if:
You have a high utilization rate. Keeping your balances below 20% of what you can borrow is important. For example, if your credit card limit is $1,000, try not to have a balance over $200. Lenders like to see a low utilization rate, as it shows that you are not maxing out your debt.
You cancel credit cards that may be helping your credit history.
You pay your bills late or not at all.
You never check your credit report and have errors listed.
Can my credit score influence my home buying process?
Yes, for sure!
This is a big reason why learning how to build credit is so important. Your credit score can impact:
Whether or not you are approved for a home loan.
Your interest rate.
How large of a home loan you are given.
The size of the down payment you are required to put down.
Read more at How Your Credit Score Impacts Your Home Buying Process.
Why is improving your credit score important? What else can it affect?
There are many instances in which your credit score and/or credit report may be looked at, and sometimes it has nothing to do with a loan. This is why it is important to work on building your credit score, because you never know when you may need it.
Plus, it’s something you can personally control, so why not learn how to build credit and start working on improving it?
Home and car insurance – If you have homeowners or car insurance, your rate may be calculated on a factor you didn’t know about – your credit score. If your credit score isn’t good, then you may actually be paying more because companies consider you to be riskier.
Employer – This may be shocking to hear, but there are some employers out there that will check your credit report (with your permission). Industries that often check your credit report include those dealing with financial services, chemicals, and defense. I recently read a statistic that around 30% of companies will check a potential new hire’s credit report before making a hiring decision.
Renting a home – If you have decided you don’t want to own a home, you may still need your credit history checked. In fact, your landlord will most likely check your credit history. They will want to know if you pay your bills on time or if you have ever skipped a payment entirely. This will say a lot about you as a renter, whether you want to believe it or not. If your credit history is not up to their standards, you may be denied the rental altogether, you may be asked to pay multiple months rent upfront, or you may be asked to find a co-signer just in case you fail to pay your rent.
Credit cards – If you don’t care about credit, then you probably will not care about this one. However, if you want a credit card, especially one with a good rewards system in place, then you will want to work on improving your credit score. The credit cards with the best reward offers are usually only available to those with good or excellent credit scores.
Loans (home, car, etc.) – If you apply for a loan, your credit score and credit history will definitely be checked. Before you are approved for a loan of any sort, the lending institution is going to thoroughly check your financial history so they don’t end up losing money on your loan.
The interest rate you receive – A good credit score usually means you will qualify for lower interest rates, while a bad credit score means higher interest rates. I have talked to someone with a 24% interest rate on a car loan, all because they had a very low credit score. A higher interest rate means paying hundreds or thousands of dollars extra in interest, and this is why it’s so important to learn how to build credit
What makes up your credit score?
There are five categories that make up your credit score. Your payment history and amounts owed equate to 65% of your credit history, but don’t forget the others factors!
If you want to work on building your credit score, here are the following factors that go into your score:
35% Payment History. Your payment history has the biggest impact on your credit score. This includes if you pay your bills on time, if you have missed a payment, if any of your bills have been sent to collections, and so on.
30% Amounts Owed. This is the next largest category when it comes to your credit score. This includes your balances, your utilization rate, and more.
15% Length of Credit History. The age of your accounts come into play here. This is why it’s usually a good idea to keep a credit card that you’ve had for a long time. I still have the credit card I opened when I was 18. It has no other rewards than improving my average account age. However, only keep cards open if you know you won’t go into debt.
10% New Credit. This category includes things such as how many hard credit inquiries you have and how long it’s been since you last opened a new credit account. It is important to remember that checking your own credit score does NOT impact this category as long as you receive your credit report from a company that is authorized to give you your credit report.
10% Credit Mix. This includes the type of accounts you have, such as whether or not you have credit cards, a mortgage, car loan, and so on.
Check your credit score with Credit Sesame for free!
Here’s how to build credit from scratch:
After reading all of the above, I’m sure you’re wondering how you can build your credit score fast, especially if you have a low credit score or no credit at all.
Increasing your score and learning how to establish credit is not extremely difficult. Once you realize what impacts your credit score, you can make relatively easy changes that will begin to improve it.
Below are my general tips for building your credit score.
Get a credit card.
Okay, okay, some of you may be cringing at this tip. Credit cards are not for everyone, BUT if you know that you can be smart about it, opening a credit card is a way to build your credit history. It can one day lead to you being able to use your credit score and credit history to your advantage.
While your first credit card will probably have a low limit and a high interest rate, it can help you learn how to build credit.
If you are looking for options, I recommend reading Best Rewards Credit Cards | What You Need To Know.
And, I recommend reading Top 5 Credit Card Mistakes And How To Avoid Them before you get a credit card.
Now, there are other ways to learn how to build credit without a credit card. Continue reading below.
Pay your bills on time.
According to FICO, 35% of your credit score is determined by your payment history. One or two late payments most likely won’t prevent you from having a good credit score. However, continuing to miss payments most likely will.
No matter what the bill is, you should always pay it on time. Paying a bill late may lead to interest charges, late fees, and a drop in your credit score.
Yes, companies can report late payments to credit agencies. If you do happen to accidentally pay a bill late, do not panic, though. If you are quick enough, you can call the company and ask for some leniency so they won’t report it.
I once underpaid my monthly mortgage payment by $10. I must have clicked the wrong number because I’m still not even sure how that happened. Luckily, I caught it quickly enough and my mortgage company realized that it must have been a mistake. They waived any late fees and also did not report it to anyone.
Other related tip on how to build your credit score from scratch: Pay your credit card bill before your balance is reported. Even if you pay your credit cards in full each month, your balances are still probably being reported. Some people avoid this by paying their credit card bills twice a month to keep their utilization rate low.
Regularly check your credit report.
It’s important to check your credit report regularly because it may include errors that negatively affect your credit score. The sooner you fix those errors, the sooner you can improve your score.
My favorite site for checking my credit score is Credit Sesame. Credit Sesame makes it extremely easy to check your score and both me and my husband have active accounts.
You can also receive one annual free credit report from the three main credit bureaus mentioned above. Yes, this means that you get one from EACH, so three each year. I recommend spacing them out so you can get one every four months. You can read more about this here.
Keep your balances and utilization rate low.
If you have a credit card, then you have a credit limit. However, just because you are given this limit doesn’t mean you should try to reach it.
I recommend spending less than 20% of your available credit.
In fact, you should always try to be below 30% of your credit limit if you want to have a good credit score. So, if your credit limit is $1,000, you do not want to spend more than $300. Any more than that will impact your credit score.
It’s also important to note that even if you are paying your balance in full each month that going over 30% of your credit limit can still negatively impact you. This is because your balance is reported on a monthly basis to the credit bureaus. In this case, it is best to pay off your balance or at least some of it before your next credit card statement goes live. Paying off all or a portion of your balance before the rest of it is due will keep your utilization rate low.
If your credit limit is low, then you may even want to request an increase. Of course, only do this if you trust yourself not to spend more. The key here is to not it all!
Be mindful of your credit history.
Keeping credit cards open can lengthen your credit history, and this can improve your credit score. However, only do this if it makes sense for you. If you think you will go into debt or if the annual feels aren’t worth it, then you may want to think about closing your cards instead.
According to FICO, 15% of your credit score is from the length of your credit history. The longer your credit history then the higher your score may be.
If you want to learn how to build credit when you have none and you have old credit cards that carry no annual fees, you may want to think twice before you cancel them. Yes, closing them can help you simplify your life, but an old credit card may be lengthening your credit history and, therefore, improving your credit score.
Like I said, I still have the credit card I opened when I turned 18. The credit card stinks and pretty much offers no benefits. However, it’s the card I’ve had the longest. To keep it active, I just buy one thing a year (such as gum)!
Side note: There are many reasons why you may want to cancel your credit cards, though. If having credit cards leads to credit card debt (not being able to pay your balance in full every month), then it may be the best idea to cancel them.
Get your rent reported.
Did you know that paying your rent can help you improve your credit score?
If you have little to no credit or are struggling with poor or bad credit, by using ExtraCredit, you can report your rent and utilities to TransUnion® & Equifax®, so you can get payment history for bills you are already paying! Rent reporting can help you add more credit history and help you work your way to a strong credit profile.
You can learn more at What Is ExtraCredit? Here Are 4 Reasons You Need to Read This ExtraCredit Review.
How do I start building credit?
As a recap of the above, you can learn how to build your credit score by:
Getting a credit card (but be smart!)
Paying your bills on time
Regularly checking your credit report
Keeping your balances and utilization rate low
Being mindful of your credit history
Getting your rent reported
How can I build my credit if I have no credit?
As a personal finance blogger, I sometimes hear people say that you shouldn’t worry about your credit score because credit cards are horrible. However, I don’t completely agree with that.
Credit cards are dangerous for some people, but that’s not the case for everyone.
Learning how to start building credit and improving your score can end up saving you lots of money. It can lead to lower interest rates, lower down payments, and lead to more opportunities.
Having a good credit score doesn’t mean you use credit cards all of the time either, it means you’ve followed the tips in this article and have shown lenders, employers, and others that they can trust you.
Check your credit score with Credit Sesame for free!
Do you know what your credit score is? Do you think learning how to build credit is important?
