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Apache is functioning normally

Apache is functioning normally

Buying your own debt for pennies on the dollar might seem like a great way to get out of debt fast. However, you can’t actually do this due to how debt buying works. Debts of this nature are sold in large bundles to debt collectors and other agencies. Learn more about how debt buying works, why it’s not an answer to your debt concerns, and what you can do to handle debt instead below.

In This Piece

How Debt Buying Works

Debt buying occurs when creditors gather old debts—also sometimes called bad debts—into portfolios. They sell these portfolios of debts to debt buyers at a fraction of the original value of the debt. 

For example, imagine a credit card company that has thousands of delinquent accounts. It may gather 1,000 old accounts that are 180 days or more past due. Say the average owed on each of these accounts is $1,000—that would be a total of $1,000,000 in old debt.

The credit card company might sell the debt at a fraction of that value, such as 15 cents on the dollar. In that case, the debt buyer would purchase the debt for $150,000.

Once the debt buyer purchases this portfolio of debt, they can either try to collect on the original debt or sell the debt. In many cases, the debt buyers go through the portfolio, keeping debts they think they can collect and selling off others in a similar method. 

If the debt buyer is able to collect any of the debt, the money is theirs to keep. So, in the hypothetical example above, if the debt buyer collects $250,000 of the original $1,000,000 in debt it purchased, it makes a profit of $100,000.

Why Are Debt Buyers Used?

The reason original creditors use debt buyers is that at some point, they consider debt uncollectible. They don’t want to spend any more of their own resources trying to collect on the debt. They could simply write the debt off and be done with it, but if they sell the debt to a debt buyer, they’re able to recoup at least some of their losses. 

Many common types of debt can be sold to debt buyers. These include but aren’t limited to:

  • Credit card debts
  • Medical debts
  • Unpaid utility bills
  • Debts related to auto loans or mortgages

Can You Buy Your Own Debt?

You can’t buy your own debt because no one sells individual debts. It doesn’t make business sense on either side to do so. Instead, debts are sold in huge portfolios that cover many accounts. It would be difficult to impossible to discover what bundle of debt your debt would be placed in before the lender sells it off, never mind that you would likely pay more than your debt is worth to purchase both your debt and the debt of hundreds of other people.

For the creditor, selling off large sets of old, uncollected debt is a way to write things off the books while getting at least some payment. For the debt buyer, buying a large portfolio of debt at pennies on the dollar is a conservative gamble. Debt buyers hope that by investing in many accounts they’re able to collect money on some of them.

How to Deal With Debt Buyers

Because you can’t buy your own debt, someone else might. Here are some things you can do to deal with debt buyers if they end up holding your old debts:

  • Make sure it isn’t a zombie debt. These are debts that have already aged out of the statute of limitations for collection. However, they’ve risen to the top of a debt buyer’s or collector’s books, and someone is trying to resurrect them. 
  • Negotiate to settle the debt. Debt buyers didn’t buy your debt for full price, so they don’t have to collect the full amount to make a profit. They’re often motivated to settle at less than the amount owed if you could pay them immediately.
  • Stand up for your rights. Your rights as a consumer are protected under federal and state laws. Make sure you understand your rights so you can stand up for them as you deal with debt buyers and collectors. 

Manage Your Debt Better

Managing your debt in a responsible and proactive way can help you avoid debt buyers altogether because you never let your debts get so delinquent they might be sold. Some things you can do to manage your debt include:

  • Creating and sticking to a budget. When you’re spending within your means and making debt decisions that work with your budget, you’re less likely to fall behind on payments.
  • Pay all your debts on time. Use tools such as debt management apps to reduce the chance you might forget a debt or lose track of one.
  • Being proactive with debts. If you find yourself in a position where it’s impossible to keep up with a debt, such as being temporarily unemployed or dealing with a medical crisis, reach out to the creditor immediately. Many creditors have programs and options to help you deal with this type of issue.
  • Know what’s on your credit report. Keep up with your credit report so you don’t end up with old debt you thought was paid off coming back to haunt you. You can get a copy of all three of your major credit reports and track 28 of your credit scores when you sign up for ExtraCredit.

Source: credit.com

Apache is functioning normally

Apache is functioning normally

Your credit score communicates with lenders your level of credit trustworthiness. As a result, those with higher credit scores qualify for higher credit limits and better interest rates. Your credit score will play a major role if you plan to purchase a house or apply for a loan in the future.

Understanding credit scores and what they mean can improve your financial literacy. We gathered the following credit score statistics to help you get a better sense of where your credit score stands compared to other Americans.

Key findings:

  • The national average FICO® Score is 716 as of April 2022 (FICO)
  • About 10% of the U.S. population doesn’t have a credit record and are “credit invisible.” (Consumer Financial Protection Bureau)
  • Ages 76 and up have the highest average credit score at 760. (American Express)
  • Women’s and men’s average FICO Scores are virtually the same. (Experian)

Average U.S. credit score

The national average FICO Score is 716 as of April 2022. This is the same as when FICO last reported on it a year ago.

Average credit score by state

While your location doesn’t affect your credit score, some states have a higher average credit score than others as seen in the statistics listed below.

  • While 31 states (and the District of Columbia) have average FICO scores that are higher than the national average of 716, the upper Midwest and New England continue to have the best average FICO Scores. (FICO)
  • Minnesota, Vermont, New Hampshire and Wisconsin all have scores that are 23 points higher than the national average, with scores of 742, 739 and 737, respectively. (FICO)
  • Mississippi, Louisiana, Alabama and Arkansas have the lowest credit scores at 662, 668, 672 and 673, respectively. (WalletHub)

Average credit score by age

Since credit history length is a factor that influences your credit score, it makes sense that the average credit score increases with age as seen below.

  • Approximately 58% of consumers with the highest credit score are between the ages of 56 and 74. (Money Geek)
  • The average score for adults aged 18 to 29 increased by 24 points between April 2017 and April 2022; 19 points for those aged 30 to 39; 19 points for those aged 40 to 49; 13 points for individuals in their 50s; and 10 points for those aged 60 and older. (Nerd Wallet)
  • As of 2021, ages 18-24 have the lowest average credit score at 679. (American Express)
  • Ages 76 and up have the highest average credit score at 760. (American Express)

Average credit score by race

Average credit scores can differ across demographics like race. However, keep in mind that race doesn’t directly influence your credit score.

Average credit score by gender

Although women couldn’t legally apply for credit until 1974, women’s and men’s average FICO Scores are still very close in range at 705 for men and 704 for women as of 2019, according to Experian.

Average credit score by income

A common credit score myth is that your income contributes to your credit score. Although this is untrue, the statistics below show a correlation between income and credit score.

  • Approximately 25% of low-income consumers don’t have enough knowledge to raise their credit scores. (Consumer Federation of America)
  • The median credit score of 658 for lower income individuals suggests that many borrowers are unlikely to have access to affordable credit as those with scores above 720. (Federal Reserve Bank of New York)
  • Those considered high income have the highest average credit score at 774. (American Express)

Average FICO Score in the U.S.

FICO is an analytics firm that developed the credit scoring models used today. The national average FICO Score is 716 as of April 2022, the same as when FICO last reported on it a year ago. Here are some FICO statistics.

Average FICO Score by generation

  • The Silent Generation (ages 77 and up) has the highest average credit score at 760. (Experian)
  • The average credit score of baby boomers (ages 58-76) is 742 in 2022, up two points from 2021. (Experian)
  • Generation X (ages 42-57) has an average credit score of 706. (Experian)
  • The average credit score of Millennials (ages 26-41) is 687. (Experian)
  • Generation Z (ages 18-25) has an average credit score of 679 in 2022, the same as 2021.  (Experian)

Generation

Average credit score (2022)

Silent Generation

760

Baby Boomers

742

Generation X

706

Millenials

687

Generation Z

679

Average VantageScore in the U.S.

VantageScore is the second most popular credit scoring model in the U.S. As of September 2022, the average VantageScore was 697.

Credit card utilization statistics

Credit utilization refers to the amount of your available credit you’re currently using. Your credit utilization ratio is calculated by adding up your balances and then dividing by the total of your credit limits. Keeping your credit utilization ratio low can help raise your score.

  • Individuals with credit scores 800 to 850 have an average credit utilization ratio of 5.7%. (Experian)
  • Consumers with credit scores considered “very good” (740-799) have an average utilization ratio of 12.4%. (Experian)
  • Those with credit scores in the “good” range (670-739) have an average credit utilization ratio of 32.6 %. (Experian)
  • 47.6% of the population opened at least one new credit account in the last year. (FICO)
  • Approximately 26 million U.S. adults, or 10%, don’t have a credit record and are “credit invisible.” (Consumer Financial Protection Bureau)
  • 19 million Americans have a credit history but lack a credit score because their report is insufficient or out of date. (Consumer Financial Protection Bureau)
  • The 15% growth in credit card balances from 2021 to 2022 is the highest in more than 20 years. (Federal Reserve Bank of New York)
  • Currently, 83% of American people own at least one credit card. (Zippia)
  • There are currently 26.5% more credit card holders in 2022 than there were in 2017—just five years ago. (Zippia)

FAQ

Whether you’re new to credit or just need a refresher, we’ve answered some common questions about credit scores below.

What is a good credit score?

According to FICO, a good credit score is 670-739 or above, while a very good credit score is 740-799. A credit score that is 800 or above is considered exceptional.

How to check your credit score

To check your credit score, order a free copy of your credit report from each of the three credit bureaus. You can also check your credit score for free by visiting Credit.com.

What contributes to your credit score?

The factors that contribute to your credit score are payment history, amounts owed, credit history length, credit mix, and new credit.

What is the highest credit score?

The highest credit score is 850 for most FICO and VantageScore models.

How to work on your credit score

You can see from the above credit score statistics that everyone’s credit varies. If you checked your credit score and it’s currently low, we have resources available to help educate you about your credit so that you can qualify for the best rates available.

Source: credit.com

Apache is functioning normally

Apache is functioning normally

Ready to buy a home? Whether you’ve already found your dream home or you’re just starting the process, one thing’s for sure—you’ll probably need a home loan. But before you start looking into mortgages, you might need to give your credit score a little evaluation. You need a decent score to get a decent mortgage, but what’s the minimum credit score for a home loan?

The short answer? It depends on a lot of things. If you’re ready to start looking for home loans, but aren’t sure if your score is up to par, we’re to help. Keep reading to learn if your credit score is mortgage-ready.

A Quick Look at Minimum Credit Scores for Mortgages

Mortgages are complex forms of financing, so a lot of factors come into play when you’re applying. Find out more about the minimum credit requirements for these types of loans—and why your credit score even matters—below.

Why Does Your Credit Score Matter for a Mortgage Loan?

Your credit history tells a financial story about you. It lets mortgage lenders better understand whether you’re reliable, how likely you are to pay off your debt and whether your debt-to-income ratio is low enough to allow you to cover your current debt obligations in addition to a new mortgage payment.

If you have bad credit, you may look like a risky investment to potential lenders and you’ll be less likely to get the approval. Or, if you do get approved, you may be required to pay higher interest rates than individuals with a better credit score might pay.

Luckily, you can still get approved for a home loan even with a lower-than-average score. That’s because your credit score is critical, but it’s not the only factor lenders consider. Plus, different types of loans come with different requirements, so you don’t always need a good credit score to qualify.

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What Credit Score Do You Need to Get a Mortgage?

As stated above, the required credit score really depends on what type of loan you’re looking at. Let’s break it down a bit, defining these types of loans, so you can understand more about mortgages and some of your options.

Credit Requirements for Conventional Mortgage Loans

Conventional mortgage loans are not backed by a government entity. They’re offered via private lenders, including banks and mortgage companies. Typically, you need good credit to qualify for a conventional mortgage. For this purpose, that’s considered to be 640 or higher.

However, if you fall slightly short of that mark, you might still be able to find a lender if your payment history, debt-to-income ratio and other factors are positive. Ultimately, lenders need to know that you’re likely to pay your mortgage as agreed and that you also have the resources to do so.

Credit Requirements for Government-Backed Mortgage Loans

Credit requirements for government-backed loans get a bit more complex. Since these loans are all or partially backed by federal government agencies, lenders may approve you even if you don’t have good credit. However, that doesn’t mean everyone gets approved. Here are some basics about eligibility and minimum credit score requirements for various government-backed mortgage types.

Credit Score Requirements for USDA Loans

These loans are partially backed by the federal government and are available to individuals buying qualifying suburban or rural homes. USDA loan lenders must conduct a thorough review of an applicant’s credit profile. Here are just some of the rules they must apply:

  • If three credit scores are present, they take the middle one. If two credit scores are present, they take the lowest one. If only one or no credit score is present, the lender must do a credit analysis and obtain alternate credit verification.
  • The credit score must be based on at least two trade lines (open accounts) that were active at least 12 of the past 24 months. In short, if you don’t have much credit or you haven’t dealt in credit for years, you may have a challenge getting approved.
  • There must be no significant delinquencies or collection accounts.

Credit Score Requirements for VA Loans

VA loans are available to eligible veterans and their families and are backed by the Department of Veterans Affairs. They don’t require a down payment or private mortgage insurance. The VA does not establish minimum credit score requirements and requires lenders to conduct a comprehensive credit analysis.

VA loans don’t have maximum debt ratios, but the lender has to provide compensating factors that prove they can pay the mortgage if their debt-to-income ratio is more than 41%. Veterans who borrow without a down payment may be limited to mortgages of $453,100 or less.

Credit Score Requirements for FHA Loans

FHA loans are backed by the Federal Housing Administration and are seen as a lower risk by lenders because they’re government-backed loans. This option is a common choice for anyone who qualifies as a first-time home buyer because of its relatively low minimum credit score requirements.

Credit score requirements for FHA loans are:

  • 580 or higher for maximum financing—this means you wouldn’t need a down payment or could have a very small down payment, depending on other factors.
  • 500 or higher for partial financing—this means you’d need at least some down payment orwould need to buy a house for less than it was worth.

You can’t get approved for an FHA loan with a credit score less than 500. Other factors do impact approval, such as your payment history, income and debt level.

Do You Need Good Credit to Refinance Your Mortgage?

A refinance is still a mortgage, so yes, you typically need good credit to get approved for one. Many of the minimum credit scores for home loans above apply to refi loans too. One benefit you get when refinancing is that you may owe less than your house is worth. That could reduce the need for down payments and even help you access better interest rates because the lender has less risk in making the loan.

Has COVID-19 Impacted Mortgage Credit Requirements?

Yes, COVID-19 has impacted minimum credit scores for mortgages. These changes are typically made by each bank. In the early months of the pandemic, uncertainty led many banks to drastically reduce home loans or even put them on hold. For example, in April 2020, JPMorgan Chase changed credit requirements to at least a 700 credit score with a 20% down payment.

However, falling interest rates and improved economic factors caused many banks to loosen requirements in the later months of the pandemic and into 2021. Ultimately, you’ll need to do your research when you’re ready to apply for a mortgage loan to find out what options you might qualify for.

What You Can Do Now

First, check your credit score. You might consider signing up for ExtraCredit. You’ll get access to 28 of your FICO scores—and you’ll see the credit scores that mortgage lenders see. ExtraCredit also has features such as Build It to help you positively impact your credit score if you need to boost it before applying for a mortgage.

Once you have a credit score that’s above 640—or, even more optimally, above 700—you can start shopping for mortgage loans and good rates. And remember that if you do get approved, your credit score also impacts your interest rates. Always ensure you know what your mortgage is going to cost you each month and over the life of the loan.

Source: credit.com

Apache is functioning normally

Apache is functioning normally

By the end of 2022, 27 million Americans had an outstanding personal loan balance with the average amount owed being $11,116. The interest rates of these loans are also the highest they’ve been since 2011 at 11.23 percent.

Sources: TransUnion and the St. Louis Federal Reserve

As of the second quarter in 2022, Americans owed over $192 billion in personal loans, according to TransUnion®.  This was a 31% increase from 2021 and is thought to be due to the financial hardships Americans experienced during the COVID pandemic that overwhelmed the nation in 2020.

If you’re one of the many Americans who took out a personal loan in early 2022, the good news is that interest rates were very low, according to the St. Louis Federal Reserve. Since then, rates have reached new highs, so many Americans are struggling to pay back these loans.

Understanding the current trends in personal loans can help you see where you stand financially. We’ve gathered 10 personal loan statistics that include the most common reasons people take out personal loans, delinquency rates and which states have the highest personal loan debt to help you make better financial decisions if you’re accumulating too much debt.

In This Piece

Must-know Personal Loan Statistic Findings

Millions of Americans are taking out personal loans, and the following are some of the most interesting facts on the topic.

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  • 27 million Americans have personal loan debt (TransUnion)
  • At the end of 2022, the average new loan amount was $8,018 (TransUnion)
  • The average amount owed in personal loan debt was $11,116 at the end of 2022 (TransUnion)
  • In November of 2022, personal loan interest rates were the highest they’ve been since May of 2011 (St. Louis Federal Reserve Bank)
  • New Jersey has the highest average new personal loan account balance at $13,494 (TransUnion)

Average Personal Loan Debt in America

According to TransUnion, Americans owed roughly $9,896 on average as of the first quarter in 2022, the highest it’s been in recent years. Americans took out loans at an average of $6,656 per loan, which was over $1,000 more than in the previous quarter of 2022.

The amount owed per borrower dropped significantly between Q2 and Q3 in 2022, but by the end of the fourth quarter, the average amount owed increased by over 100 percent with the new loan amount dropping to $8,018.

The increase in personal loan debt may have been due to the inflation the country experienced in 2022. TransUnion also reports that there were more loans approved to “super prime borrowers,” or those with credit scores over 720, stating, “On a percentage basis, personal loan originations for subprime and near-prime borrowers increased in the single digits [year over year] whereas super prime borrowers experienced a 33% rise in the third quarter.”

How Many Americans Have Personal Loans?

The amount of Americans taking out personal loans increased 12 percent from 23.9 million in the first quarter of 2022 to 27 million by the fourth quarter.

Prior to the beginning of the COVID-19 pandemic, the total amount of personal loan borrowers was 23.3 million at the end of 2019 and dropped to 21.2 million by the end of 2020. The number of borrowers then grew back to 22.8 million in the following fourth quarter of 2021 and continued to grow as the pandemic regressed.

Quarter

Q4 2022 Average new account balance

Q4 2019

23.3 million

Q4 2020

21.2 million

Q4 2021

22.8 million

Q4 2022

27 million

The Most Common Reasons to Take Out a Personal Loan

LendingTree conducted a survey of their users in 2022 and found that the most common reason consumers took out personal loans was to pay down other debts. Over 58 percent of borrowers used these loans to pay down debt, and the other main reasons included credit card refinancing, home improvements and other major purchases.

Rank

Reason

Percentage of respondents

1

Debt consolidation

41%

2

Other

17.3%

3

Credit card refinance

17.3%

4

Home improvements

6.2%

5

Major purchase

4.1%

6

Medical expenses

3.0%

7

Moving/relocation

2.9%

8

Everyday bills

2.9%

9

Car financing

1.7%

10

Car repair

1.1%

11

Business

0.9%

12

Vacation

0.5%

13

Homebuying

0.4%

14

Wedding expenses

0.4%

Average Personal Loan Interest Rates

During the second quarter of 2022, the Federal Reserve Bank of St. Louis reported that interest rates reached an all-time low of 8.73 percent. By the end of the year, these rates were the highest they’ve been since 2011 at over 11.2 percent.

Personal Loan Debt Compared to Other Debts

Based on TransUnion data, personal loans account for less than four percent of the total number of accounts when compared to other types of loans, such as credit cards, home and auto loans.

Account type

Number of accounts

Percentage of accounts

Credit card

518.4 million

76.3%

Auto loan

81.2 million

11.9%

Mortgage loan

52.6 million

7.83%

Personal loan

27 million

3.97%

It’s also important to note that not all credit card accounts carry a balance.

Personal Loan Delinquency Rates

Delinquent accounts are accounts 60 days or more past due and can hurt your credit score. The Q4 TransUnion report shows that the delinquency rate dropped year over year between 2019 and 2020, but was up 53 percent as of 2022, with an overall delinquency rate of 4.14 percent.

Quarter

Delinquency rate

Q4 2019

3.48%

Q4 2020

2.7%

Q4 2021

3%

Q4 2022

4.14%

TransUnion’s 2022 Credit Snapshot shows that in the last month of the report, those with the lowest credit scores have the highest delinquency rate of 23.9 percent, while super prime borrowers are only at 12 percent.

Credit score range

Percentage of delinquent borrowers

Subprime (300 to 600)

23.9%

Near prime (601 to 660)

23.7%

Prime (661 to 720)

23.3%

Prime plus (721 to 780)

17%

Super prime (781 to 850)

12%

Personal Loan Statistics by State

TransUnion’s 2022 Credit Snapshot reports that New Jersey has the highest average new account balance at over $13,000, and Oklahoma has the lowest at $3,170. Although Oklahoma has the lowest new account balance, they have the highest delinquency rate at 7.73 percent.

State

Q4 2022 Average new account balance

Q4 2022 Delinquency rate

AK

$10,296

2.9%

AL

$4,362

6.59%

AR

$7,089

5.18%

AZ

$9,343

3.78%

CA

$10,454

3.47%

CO

$12,322

2.03%

CT

$11,712

2.57%

D.C.

$9,016

6.55%

DE

$9,146

4.04%

FL

$8,379

3.94%

GA

$8,621

5.18%

HI

$12,224

2.28%

IA

$7,443

2.94%

ID

$9,072

4.38%

IL

$9,236

3.46%

IN

$7,439

2.97%

KS

$8,349

3.05%

KY

$6,875

3.36%

LA

$6,797

5.07%

MA

$12,518

2.24%

MD

$10,956

2.77%

ME

$6,651

1.67%

MI

$7,052

3.21%

MN

$10,692

3.73%

MO

$6,522

6.69%

MS

$5,179

4.96%

MT

$9,326

2.53%

NC

$10,035

3.03%

ND

$8,051

1.89%

NE

$7,755

3.65%

NH

$11,719

2.31%

NJ

$13,494

3.49%

NM

$5,418

6.31%

NV

$8,839

3.74%

NY

$11,843

2.77%

OH

$7,595

3.75%

OK

$3,170

7.73%

OR

$10,523

2.93%

PA

$10,418

3.06%

RI

$8,744

2.14%

SC

$5,924

4.89%

SD

$9,945

2.06%

TN

$5,355

5.38%

TX

$4,952

6.33%

UT

$7,966

4.23%

VA

$9,875

3.37%

VT

$6,180

0.82%

WA

$9,570

2.94%

WI

$6,489

3.95%

WV

$10,864

1.96%

WY

$7,698

2.66%

Personal Loan Statistics by Type of Lender

More and more Americans are turning to financial technology companies, also known as FinTech, for their personal loans. These are online banking services that are done via a company’s website or mobile app, and 32.9 percent of all personal loans are done through these types of companies.

Lender type

Distribution of total balances

FinTech

32.9%

Banks

20.5%

Credit unions

19.7%

Other finance companies

26.9%

Can Personal Loan Debt Affect Your Credit Score?

If you’re one of the 27 million Americans with a personal loan, you don’t have to let your debt harm your credit score. As you’ve learned from these personal loan statistics, many Americans have turned to personal loans to pay off other debts, but many people are delinquent with their payments, which can hurt their scores.

Credit.com provides a variety of credit tools and tips to help you work to repair and improve your credit. You can learn more about our services, like ExtraCredit, or click here to get your free credit report card.

Source: credit.com

Apache is functioning normally

Apache is functioning normally

Although the number of identity theft cases fell from 16.7 million in 2017 to 14.4 million in 2018, the number of people held financially liable in these cases and the amount of their losses increased, according to the Insurance Information Institute. These identity theft statistics show that identity theft is still a major concern and consumers need to be on high alert to avoid becoming the next victims. 

Today, criminals don’t need physical access to your financial documents to wreak havoc on your life. They can simply find your personal information online and use it to steal your identity. Fortunately, in the age of cybersecurity, you can fight back. 

How Our Daily Activities Are Digitized and Prone to Data Breaches 

Thanks to the Internet of Things, easily accessible Wi-Fi, and other technological advances, we’re almost always connected to others. You can chat with family across the country through video chat, watch a video online for a recipe you’re preparing, and add items to your grocery list all at the same time. While this technology can make our lives easier, in many ways, it can also make us more vulnerable to attack. 

Every digital activity leaves a footprint and a possible access point for criminals. Everywhere you go, there’s data stored about you. The International Data Corporation prepared the 2020 Thales Data Threat Report, which revealed that nearly half of U.S. companies have experienced some type of data breach at some point. Furthermore, researchers estimated that at least 26% of U.S. companies have experienced a data breach within the last year. 

If that’s not concerning enough, a University of Maryland study found that a hacking attempt occurs every 39 seconds. If you’re not careful, hackers can infiltrate your digital bubble and steal your sensitive information.  

  • I just watched a documentary on the dark web, and I will never feel safe using my credit card again!

  • Luckily I don’t have to worry about that. I have ExtraCredit, so I get $1,000,000 ID protection and dark web scans.

  • I need that peace of mind in my life. What else do you get with ExtraCredit?

  • It’s basically everything my credit needs. I get 28 FICO® scores, rent and utility reporting, cash rewards and even a discount to one of the leaders in credit repair.

  • It’s settled; I’m getting ExtraCredit tonight. Totally unrelated, but any suggestions for my new fear of sharks? I watched that documentary too.

  • …we live in Oklahoma.

Common Types of Identity Theft and Their Consequences 

According to the 2020 Data Breach Investigations Report (DBIR), some of the most common data breach attempts include:

  • Credential stuffing – Credential stuffing occurs when many username and password combinations are inserted to try to gain access to an account. According to the DBIR, an average of 922,331 attempts were made at organizations that experienced this type of attack.
  • Malware – Malware is a type of virus that infiltrates your network, often to steal information, such as your personal data and identification. Malware usually relies on exploiting a system’s vulnerabilities. 
  • Ransomware – Ransomware takes a hold of an account and blocks out the authentic user. To regain access, you are instructed to pay a large ransom. 
  • Phishing – Phishing attempts that try to get you to hand over your credentials by pretending to be your bank or other trusted sender are increasingly using social engineering to trick you, according to the DBIR. An example of this type of attack was committed by Chinese hackers who breached an email system of a Mumbai branch to learn the rhythm of the business, identify important members of the business, and learn its vocabulary and customs. The hackers ran off with nearly $19 million.

A newer method to try to steal identities is account takeover fraud in which the criminal gains access to your account and then changes information about it so that you’re not informed of luxury purchases or cash withdrawals.

Identity theft can cause tremendous damage to your credit. It often takes months or longer to learn about the theft and the accounts affected, so by the time you notice, the thief could have been racking up thousands of dollars of debt in your name and not paying on any of it. Additionally, you can face additional legal consequences, such as having your wages garnished or being sued. Once your information is stolen, it can be difficult to stop the damage because your information might be sold on the dark web.

How to Avoid Identity Theft 

It’s more important than ever to be vigilant about protecting your identity online since more people are working from home and logging into public Wi-Fi than ever before. Here are some tips to help you avoid identity theft:

  • Keep an eye on your credit and changes in your score
  • Avoid accessing any financial data from an unsecured network
  • Consider using credit monitoring tools
  • Use strong passwords and don’t repeat passwords across various sites

What to Do If You’re a Victim of Identity Theft

If it’s already too late and you suspect someone has already stolen your identity, it’s time to move on to damage control. You might want to freeze your credit so that no one can apply for new credit in your name. Order a free credit report and carefully review it for any unauthorized accounts or changes. 

Report the theft to law enforcement. You might need to make a police report and provide a copy to your creditors. The FTC’s website has additional resources for identity theft victims.

Source: credit.com

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Apache is functioning normally

So, you’re considering purchasing a home? There’s a lot to think about—there’s lots of mortgage buzzwords and industry lingo to decipher. It can all be very overwhelming, especially for first-time home buyers.

One of the main decisions you need to make regarding your mortgage is selecting a fixed-rate or an adjustable-rate mortgage. Fixed-rate mortgages charge the same fixed interest rate for the duration of the loan. Adjustable-rate mortgages, on the other hand, have rates that fluctuate over time.

It’s important to understand how each type of mortgage works and how interest rates can impact your mortgage payments. Keep reading to learn more.

Key Takeaways

  • Interest rates for fixed-rate mortgages remain constant over the life of the loan.
  • ARM mortgages start with a lower fixed-rate period before switching to variable rates that are assessed regularly.
  • Deciding if an ARM or fixed-rate mortgage is right for you depends on your specific situation.

In This Piece

How Adjustable-Rate Mortgages (ARM) Work

Interest rates with an adjustable-rate mortgage, also referred to as an ARM, are variable—meaning they can change over time. Typically, ARMs start with a fixed-rate period, such as one, three, five, seven, or 10 years. After this initial period, interest rates adjust annually based on the current index. Your mortgage agreement details these terms.

When shopping for an ARM, you’ll notice that many types are listed as a ratio, such as 1/1, 3/1, 5/1, 7/1, 10/1 and more. The first number represents the number of years the mortgage will remain at the fixed-rate amount. In the example above, this would be one, three, five, seven, or 10 years.

The second number indicates how often the rates are adjusted after the initial fixed-rate phase is over. In most cases, this number is one, to represent one year. This means that rates are adjusted annually for most adjustable-rate loans.

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Fortunately, many ARM agreements also include a cap for interest rates. For instance, one of the most common types of ARM is 5/1 with a 2/6 cap. This notation means the mortgage has a five-year fixed-rate period, after which the rates will reset every year. Interest rates, however, can’t increase more than 2% in any given year and not more than 6% in total over the life of the mortgage.

During the initial fixed-rate period of your mortgage, your monthly payments remain exactly the same. However, once this period is over, your monthly mortgage payments are likely to change from year to year depending on interest rates.

How Fixed-Rate Mortgages Work

Unlike an adjustable-rate mortgage, interest rates with a fixed-rate mortgage remain constant throughout the life of the mortgage. One of the best benefits of a fixed-rate mortgage is that your monthly payments remain exactly the same until the loan is paid in full. However, the amount of principal paid each month may fluctuate.

A disadvantage of fixed-rate mortgages is the potential for interest rates to decrease dramatically over the course of the loan. However, you can choose to refinance your mortgage, if you qualify, to take advantage of these lower rates.

ARM vs. Fixed-Rate Mortgage: Example Mortgage Payments

The table below can help you better understand the difference between mortgage payments for ARMs and fixed-rate loans.

 Type of loan 5/1 ARM 30-year Fixed-Rate Loan
Mortgage amount $400,000 $400,000
Interest rates 6.86% 7.66%
Monthly payments $2,623.71 per month during the initial five-year fixed-rate period (payments will adjust annually thereafter) $2,840.81

As you can see, initial interest rates are typically much lower for ARMs than for fixed-rate loans. However, after this initial phase, these rates can increase, which will also increase monthly payments. Use our convenient mortgage calculator to determine how much you can expect your monthly payments to be per month for an ARM and a fixed-rate mortgage.  

Is an ARM or Fixed-Rate Mortgage Better?

There are advantages and disadvantages to both adjustable-rate and fixed-rate mortgages. For example, fixed-rate mortgages are easier to budget because monthly payments remain the same throughout the life of the mortgage. This can be a huge advantage for homeowners who are concerned about increasing rates.

However, if interest rates decline over the course of your loan, you’ll be stuck paying a higher amount. It may be possible to refinance your mortgage to take advantage of these lower rates. However, you must still have the right credit score to buy a home.

On the other hand, a great advantage of ARMs is that they typically offer lower initial interest rates. Oftentimes, homeowners have lower monthly payments during this initial phase vs. those opting for fixed-rate loans. The disadvantage is that interest rates could spike during the fixed-rate phase. If this happens, homeowners could face significantly higher mortgage payments at the end of the initial fixed-rate period.

Why Would You Choose an Adjustable Rate Over a Fixed Rate?

Adjustable-rate mortgages are an attractive offer for many first-time home buyers. First, they offer lower interest rates for the first several years, which results in lower monthly payments. Secondly, many first-time home buyers only plan to stay in their homes for several years before upgrading to larger houses.

In these cases, an ARM loan can be an ideal option because they’re likely to move before the end of the fixed-rate phase or soon after. This option allows them to enjoy lower interest rates until they’re ready to upgrade.

Tips for Choosing

Ultimately, selecting an ARM or a fixed-rate mortgage is a personal decision that depends on your specific situation. However, if you’re trying to choose between these two options, here are some factors to consider.

How Long Will You Be in the Home?

The first thing you want to consider is how long you plan to stay in your new home. If your plans are to remain in the home for only several years, an ARM may be the best option. For instance, if you plan to stay in your home for less than seven years, a 7/1 ARM will allow you to take advantage of lower interest rates until you sell the home.

If, on the other hand, this is your forever home, and you have no plans on moving in the near future, a fixed-rate mortgage that offers consistent monthly payments may be the better option.

How Frequently Does the ARM Adjust?

You also want to check the details of the loan and determine how often ARM rates will adjust. For example, a 7/1 ARM offers 7 years of ARM rates at the fixed rate, then the interest rates readjust every year afterward. Rates on a 7/6 ARM will readjust every six months. If this is too much fluctuation for your budget, you may want to consider a fixed-rate mortgage.

What Are Interest Rates Like?

Another thing you want to consider is the current state of interest rates and predictions for future increases or decreases. When interest rates are low, investing in a fixed-rate mortgage can help you lock in these lower rates. Alternatively, when interest rates are high or rising, it may make more sense to select an ARM, with hopes that these rates will come back down before the initial fixed-rate period ends.

How Much Can You Afford Now?

ARMs typically offer lower monthly payments during the first few years. This can be an attractive option for those just beginning their careers and planning to increase their earnings in the future. An adjustable-rate mortgage allows you to take advantage of lower monthly payments now and risk possible higher payments when you have more wealth.

Can You Afford a Payment Increase?

It’s important to recognize that as interest rates with an ARM adjust, so will your monthly payments. Make sure you can budget these shifts. Even if ARM caps are in place, monthly payments can increase quickly, especially with a six-month adjustment frequency. If you’re uncertain of your ability to maintain higher monthly payments, you may want to choose a fixed-rate mortgage.

Understand Your Options

Fixed-rate and adjustable-rate mortgages are both good options for home buyers. The important thing is to understand the difference between these two choices and to evaluate your specific situation. When you factor in these issues, you can better determine which option is right for you.

Source: credit.com