Credit Bureaus

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A while back, I cautioned readers to avoid swiping the credit card before applying for a mortgage.

In short, the more you charge, the higher your outstanding balances. And the higher your balances, the lower your available credit.

This can result in lower credit scores since utilization is a big factor for FICO. And it can increase your debt-to-income ratio as well.

Simply put, if you’re seen as overextended due to maxed out credit cards, your credit scores will suffer.

So you can give your credit scores a boost by simply doing nothing, but there are some proactive measures you can take as well.

Increase the Credit Limits on Your Credit Cards

  • One quick and easy way to boost your credit scores is to increase your available credit
  • You can do this by raising the credit limits on the credit cards you have open
  • Simply ask your credit card issuers for credit line increases online or by phone
  • Once granted your utilization will go down and your credit scores should improve over time

One simple trick to improve your credit scores is via a credit limit increase.

This is something that is very easy (and fast) to accomplish thanks to the many credit card management tools now at our fingertips.

If you visit just about any credit card issuer’s website, you should be able to find an area to increase your credit limit online.

Typically, all you need to do is enter enter your gross annual income and monthly housing/rent payment.

With other issuers, such as American Express, you are asked to enter your desired credit limit and then hope they extend it to you. Apparently you can get 3x your starting limit with little trouble.

So if you started with $5,000, you could get it increased to $15,000 simply by visiting the American Express website and filling out an online form.

Once submitted, you’ll either get that new limit, something in between, or you’ll be denied.

But as long as your credit history and income is sufficient, you should get something. What’s awesome is it can take as little as a few seconds to get your new line of credit.

Note: Some card issuers may need to pull your credit report to do this, which could affect your credit scores temporarily due to the inquiry.

They’ll typically notify you first, but this is why you should request credit increases 3+ months in advance of your mortgage application to let the dust settle.

Lower Your Credit Utilization to Improve Your Scores

The underlying goal of a credit limit increase is to lower your credit utilization, which is the percentage of credit you’re actively using at any given time.

A lower utilization, similar to a lower debt-to-income ratio, is viewed favorably by credit bureaus and mortgage lenders, respectively.

So imagine you have that American Express credit card with a $5,000 limit.

If you currently have a $2,500 balance, even if it’ll be paid off on time and not revolved, you’re essentially using 50% of your available credit. This isn’t a good thing when it comes to credit scores.

You may actually want to keep your utilization rate below 25%. In this case, no more than $1,250 outstanding, even if you pay it off in full by the due date.

But what if you naturally charge a lot on your credit cards each month, despite paying them off in full every month? What can you do to keep utilization low?

Well, if your credit limit happened to be $10,000 instead of $5,000, that $2,500 balance would only represent 25% utilization.

If it were $15,000, it’s only around 17% utilization, which should certainly be viewed favorably.

In other words, all you have to do is ask for higher credit limits, instead of spending less. Of course, spending less will sweeten the deal and ideally push your credit scores even higher.

Tip: It’s easier to get credit limit increases approved if your balances are low because you’re viewed as a lower risk customer.

Pay Off Your Existing Balances at the Same Time

  • Another trick that goes hand in hand with the first tip is to pay down your balances
  • Any existing loans and credit card balances that you can chip away at
  • This will also effectively free up available credit and should give your credit scores a boost
  • It will also lower your DTI because minimum payments will be reduced in the process

In conjunction with the first tip, you can also pay down any balances you may have, assuming you don’t pay your credit cards in full each month.

If implemented together, you can get higher limits and reduced balances, which will be a one-two punch in the credit utilization department.

So using our same example, if the individual with the $2,500 balance lets carries it from month to month and only has a $5,000 credit limit, imagine if they got a higher limit and started paying it down.

They could push their utilization down from 50% to say 15% if they got the limit increased to $10,000 and paid $1,000 off the balance.

These actions should result in a higher credit score, which generally means a better mortgage rate if you apply for a home loan.

Additionally, smaller credit card balances mean you’ll have more of your income available to use toward a mortgage payment.

So you may actually be able to qualify for a larger mortgage and/or buy more house.

Give It Time to Work

The only caveat here is that a credit limit increase request could result in a hard inquiry on your credit report.

Because you’re requesting additional credit, some card issuers treat it as a quasi-application, meaning they’ll need to review your credit history.

This could ding your credit slightly, like any new line of credit. It’s temporary, but may offset some of the expected gains of a higher limit.

So either request the increased limits several months in advance of applying for a mortgage, or ask the credit card issuer if it will result in a hard or soft pull before making the request.

If it’s the latter, it won’t harm your credit score. Regardless, inquiries typically don’t impact scores much, maybe 3-5 points and the damage is generally short-lived.

One final thing you can do is check out the Experian Boost, which increases credit scores by adding positive payment history to your credit file.

It can be helpful to those who lack traditional credit history, but pay other bills on time like a cell phone or utility.

In closing, you’ll want to approach mortgage lenders with the highest credit scores possible. This ensures you have the best chance of approval and also obtain the lowest interest rate available.

Read more: What credit score do I need to get a mortgage?

Source: thetruthaboutmortgage.com

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This is the second post from Hilary Stockton, who is the founder of TravelSort, which helps savvy travelers earn millions of miles without flying, redeem them for first-class flights, and stay in luxury hotels at wholesale prices. Follow her on Twitter @TravelSort.

I often get asked about the impact on one’s credit score of churning or signing up for multiple rewards credit cards, especially by those new to earning a million or more frequent flyer miles and points via credit cards. It’s definitely important to protect your credit score, and no one should sign up for a slew of new credit cards without taking the time to understand how your credit score works and whether you should be applying for new credit cards at all.

1. Only sign up for new credit cards if:

  • You don’t have any credit card or other high-interest debt
  • You always pay your credit card bill off in full every statement
  • You have a steady income
  • You don’t plan to apply for a mortgage, refinancing, student loan or other major loan within the next year or so
  • You aren’t tempted to spend more by having more credit cards

If you do have any credit card or other high-interest debt, paying that off is far more important than earning miles, points, or any other kind of credit card reward. You also shouldn’t apply for a number of new credit cards if you plan to get a mortgage, refinancing or other major loan in the next year or so, because you want to ensure you’re offered the best possible interest rate.

2. Have a FICO credit score range 720 or above

FICO scores from the three credit bureaus (Equifax, Experian and Transunion) range from 300 to 850. You’ll need a credit score of at least 710 to apply for rewards credit cards, and preferably 720 or higher.

3. Get a free copy of your credit report

You’re entitled to a free copy of your credit report every year, which you should check to ensure there are no inaccuracies. If there are, you should dispute them, since they’re likely negatively impacting your score and your ability to not only be approved for the best travel rewards credit cards but also being able to secure the best possible interest rate for loans.

4. Know the difference between FAKO and FICO

Unfortunately, there are a lot of places offering to sell you your credit score that are completely worthless, because the score they’re providing isn’t the one that’s actually being used when determining whether to approve you for a new credit card or loan. These fake credit scores have been nicknamed “FAKO.” Even the credit bureaus themselves sell FAKO, so as not to have to pay to FICO to provide your actual FICO score. See more about this at Credit Score: FICO or FAKO?

5. Understand the factors influencing your credit score

Your FICO credit score is determined by these factors:

  • 35 percent is payment history: If you always pay on time, don’t carry any credit card balances and have no delinquent accounts, bankruptcies or similar against you, you’re fine. But make sure you continue to monitor your credit report to guard against inaccuracies.
  • 30 percent is credit utilization: This factor looks at the percentage of your credit line that you’re using. So, for example, if you have a $10,000 credit line on a card, you don’t want to maxing it out every month; in fact, you should ideally only be using a small percentage (under 10 percent) of your credit line. If you have a major purchase, pay it off immediately rather than waiting until the payment due date.
  • 15 percent is length of credit history: Just as the description implies, this factor measures your average age of accounts.
  • 10 percent is types of credit used: This factor looks at the various types of credit you use, such as home mortgage payments, car payments and credit card payments. It also helps explain why, frustratingly, some folks who rent yet own their own car and have never missed a credit card payment can have a lower credit score than a much more indebted homeowner with a leased car who is nevertheless making payments in full and on time.
  • 10 percent is new credit: This factor accounts for the hard pulls or inquiries that result from applying for new credit, such as a mortgage, car loan, student loan, and new credit cards. Each new hard pull does knock a few points off your score, although in most cases your score recovers within 90 days to six months.

6. Keep utilization low on personal credit cards

Due to how important credit utilization is in calculating your credit score, I always recommend you keep your credit utilization as low as possible on your personal cards:

  • Pay off major purchases right after they’re incurred, even before your statement close.
  • If you incur business expenses, ensure they go on a business credit card or charge card. Business credit card utilization is NOT reported to the credit bureaus.

7. Apply for new credit cards on the same day, as close in time as possible

The reason most serious credit card churners apply for multiple credit cards simultaneously, or as close in time as possible on the same day, is two-fold:

  • By not applying for any credit cards for a few months you can avoid being rejected for “too many recent credit inquiries.”
  • If you’re applying for two or three personal cards from the same bank, your hard pulls may be merged into one, reducing the impact on your credit score.

8. Don’t close your oldest credit cards

As mentioned above, credit history accounts for about 10 percent of your FICO score calculation. That’s why you want to always keep at least one or two credit cards that you never close. Make sure they’re no annual fee cards, and preferably a no annual fee card that still earns rewards.

9. Avoid closing a credit card without first transferring the credit line to another open card

Be careful when closing credit cards that you don’t lose the credit line. Opening new credit cards can actually help your credit score over the long term if it increases your total amount of credit relative to your utilization. So, when you do decide to close a credit card, ask the representative to transfer the credit line to one of your other credit cards from the same bank.

10. Stop applying for new credit cards about one year before applying for a mortgage or major loan

As I mentioned in the first tip, it’s key to not let lucrative credit card rewards blind you to the importance of securing the lowest possible interest rate for a mortgage or other major loan. Stop applying for new credit cards about one year before you apply for a major loan, continue to always pay your balance off in full every statement, and aim to keep your credit utilization at 10 percent or lower for all your personal credit cards.

Source: getrichslowly.org

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A senior couple walking together on a sunny day. The man is pushing a bicycle with a basket on it.

Nitat Termmee/Getty Images

There are a few different types of life insurance policies to choose from when you’re shopping for coverage. That includes whole life insurance, which is a permanent type of life insurance policy that remains in place for your entire life and guarantees a death benefit, as long as premiums are paid. But while whole life insurance can offer a number of unique perks, it may not be the best option for everyone. Before you make a decision on your life insurance coverage, it may benefit you to learn more about the pros and cons of whole life insurance, as well as how it works, in order to make the best choice possible for your unique circumstances.

Key takeaways

  • Whole life insurance is a permanent policy that remains in force for your entire life, as long as premiums are paid, and guarantees a death benefit.
  • Whole life insurance policies may cost two to three times more than term life insurance policies because of the expected payout.
  • Whole life insurance policies usually have a cash value component that you may be able to put towards premiums when enough funds accumulate.

What is whole life insurance?

Whole life insurance offers coverage for your entire life as long (in most circumstances) as you’re paying your premiums. In return, the death benefit is essentially guaranteed to be paid out to the beneficiaries in the event that the policyholder passes.

In addition, whole life policies include other benefits, like a cash value component, which is an account that accumulates funds over time. This account is funded by the policy’s premiums, which are what you pay to keep your policy active. As the policyholder, you can choose to borrow against the cash value component during your lifetime under certain circumstances.

How does cash value work?

The cash value component of a whole life insurance policy can be used in a variety of ways and has a few tax considerations to keep in mind. You may borrow against it, use it to pay premiums or make tax-free withdrawals, within policy limits. Withdrawals over the amount of the cash value may be considered taxable income and will reduce the death benefit amount that goes to your beneficiaries. Your beneficiaries will also not be able to access this cash value when you pass away, as it can only be used while you are alive.

Knowing how to leverage the cash value can be a useful tool. When you borrow against the cash value amount, you will not have to undergo a lengthy approval process from a bank or lender, and you will likely enjoy a lower interest rate. Borrowing against the cash value account may be the right fit for individuals in a pinch who want a loan with an easy approval process. Additionally, a loan against the cash value is not reported to credit bureaus, meaning it does not impact your credit score. Just remember that any amount that remains unpaid when you pass will likely be deducted from the death benefit total.

Best whole life insurance

Many regional and national life insurance companies offer whole life policies, so choosing the right one will require some research. Bankrate’s list of the best whole life insurance companies may be a great place to start your search. To determine this list, our insurance experts chose these providers based on the following considerations: customer satisfaction rankings from J.D. Power’s 2021 U.S. Individual Life Insurance Study, financial strength scores from AM Best, reported complaints from the National Association of Insurance Commissioners (NAIC), available coverage options and digital policy management tools.

The cost of whole life insurance

Generally, whole life insurance is more expensive than the same amount of term life insurance coverage. This is because whole life insurance policies are guaranteed to be paid out, as long as the policy remains in force and premiums are paid. As such, whole life policies might also come with a lower potential death benefit compared to a term policy.

However, whole life premiums remain stable and the policy comes with a cash value account, which policyholders can leverage for other financial needs. Your specific whole life insurance policy cost is determined by multiple factors, including the amount of coverage you choose, your age and your relative health.

Learn more: Affordable life insurance companies

Is whole life insurance worth it?

Some people may prefer whole life insurance because it remains in effect for the insured’s entire life and because the cash value component adds additional financial flexibility. However, these financial components also contribute to a higher rate compared to premiums associated with a term life insurance policy. Whether or not whole life insurance is worth it to you depends on your financial situation, budget and long-term goals.

On the other end of the spectrum, many people prefer the shorter-term coverage that comes with a term life policy. For instance, if you only want coverage for a limited amount of time — such as when your children are in school or while you still owe on a mortgage — you may want to apply for a term life insurance policy just for the period of time when the financial protection is most critical. Term policies are typically much more affordable, as a payout is significantly less likely to occur. If deciding between term life vs. permanent life insurance, knowing what your immediate and long-term needs are, budget and purpose for life insurance can help you make a choice.

Frequently asked questions

    • A whole life insurance policy comes with a cash value account that can be invested, but since it is considered low-risk the cash value is usually minimal. Whole life insurance policies are designed to provide loved ones with a death benefit after your passing, rather than to act as an investment vehicle. While the investment component of insurance can be a nice added perk to a whole life insurance policy, other forms of investment may generate higher returns. A financial advisor can help you determine whether or not a whole life policy is right for your situation, taking into account its investment component.

    • How much life insurance you need typically depends on your situation and the goals you have for your policy. You may also want to keep in mind your individual financial obligations when determining the amount of life insurance you need. For instance, if you have personal debt, a mortgage, or upcoming college tuition payments for your children, you may want to factor in those expenses. If you financially support someone into adulthood, such as a special needs family member, you may want to factor their living expenses into your life insurance coverage, as well. Typically, a licensed agent or certified financial professional can guide you in estimating how much life insurance you need, or you can use Bankrate’s life insurance calculator as a starting point.

    • You may have less need for life insurance coverage if you’re single and have no dependents, since this likely means that you have less people who would be financially at-risk if you were to pass away. However, some policyholders choose to purchase life insurance to pay for their funeral expenses, or to leave money to a favorite organization or charity.

      This is one reason single people may choose to obtain a term policy, which can typically be converted to a whole life policy ahead of the policy’s expiration when you may marry or have dependents in the picture. Obtaining a policy when you are young and in relatively good health may help you secure good rates for such a time when insurance becomes more critical.

Source: thesimpledollar.com

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Austin-based rent reporting fintech Boom announced on Wednesday that it has raised $4.5 million in a seed round to improve user experience, expand its product offerings and market its app to customers. 

The seed round was led by Chicago-based venture capital fund Starting Line, followed by Clocktower Technology Ventures, Company Ventures, Gilgamesh Ventures, and Plaid co-founders William Hockey and Zachary Perret. This latest round of funding follows a $800,000 pre-seed round. 

“We’re gonna do three things with the resources: improve the core product of rent reporting; launch a couple of new products in the pipeline; and go to market, as we haven’t done any consumer and landlord marketing,” Rob Whiting, CEO and co-founder, said in an interview.  

Boom’s app was launched in late 2021 to allow users to build credit using rent payments, which are typically their largest monthly expense. Boom reports the information to the three credit bureaus: Experian, Equifax and TransUnion. 

Subscribers pay $24 a year for the app services, and customers link the app to their bank accounts so that the rent payments will be verified every month. While Boom does not work with users that have “handshake” rent agreements, it can verify whether customers pay rent to a relative, friend or roommate by checking wire transfers and the lease agreement, for example.   

According to the company, users see an average increase of 28 points to their credit scores within two weeks of using the app when making their rent payments accordingly. The company says it’s offering its core product at a price 70% lower than its competitors. 

Boom says it has between 15,000 and 20,000 subscribers and has attracted partnerships with major industry players such as Progressive, Apartment List, and national property management companies.

On-time rent payments have become another piece of the mortgage underwriting process in the U.S. over the last two years. 

In September 2021, Fannie Mae incorporated customers’ rent payments into its underwriting system, known as Desktop Underwriter. Freddie Mac adopted the same initiative in June 2022. 

A study by the Urban Institute found that Black households have the most to gain by including rent payments in mortgage underwriting.

Source: housingwire.com

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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. 

Featured image: Roman Samborskyi/Shutterstock.com

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Source: moneyunder30.com

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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!

Source: totalmortgage.com

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A fraud alert is a temporary alarm system set up on your credit account that will inform you if there are any changes in your account. A credit freeze is a freeze placed on your credit file that blocks lenders from viewing your report without authorization.

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

Fraud alerts and credit freezes are two methods for protecting yourself from identity theft. But they’re not the same thing, and if you understand the pros and cons of each, you can decide which is best suited to your needs. A fraud alert requires creditors to verify your identity before allowing new credit accounts to be opened, whereas a credit freeze stops new credit accounts from being opened in your name. 

So, what’s the right choice for you in the fraud alert vs. credit freeze debate? Keep reading for a complete breakdown of both options. 

What is a fraud alert?

A fraud alert is when you put an added layer of security on your credit report that forces all lenders and financial institutions to verify your identify before approving a new credit account being opened. Typically, the creditor will call you whenever a new account request is initiated to confirm you’re the one asking for the account. 

People typically use a fraud alert if they’ve been a victim of identity fraud or if they suspect their information has been compromised. While a fraud alert adds some protection to your account, it’s not a guarantee, and there are still ways scam artists can get around the identity check. 

There are three main types of fraud alerts:

  • Standard fraud alert: A standard fraud alert typically lasts one year but can be renewed as many times as needed. Individuals don’t need to be victims of identity theft to activate this kind of fraud alert on their accounts. 
  • Extended fraud alert: An extended fraud alert lasts for seven years. This option is only available to those who’ve been victims of identity theft. To qualify, you have to file a report with the police or the FTC’s IdentityTheft.gov website. In addition to verifying your identity with each new account request, the extended fraud alert will remove you from marketing lists for credit and insurance offers for the next five years. However, if you want to remain on this list, you can choose to do so. 
  • Active-duty fraud alert: The active-duty fraud alert is only for military service members. When individuals go on active duty assignments, they can apply for this type of fraud alert to protect their accounts while they’re abroad. The alert typically lasts one year but can be renewed as long as the individual is deployed. In addition, they’ll be removed from marketing lists for two years unless they request otherwise. 

Fraud alerts are self-imposed and free to add to your account. 

How do you place a fraud alert?

You can place a fraud alert on your account by reaching out to one of the three major credit bureaus—Experian®, Equifax®, or TransUnion®. After you notify one bureau, it’s their responsibility to inform the others. You can set up a fraud alert online or contact any of the bureaus by phone with this request. You’ll need to submit your proof of identity to successfully set up the fraud alert. 

How do you remove a fraud alert?

Fraud alerts are automatically lifted from your account after the applicable deadline (one year for standard and active-duty alerts and seven years for extended alerts). However, if you want to remove the fraud alert earlier, you can. You’ll need to contact each credit bureau separately and request that the fraud alert be lifted. As was the case with setting up the alert, you’ll need to provide proof of your identity to remove the alert from your account. 

What is a credit freeze?

A credit freeze offers even more protection than a fraud alert. Essentially, a credit freeze stops anyone from accessing your credit report. This effectively prevents anyone from being able to open a new account under your name, as creditors need to review your report before approving a new application. You’ll be able to open new accounts only when you “thaw” or “unfreeze” your account.

How do you freeze your credit?

To freeze your credit, you’ll have to contact each of the three major credit bureaus separately. Note that fees are usually associated with a credit freeze, with the exact amount varying by state. On average, expect to pay around $10 per bureau for a credit freeze. You can apply for a credit freeze online or via phone for all three bureaus. 

When you’re setting up a credit freeze, you’ll be asked to set up a PIN or password, which can later be used to unfreeze your account. 

How do you unfreeze your credit?

Your report will stay frozen until you choose to “thaw” it. This means that you need to unfreeze your credit before applying for more credit, and this is usually the driving factor that motivates people to thaw their accounts. Often, people want to get a new credit card, loan, or mortgage or apply for a rental lease or some other credit account and need to give the lender access to their credit report. 

To unfreeze your account, you’ll need to contact each of the credit bureaus and provide your PIN. There may be a small fee associated with unfreezing your account with each agency. Once you put in a request to unfreeze your account, the change can take from as little as a few minutes to up to three days. As a result, it’s essential to give yourself plenty of time for the account to thaw before the lender goes to access your report. 

If you lose your PIN, unfreezing your account will still be possible, but it’ll take longer to approve. 

Do fraud alerts or credit freezes affect your credit?

No, fraud alerts and credit freezes don’t affect your credit. In fact, they can protect your credit from identity fraud attempts. Identity fraud is a serious situation that can significantly drag your credit score down and take months to years to clear up on your credit report. 

Which option is right for you? 

Ultimately, each individual needs to decide which option is right for them based on their situation. Some of the popular situations to consider that might call for either a fraud alert or a credit freeze are:

  • You’re in the process of or about to begin getting a mortgage, auto loan, lease, or another account: In this case, you don’t want to go through with a credit freeze, as access to your credit report will be necessary to approve your new application. Instead, a fraud alert should be sufficient to protect you. 
  • You’ve been a recent victim of identity theft or know your information has been compromised: If you’re seriously concerned about identity theft, you should likely opt for a credit freeze, as it’s more protective.
  • If you know you don’t need new credit for a while: Older people often are settled with all their credit needs—a mortgage, car loan, credit cards, etc. Therefore, they can comfortably assume they won’t be applying for new credit anytime soon and might feel more protected with a credit freeze. 

Note that you can have both hypothetically, although it might be somewhat redundant. Generally, most experts recommend choosing one or the other. 

Even with a credit freeze or a fraud alert on your account, it’s still crucial for you to check for fraudulent charges on your cards and look for red flags on your credit reports. You never know when something could slip through, and if it does, it’s crucial to act quickly. The longer something remains on your credit report, the longer it will impact your credit and be harder to rectify. 

If you don’t have the time or desire to check your credit reports, you can take advantage of the services provided by Lexington Law Firm. Our credit consultants will help you review your credit reports and file disputes if needed. Removing even one error from your credit report could result in a credit score increase. Get started today.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Reviewed By

Paola Bergauer

Associate Attorney

Paola Bergauer was born in San Jose, California then moved with her family to Hawaii and later Arizona.

In 2012 she earned a Bachelor’s degree in both Psychology and Political Science. In 2014 she graduated from Arizona Summit Law School earning her Juris Doctor. During law school, she had the opportunity to participate in externships where she was able to assist in the representation of clients who were pleading asylum in front of Immigration Court. Paola was also a senior staff editor in her law school’s Law Review. Prior to joining Lexington Law, Paola has worked in Immigration, Criminal Defense, and Personal Injury. Paola is licensed to practice in Arizona and is an Associate Attorney in the Phoenix office.

Source: lexingtonlaw.com