Start-up business loan options

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.

It can cost a lot of money to start a business, and most individuals don’t have all the capital they need up front, so they turn to a lender for help. Start-up business loans are offered by financial institutions to help business owners with a new business’s costs. While they’re a great concept, start-up business loans can be quite challenging to acquire.

These loans are risky for lenders, so the approval process can be laborious. Luckily, there are many options to consider.

How Can You Fund Your Start-Up?

When it comes to finding a start-up, business owners have several options available to them.

SBA Microloans

The US Small Business Administration (SBA) has a microloan program that offers loans up to $50,000 for small businesses and not-for-profit childcare centers. The average microloan is $13,000.

The SBA provides funds to specially designated nonprofit community-based organizations that act as intermediary lenders. These intermediaries administer the microloan program for eligible business owners. Here’s a list of providers.

Each of these intermediary lenders has its own set of unique requirements for borrowers. Typically, the intermediary lender will require some collateral from the business owner for the loan. These microloans can be used for working capital, inventory, supplies, furniture or fixtures. Microloans can’t be used to pay existing debts or purchase real estate.

Business owners who apply for SBA microloan financing may be required to fulfill training or planning requirements before being considered for the loan. The microloan downside is the “micro” part: Funding may not be sufficient for all borrowers.

The repayment terms on the microloan will vary depending on factors such as the loan amount, the planned use of the funds and the small business owner’s needs. Generally, the interest rates range between eight and 13 percent. Additionally, the maximum repayment term allowed for an SBA microloan is six years.

Other Microlenders

There are nonprofit organizations that are microlenders for small business loans. These microlenders are generally considered an easier route than an SBA microloan, especially for individuals with questionable credit history. A nonprofit microlender usually focuses on offering loans to minority or traditionally disadvantaged small business owners. Additionally, they help out small businesses in communities that are struggling economically.

These microlenders offer good term rates and allow business owners to establish better credit. This can help the business owner get other types of financing later on.

Individuals may consider a nonprofit microlender for a variety of reasons:

  1. Because profit is not their objective, the loan terms are fair and don’t take advantage of people in difficult situations.
  2. In addition to financing, many microlenders offer free consulting and training, helping small business owners make the right decisions to build their credit.

Business Credit Cards

You have a credit card for your personal expenses, so why not for your business expenses? Business credit cards can be an alternative financing solution to start-up business loans. To qualify for a business credit card, the lender will typically look at your personal credit score and combined income (business and personal).

One of the main benefits of a business credit card is that it allows you to, right away, separate your business and personal finances. You will start establishing business credit, which will help you in the future with additional business financing. Additionally, many business credit cards have great sign-up bonuses or rewards, such as cash back.

Some owners may incorrectly assume that it’s a poor decision to rely on a credit card for business expenses. However, having and using a business credit card is much more common than you may realize. In a 2019 survey from the Federal Reserve Banks, it was revealed that 59 percent of small business applicants use credit cards to fund their business.

If your score or income is low, you may have to consider a secured business credit card. Secured credit cards often come with higher interest rates and higher fees, so whenever possible, you’ll want to opt for an unsecured credit card.

Even if you receive an unsecured credit card, a low credit score will mean your interest rates on the card are higher than average. That’s why it’s essential you try to improve your credit before applying for a business credit card.

Personal Funding

You can also consider personal funding options to start up your business. Some examples are personal loans, dipping into your savings or home equity or personal credit cards. However, you should understand the risk of using this type of financing for your business. You will want to do some realistic calculations and ensure the business will be able to stand on its own without relying on further personal funding down the road.

If you use a personal credit card for business expenses, make sure you make payments right away and watch your credit utilization ratio. You should be aware that mistakes can significantly destroy your personal credit score, which will have serious consequences.

If you have a good amount in your personal savings, using this money is smart because you won’t have to pay interest on it. However, you’re ultimately taking a high risk. If your business doesn’t do well for a while, you won’t have savings to tide you over. The same applies to borrowing against your home equity. It will likely be a cheap option, but it comes with a significant risk.

If you do choose to use personal funding to start your business, make sure you take steps to start establishing business credit as quickly as possible. This will allow you to leverage business credit to gain more financing in the future and make the transition from personal financing to business avenues.

Lastly, you may consider branching out and asking friends or family for money. Make sure not to apply too much pressure, and give them the option of declining. 

Grants

Both private foundations and government agencies offer small business grants. These can be quite difficult to get, but it’s worth trying, as it would essentially be free capital.

Grants are often offered for specific groups, such as grants for US veterans or female entrepreneurs.

Venture Capital Investments

If you believe your business idea has the potential for massive growth, you may consider pitching it to venture capitalists. A venture capital investment gives you money in exchange for an ownership share or active role in the company. These investors can be individuals or part of a venture capitalist firm

The benefit of a venture capital investment is that it’s not a loan, so you’re not acquiring debt. Instead, the third party offers capital in return for equity. However, this does mean a higher risk, as you may end up paying them out significantly more if your business yields high returns. You’re also often giving up some control of your company to the investor.

Crowdfunding

Platforms like KickStarter have made crowdfunding an easily accessible and valid option for individuals wanting to start a business. You typically share your business plan and objectives with a public forum and hope people make donations or backings to fund the project.

These campaigns take lots of marketing effort but can get significant funding if they’re successful.

Which Option Is Best for You?

It can be difficult to know which of these options is the right approach for your business. However, we’ve broken down how you can better identify which solution works for you:

  1. First, determine how much funding you’ll need to start. This number will automatically rule out some of the options.
  2. Next, determine your credit score—both your personal score and business score (if applicable). Once again, this may rule out some funding options if your credit score is too low. For your personal consumer credit scoring, consider credit repair services to work on your credit score so you have more funding options available to you in the future.
  3. Understand that some of the business funding options will require collateral. Complete an analysis of your assets and identify if you have any collateral to offer up.
  4. When you apply for most types of financing, you’ll be required to share certain documents. You can have these documents prepared ahead of time. Some of the most common documents needed are a business plan, a business forecast, a business credit report, a personal credit report, tax returns, applicable licenses and registrations and legal contracts, to name a few.
  5. It’s essential that you only borrow an amount you can repay. Sometimes, you’ll be approved for much more than you think you need. Avoid taking it just because it’s offered to you.

More than anything, applying for start-up business loans starts with your credit. You should know your credit score, identify whether it’s low and consider credit repair services if needed. Ultimately, the higher your credit score, the better rates and financing options you’ll receive. Lexington Law can help with all your credit needs, so get started today.


Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

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.

Source: lexingtonlaw.com

The Art of Mortgage Pre-Approval

Buying a home can feel like a cut-throat process. You may find the craftsman style house of your dreams only to be bumped out of the running by a buyer paying in all cash, or moving super swiftly. But fear not, understanding the home buying process and getting a mortgage pre-approval can put you back in the race and help you secure the house you want.

What is Mortgage Pre-approval?

Mortgage pre-approval is essentially a letter from a lender that states that you qualify for a loan of a certain amount and at a certain interest rate based on an evaluation of your credit and financial history. You’ll need to shop for homes within the price range guaranteed by your pre-approved mortgage. You can find out how much house you can afford with our home affordability calculator.

Armed with a letter of pre-approval you can show sellers that you are a serious homebuyer with the means to purchase a home. In many ways it’s competitive to buying a home in cash. In the eyes of the seller, pre-approval can often push you ahead of other potential buyers who have not yet been approved for a mortgage.

Getting pre-qualified for a mortgage is not the same as pre-approval. It’s actually a relatively simple process in which a lender looks at a few financial details, such as income, assets, and debt, and gives you an estimate of how much of a mortgage they think you can afford.

Taking out a mortgage is a huge step and pre-qualification can help you hunt down reputable lenders and find a loan that potentially works for you. Going through this process can be useful, because it gives you an idea of your buying power, or how much house you can afford.

Check out local real estate
market trends to help with
your home-buying journey.

It also gives you an idea of what your monthly payment might be and is a chance to shop around to various lenders to see what types of terms and interest rates they offer. Pre-qualification is not a guarantee that you will actually qualify for a mortgage.

Getting pre-approval is a more complicated process. You’ll have to fill out an application with your lender and agree to a credit check in addition to providing information about your income and assets. There are a number of steps you can take to increase your chances of pre-approval or to increase the amount your lender will approve. Consider the following:

Building Your Credit

Think of this as step zero when you apply for any type of loan. Lenders want to see that you have a history of properly managing your debt before offering you credit themselves. You can build credit history by opening and using a credit card and paying your bills on time. Or consider having regular payments , such as your rent, tracked and added to your credit score.

Checking Your Credit

If you’ve already established a credit history, the first thing you’ll want to do before applying for a mortgage is check your credit report and your FICO score. Your credit report is a history of your credit compiled from sources such as banks, credit card companies, collection agencies, and the government.

This information is collected by the three main credit reporting bureaus, Transunion, Equifax and Experian. Your FICO score is one number that represents your credit risk should a lender offer you a loan.
You’ll want to make sure that the information on your credit report is correct.

If you find any mistakes, contact the credit reporting agencies immediately to let them know. You don’t want any incorrect information weighing down your credit score, putting your chances for pre-approval at risk.

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Stay on Top of Your Debt

Your ability to pay your bills on time has a big impact on your credit score. If you can, make sure you make regular payments. And if your budget allows, you can make payments in full. If you have any debts that are dragging on your credit score—for example, debts that are in collection—work on paying them off first, as this can give your score a more immediate boost.

Watch Your Debt-to-income Ratio

Your debt-to-income ratio is your monthly debts divided by your monthly income. If you have $1,000 a month in debt payments and make $5,000 a month, your debt-income ratio is $1,000 divided by $5,000, or 20%.

Lenders may assume that borrowers with a high debt-to-income ratio will have a harder time making their mortgage payments. Keep your debt-to-income ratio in check by avoiding making large purchases before seeking pre-approval for a mortgage. For example, you may want to hold off on buying a new car until you’ve been pre-approved.

Prove Consistent Income

Your lender will want to know that you’ve got enough money coming in each month to cover a potential mortgage payment. So, they’ll likely ask you to prove that you have consistent income for at least two years by taking a look at your income documents (W-2, 1099 etc.).

For some potential borrowers, such as freelancers, this may be a tricky process since you may have income from various sources. Keep all pay stubs, tax returns, and other proof of income and be prepared to show them to your lender.

What Happens if You’re Rejected?

Rejection hurts. But if you aren’t pre-approved, or you aren’t approved for a large enough mortgage to buy the house you want, you also aren’t powerless. First, ask the bank why they made the decision they did. This will give you an idea about what you might need to work on in order to secure the mortgage you want.

SoFi Mortgage.


The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

SOMG18100

Source: sofi.com

What Is a Bond Mutual Fund – Risks & Different Types of This Investment

Investing is an important part of saving for the future, but many people are wary of putting their money into the stock market. Stocks can be volatile, with prices that change every day. If you can’t handle the volatility and risk of stocks or want to diversify your portfolio into a less risky investment, bonds are a good way to do so.

As with many types of investments, you can invest in bonds through a mutual fund, which gives you easy diversification and professional portfolio management — for a fee.

Are bond mutual funds a good addition to your portfolio? Here are the basics of these investment vehicles.

What Is a Bond?

A bond is a type of debt security. When organizations such as national and local governments, government agencies, or companies want to borrow money, one of the ways they can get the loan they need is by issuing a bond.

Investors purchase bonds from the organizations issuing them. Typically, bonds come with an interest rate and a maturity. For example, a company might sell bonds with an interest rate of 5% and a maturity of 20 years.

The investor would pay the company $1,000 for a $1,000 bond. Each year, that investor receives an interest payment of $50 (5% of $1,000). After 20 years, the investor receives a final interest payment plus the $1,000 they paid to buy the bond.


What Is a Mutual Fund?

A mutual fund is a way for investors to invest in a diverse portfolio while only having to purchase a single security.

Mutual funds pool money from many investors and use that money to buy bonds, stocks, and other securities. Each investor in the fund effectively owns a portion of the fund’s portfolio, so an investor can buy shares in one mutual fund to get exposure to hundreds of stocks or bonds.

This makes it easy for investors to diversify their portfolios.

Mutual fund managers make sure the fund’s portfolio follows their stated strategy and work towards the fund’s stated goal. Mutual funds charge a fee, called an expense ratio, for their services, which is important for investors to keep in mind when comparing funds.

Pro tip: Most mutual funds can be purchased through the individual fund family or through an online broker like Robinhood or Public.


Types of Bond Mutual Funds

There are many types of bond mutual funds that people can invest in.

1. Government

Government bond funds invest most of their money into bonds issued by different governments. Most American government bond funds invest primarily in bonds issued by the U.S. Treasury.

U.S. government debt is seen as some of the safest debt available. There is very little chance that the United States will default on its payments. That security can be appealing for investors, but also translates to lower interest rates than other bonds.

2. Corporate

Corporate bond funds invest most of their assets into bonds issued by companies.

Just like individuals, businesses receive credit ratings that affect how much interest they have to pay to lenders — in this case, investors looking to buy their bonds. Most corporate bond funds buy “investment-grade” bonds, which include the highest-rated bonds from the most creditworthy companies.

The lower a bond’s credit rating, the higher the interest rate it will pay. However, lower credit ratings also translate to a higher risk of default, so corporate bond funds will hold a mixture of bonds from a variety of companies to help diversify their risks.

3. Municipal

Municipal bonds are bonds issued by state and local governments, as well as government agencies.

Like businesses, different municipalities can have different credit ratings, which impacts the interest they must pay to sell their bonds. Municipal bond funds own a mixture of different bonds to help reduce the risk of any one issuer defaulting on its payments.

One unique perk of municipal bonds is that some or all of the interest that investors earn can be tax-free. The tax treatment of the returns depends on the precise holdings of the fund and where the investor lives.

Some mutual fund companies design special municipal bond funds for different states, giving investors from those states an option that provides completely tax-free yields.

The tax advantages municipal bond funds offer can make their effective yields higher than other bond funds that don’t offer tax-free yields. For example, someone in the 24% tax bracket would need to earn just under 4% on a taxable bond fund to get the equivalent return of a tax-free municipal bond fund offering 3%.

4. High-Yield

High-yield bond funds invest in bonds that offer higher interest rates than other bonds, like municipal bonds and government bonds.

Typically, this means buying bonds from issuers with lower credit ratings than investment-grade bonds. These bonds are sometimes called junk bonds. Their name comes from the fact that they are significantly riskier than other types of bonds, so there’s a higher chance that the issuer defaults and stops making interest payments.

Bond mutual funds diversify by buying bonds from hundreds of different issuers, which can help reduce this risk, but there’s still a good chance that some of the bonds in the fund’s portfolio will go into default, which can drag down the fund’s performance.

5. International

Foreign governments and companies need to borrow money just like American companies and governments. There’s nothing stopping Americans from investing in foreign bonds, so there are some mutual funds that focus on buying international bonds.

Each country and company has a credit rating that impacts the interest rate it has to pay. Many stable governments are seen as highly safe, much like the United States, but smaller or less economically developed nations sometimes have lower credit ratings, leading them to pay higher interest rates.

Another factor to keep in mind with international bonds is the currency they’re denominated in.

With American bonds, you buy the bond in dollars and get interest payments in dollars. If you buy a British bond, you might have to convert your dollars to pounds to buy the bond and receive your interest payments in pounds. This adds some currency risk to the equation, which can make investing in international bond funds more complex.

6. Mixed

Some bond mutual funds don’t specialize in any single type of bond. Instead, they hold a variety of bonds, foreign and domestic, government and corporate. This lets the fund managers focus on buying high-quality bonds with solid yields instead of restricting themselves to a specific class of bonds.


Why Invest in Bond Mutual Funds?

There are a few reasons for investors to consider investing in bond mutual funds.

Reduce Portfolio Risk and Volatility

One advantage of investing in bonds is that they tend to be much less risky and volatile than stocks.

Investing in stocks or mutual funds that hold stocks is an effective way to grow your investment portfolio. The S&P 500, for example, has averaged returns of almost 10% per year over the past century. However, in some years, the index has moved almost 40% upward or downward.

Over the long term, it’s easier to handle the volatility of stocks, but some people don’t have long-term investing goals. For example, people in retirement are more concerned with producing income and maintaining their spending power.

Putting some of your portfolio into bonds can reduce the impact of volatile stocks on your portfolio. This can be good for more risk-averse investors or those who have shorter time horizons for their investments.

There are some mutual funds, called target-date mutual funds, that hold a mix of stocks and bonds and increase their bond holdings over time, reducing risk as the target date nears.

Income

Bonds make regular interest payments to their holders and the majority of bond funds use some of the money they receive to make payments to their investors. This makes bond mutual funds popular among investors who want to make their investment portfolio a source of passive income.

You can look at different bond mutual funds and their annual yields to get an idea of how much income they’ll provide each year. For example, if a mutual fund offers a yield of 2.5%, investors can expect to receive $250 each year for every $10,000 they invest in the fund.

Pro tip: Have you considered hiring a financial advisor but don’t want to pay the high fees? Enter Vanguard Personal Advisor Services. When you sign up you’ll work closely with an advisor to create a custom investment plan that can help you meet your financial goals. Read our Vanguard Personal Advisor Services review.


Risks of Bond Funds

Before investing in bonds or bond mutual funds, you should consider the risks of investing in bonds.

Interest Rate Risk

One of the primary risks of fixed-income investing — whether you’re investing in bonds or bond funds — is interest rate risk.

Investors can buy and sell most bonds on the open market in addition to buying newly issued bonds directly from the issuing company or government. The market value of a bond will change with market interest rates.

In general, if market rates rise, the value of existing bonds falls. Conversely, if market rates fall, the value of existing bonds rises.

To understand why this happens, consider this example. Say you purchased a BBB-rated corporate bond with an interest rate of 2% for $1,000. Since you bought the bond, market rates have increased, so now BBB-rated companies now have to pay 3% to convince investors to buy their bonds.

If someone can buy a new $1,000 bond paying 3% interest, why would they pay you the same amount for your $1,000 bond paying 2% interest? If you want to sell your bond, you’ll have to sell it at a discount because investors can get a better deal on newly issued bonds.

Of course, the opposite is true if interest rates fall. In the above example, if market rates fell to 1%, you could command a premium for your bond paying 2% because investors can’t find new bonds of the same quality that pay that much anymore.

Interest rate risk applies to bond funds just as it applies to individual bonds. As rates rise, the share price of the fund tends to fall and vice versa.

Generally, the longer the bond’s maturity, the greater the effect a change in market interest rates will have on the bond’s value. Short-term bonds have much less interest rate risk than long-term bonds. Bond funds usually list the average time to maturity of bonds in their portfolio, which can help you assess a fund’s interest rate risk.

Credit Risk

Bonds are debt securities, meaning they’re reliant on the bond issuer being able to pay its debts.

Just like people, companies and governments can go bankrupt or default on their loan payments. If this happens, the people who own those bonds won’t get the money they lent back.

Bond mutual funds hold thousands of bonds, but if one of the issuers defaults, some of the fund’s bonds become worthless, reducing the value of the investors’ shares in the fund.

Bonds issued by organizations with higher credit ratings are generally less risky than those with poor credit ratings. For example, most people would consider U.S. government bonds to have a very low credit risk. A junk bond fund would have much more credit risk.

Foreign Exchange Risk

If you’re buying shares in a bond fund that invests in foreign bonds, you should consider foreign exchange risk.

Currencies constantly fluctuate in value. Over the past five years, $1 could buy anywhere between 0.80 and 0.96 euros.

To maximize returns, investors want to buy foreign bonds when the dollar is strong and receive interest payments and return of principal when the dollar is weak.

However, it’s incredibly hard to predict how currencies’ values will change over time, so investors in foreign bonds should consider how changing currency values will affect their returns.

Some bond funds use different strategies to hedge against this risk, using tools like currency futures or buying dollar-denominated bonds from foreign entities.

Fees

Mutual funds charge fees, which they commonly express as an expense ratio.

A fund’s expense ratio is the percentage of your invested assets that you pay each year. For example, someone who invests $10,000 in a mutual fund with a 1% expense ratio will pay $100 in fees each year.

Expense ratio fees are included when calculating the fund’s share price each day, so you don’t have to worry about having cash on hand to pay the fee. The fees are taken directly out of the fund’s share price, almost imperceptibly. Still, it’s important to understand the impact fees have on your overall returns.

If you invest $10,000 in a fund that produces an annual return of 5% and has a 0.25% expense ratio, after 20 years you’ll have $25,297.68. If that same fund had an expense ratio of 0.50%, you’d finish the 20 years with $24,117.14 instead.

In this example, a difference of 0.25% in fees would cost you more than $1,000.

If you find two bond funds with similar holdings and strategies, the one with the lower fees tends to be the better choice.


Final Word

Bond mutual funds are a popular way for investors to get exposure to bonds in their portfolios. Just as there are many different types of stocks, there are many types of bonds, each with advantages and disadvantages.

If you don’t want to pick and choose bonds to invest in, bond funds offer instant diversification and professional management. If you want an even more hands-off investing experience, working with a financial advisor or robo-advisor that handles your entire portfolio may be worth considering.

Source: moneycrashers.com

How you get bad credit

No one likes having a low credit score or bad credit and in many cases you may not even know why you have bad credit. While it is more common for young adults to find themselves damaging their credit without realizing it, it can happen to anyone at any age. If you want to avoid having bad credit, it’s important to know what causes your credit score to go down and how you get bad credit.

First of all, it’s also important to know the difference between bad credit and no credit. If you’ve never had a credit card, car loan, mortgage or any other type of loan or any credit history, then you’ll likely be deemed as having no credit and could be denied by lenders as being high risk, simply because they have no data to show whether you’re a reliable borrower. This is not the same thing as having bad credit which looks as bad or worse than having no credit. Bad credit is caused by a bad credit history, large amount of debt, or other issues on your credit report.

Top 4 Reasons You Have Bad Credit

To help you better understand why your credit is bad, here are 4 of the most common reasons that you may have damaged your credit:

  • Too Many Credit Checks: Likely the most common reason that your credit score is lower than you’d like is due to frequent credit checks. If your credit is checked more than once per year, then you will likely lose points on your credit score. This can be caused by applying for credit cards too often, checking your credit score frequently, or even from checking mortgage rates from multiple lenders in an attempt to get the best deal on your new home. Credit checks are very common so it is imperative that you keep track of how often you have having your credit checked to avoid this common mistake.
  • Large Amount of Debt: Another reason that many people have bad credit without realizing it, it due to a large amount of debt. You may be paying your credit card payments on time, have little or no negative instances on your credit report and may have even been very careful to not check your credit too often but may still have bad credit. This is often times caused by a poor debt to credit ratio which is when you use all of your available credit for your debts. In other words, if you have a credit card with a $3,000 limit and you continually have it maxed out or more than 50% (below 30% is optimal) of your available credit is used, then you will likely damage your credit. You may also be declined for loans if you have a large amount of debt compared to your income which is very common with someone who has a mortgage, car loan, and other forms of debt which consumes a large percentage of their income.
  • Past Delinquencies: If you’ve had trouble with debt in the past, such as a foreclosure, repossession, bankruptcy, neglected loan or other similar derogatory mark on your credit in the past, it could be keeping your credit score down and causing you to have bad credit. Many of these types of delinquencies can stay on your credit report for 7 to 10 years so, while you may have forgotten all about it, it may still be showing on your report and handicapping your ability to rebuild your credit.
  • Late Payments:  It can be surprising how many people actually do not realize how their payment history can severely impact their credit. This is likely because many lenders will provide a due date for monthly payments but will provide some type of grace-period before late fees are assessed. This can often-times cause complacency, leading to occasional late payments by borrowers simply because they think they have a couple extra days after the due date to get their payment in. Well, unfortunately, many lenders will report late payments to the credit bureaus which will result in a negative mark on your credit report and a lower credit score. This is very common with credit cards and mortgage payments and any late payment can severely damage your credit and could even increase your interest rate.

How You Can Repair Your Bad Credit

While bad credit can be a complete nightmare and it may seem impossible to improve your credit again, there’s still hope. It will take time but you can certainly repair your credit and get your credit back on track. First of all, going forward, you’ll want to make sure that you avoid the common mistakes listed above but you can also work on adapting some best practices to improve your credit score. Make sure that you make your payments on time, keep a low debt-to-credit ratio – only using about 30% of your available credit on your credit cards – and make sure that you keep using your cards at least a few times a year. Rather than cancelling old cards that you don’t use anymore, it is also beneficial for you to hold on to old cards, using them occasionally, as older cards will help your credit more than new cards which no history.

Lastly, you should check your credit report for errors or inconsistencies which could allow you to dispute negative items on your report which would help to repair your bad credit. While this can be done manually, it is usually recommended that you hire a credit repair company who can go to bat for you against the credit bureaus which will give you much better chance of finding errors and getting negative items removed from your credit report. Most people see an increase in their credit score in less than 45 days when using a credit repair service.

Source: creditabsolute.com

What is a debt jubilee? – Lexington Law

A couple happily throws papers into the air.

A debt jubilee is when a country or large
organization cancels debt and clears it from the public record. Simply put,
it’s large-scale debt forgiveness. Some economists believe in enacting a
jubilee as a method of preventing a depression, while others believe in more
moderate approaches, such as direct-to-consumer stimulus checks.

Debt Jubilee (noun): When a country cancels debt and clears it from the public record.

What Might Cause a Debt Jubilee?

When debt-fueled spending is the catalyst for
stimulating the economy during hard times, concern rises over long-term
economic stability. Historically, calls for a debt jubilee have occurred when
nations have teetered on the edge of an economic depression. 

The conditions in which a debt jubilee may occur
are similar to those that would call for stimulus checks. The following
conditions may increase the likelihood of debt jubilee policies:

  • Increasing gaps in wealth
  • Sizable consumer debt
  • Mass bankruptcy
  • A public health crisis
  • Widespread job loss 
  • Sinking stocks

What Would a Debt Jubilee Look Like in America?

Countries have implemented large-scale debt relief in the past to stimulate the economy. For example, Iceland wrote off and subsidized massive amounts of mortgage debt after the country was hit particularly hard by the Great Recession in late 2008. 

Debt jubilee was an ancient practice carried out in Babylonia and Syria, and the concept of complete debt annulment isn’t necessarily feasible in modern-day America. However, some large-scale government-initiated debt relief practices in recent history are the closest equivalent we’ve seen. For example, American businesses and corporations implemented debt jubilee relief efforts such as US veteran bonuses during the Great Depression.

For a debt jubilee to happen in America today, banks would need to write off significant amounts of consumer debt—either student, credit card or mortgage debt or a combination of these—and erase it from credit reports. Because of this, many see debt jubilee as a modern method of redistributing equity and resources while fighting against monopolies and the extreme elite.

What Does a Debt Jubilee Mean for Consumers?

The goal of a debt jubilee in America would be to restore Americans’ ability to pay taxes and enjoy more disposable income by freeing them from crippling debt. A debt jubilee may also open up the conversation for what the ideal debt system looks like in America. Many are already advocating for a more just and equitable debt system, including practices such as:

  • Individual Voluntary Arrangements (IVAs): An alternative to declaring bankruptcy that involves a contractual agreement with creditors of a payment plan for unsecured debts.
  • Reduced stigmatization of bankruptcy: The view that bankruptcy is a viable option rather than a shameful one, and that sometimes outside factors are out of someone’s control.
  • Debt forgiveness for poorer countries: The refusal to exploit other nations and the ability to arrive at a mutual understanding with them to maintain peaceful relations.
Modern debt jubilee efforts may include: individual voluntary arrangements (IVAs), reduced stigmatization of bankruptcy and debt forgiveness for poorer countries.

While our expert team at Lexington Law can’t guarantee debt cancellation, we can help you take steps to get your credit in better shape. Explore our credit repair services to start your journey toward better financial health today. 


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

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