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Source: creditabsolute.com
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Source: creditabsolute.com
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.
Your credit card habits can both positively and negatively affect your overall credit health. Responsibly using your card and making timely payments will steadily improve your credit—while the opposite habits will reduce your standing over time.
Here, we’ll discuss how to use a credit card to build credit and share some credit-building tips. We’ll also explore how Lexington Law Firm can give you a clearer picture of your credit habits.
Table of contents:
Once you know the factors that influence your credit score, you’ll better understand how to build credit more effectively. When using a credit card, keep the following tips in mind.
It can’t be overstated how impactful making timely payments can be when building credit with credit cards. Paying off your card balances in full is ideal but may not always be possible due to other financial obligations. In those instances, making your minimum payment will still be beneficial for your payment history.
Credit utilization weighs your credit limit against your current account balance. Keeping your utilization below 30 or even 10 percent could steadily improve your credit, but if you can’t keep it that low, just try to get it as low as possible.
Here’s an example of credit utilization at play: if you have a credit limit of $1,000 and a current balance of $300, you’ll be at 30 percent utilization. If you lower your balance to $100, you’ll be at 10 percent utilization.
As your credit score rises, you’ll likely receive dozens of credit card offers each month. Be selective about which cards you apply for—if you’re a frequent shopper at a certain store, responsibly using your credit card can improve your credit and help you get some good rewards.
Your credit report should accurately reflect your financial activity, but there could be errors that are impacting your credit health—this happens more often than you might think. Lexington Law Firm can help look out for errors and help you address them. Our services also include lost wallet protection in case you misplace one of your credit cards.
Your activity with a credit card is interconnected with your credit score. The Fair Isaac Corporation (FICO) is a trusted credit reporting company that evaluates your credit habits based on five factors: payment history, credit utilization, age of credit, credit mix and new credit.
Responsible credit card usage can improve your credit in several ways:
Different types of credit cards can help you build credit in various ways. Here are several different kinds of credit cards that are commonly used.
If a business owner meets certain criteria, such as having an EIN or multiple years of activity, they might be able to secure a business credit card. These cards provide business owners with revolving credit that can be used for short-term purchases.
Business credit cards can affect the cardholder’s credit and their business creditworthiness. A business with great credit can be eligible for fantastic loans and better credit card offers over time.
Joint credit cards allow two people to apply at the same time and potentially open an account in both of their names. Activity with joint cards will impact both users for better or worse, so it might be best to discuss and agree on usage terms with your partner before applying.
With a joint credit card, both users will be responsible for repaying the card’s balance and maintaining a low utilization rate. If one user exceeds the joint card’s credit limit, both will see dings in their credit.
Secured credit cards require applicants to place a cash deposit when opening their account. These cards often have very flexible requirements, which makes them excellent credit cards for bad credit borrowers.
Most secured credit cards also come with low credit limits and high interest rates—largely to discourage cardholders from misusing their funds. Secured credit cards can serve as excellent starter cards and help individuals repair their credit.
Standard cards often have requirements that many college students might not meet. Student credit cards can bridge that gap. These cards normally have low or no credit requirements and might even offer rewards for strong academic performance.
Securing and responsibly using a student credit card can help you build credit early in life. When you graduate and are looking to join the workforce or pursue a postgraduate degree, your better credit can grant you access to much-needed funding.
Large commercial stores and online retailers may offer these kinds of credit cards. Retail cards can only be used exclusively for store-related purchases. However, rewards like cash back and exclusive discounts might be worth it if you frequently shop at a certain retailer.
Retail credit cards can help you build credit when used responsibly. While it may be tempting to go on a shopping spree with your card, exercising restraint (and staying within your credit limit) will positively affect your credit over time.
Payment history and credit utilization greatly impact your credit, so yes, frequently paying off your account balances is possibly the fastest way to build credit over time. Making small purchases with a credit card and swiftly paying off your balance can be an effective strategy.
Ultimately, it’s important to spend within your means and only use your credit card for purchases that you can repay.
Credit cards can be very powerful tools for improving your credit—if you know which ones best suit your needs. Lexington Law Firm can provide a credit snapshot that includes your credit score, a credit report summary and credit repair suggestions.
If you’re thinking about applying for new credit cards, getting your snapshot can help you refine your selection.
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 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.
Debt settlement lets a person pay a lump sum to gain forgiveness on the remaining debt in an account. This procedure can help you get out of debt if the financial pressure becomes too extreme, but it can also negatively impact your credit in multiple ways. We’ll explore the impact of debt settlements and share strategies to help you rebuild your credit in the aftermath.
Table of contents:
Debt settlement can hurt your credit by reflecting poorly on your loan handling habits. Payment history makes up 35 percent of your FICO® credit score, so settling a debt instead of completely repaying it can give a negative impression to creditors. Moreover, the debt settlement process may cause you to be late on payments or outright miss them.
A person’s credit profile is meant to represent their general spending habits and financial responsibility. While credit profiles aren’t perfect in this regard, they help lenders and credit card issuers decide who they will and won’t approve for funding.
Credit scores can fluctuate under the best circumstances. Even if a debt settlement case hurts your credit, rebuilding credit doesn’t have to take too long if you have a sound strategy.
The importance of payment history for your credit can’t be overstated. Regularly making payments on time after a debt settlement has been resolved displays your creditworthiness to lenders and credit bureaus. Just making the minimum payment requirements on your accounts will help you rebuild credit over time.
Credit utilization compares your account balances against your total credit limit. For example, if you have a credit limit of $1,500 and your account balances come up to $500, your credit utilization ratio would be 33.33 percent.
Maintaining low account balances will also keep your utilization rate healthy. Financial professionals recommend staying below 30 percent utilization, and consistently staying below 10 percent could help you rebuild credit more quickly.
Limiting the number of times you apply for new loans or cards is another way to quickly fix your credit. Every time you apply for new credit, a hard inquiry is made into your credit history. Soft inquiries don’t lower your credit, while hard inquiries can reduce scores by several points. Receiving too many hard inquiries all at once can hurt your credit more substantially.
Credit repair services can help you rebuild credit through various methods, such as contacting credit bureaus and addressing errors on your behalf. Lexington Law Firm’s credit repair services include assistance with credit inquiries, bureau disputes, and a personal finance manager.
Learn more about Lexington Law Firm’s tiered services to determine which plan may be right for you.
Reviewing your credit reports and identifying discrepancies can help you rebuild your credit if you address those errors. Studying your report can also give you another perspective on your financial habits and let you see if any unnecessary expenses are negatively impacting your credit history.
Most debt settlement companies will ask you not to use your credit card during the process, as new account activity can complicate your settlement. As mentioned before, debt settlement companies may also ask you not to make payments on your account for a time.
Adding more debt to an account that you can’t pay down will raise your credit utilization rate and negatively affect your credit score in tandem.
In most cases, a debt settlement will stay on your credit report for seven years. If a settlement is still appearing on your report after that time limit, you can challenge this error by contacting the relevant credit bureau (such as TransUnion®, Equifax®, or Experian®).
Writing a goodwill letter might also clear a settlement from your credit report, though this method isn’t guaranteed. If you need help writing a goodwill letter, speaking with a financial advisor can set you on the right track.
There’s a difference between learning how to rebuild credit and knowing the steps to take action. Explore Lexington Law Firm’s focus tracks to learn about alternatives to debt settlement and more strategies to rebuild credit over time.
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
What is a prepaid debit card? These cards are similar to standard debit cards, with a few exceptions. Just like standard debit cards, you can use prepaid cards to make in-person purchases at most locations that take Visa or Mastercard. In many cases, you can even use these cards to make online purchases.
Instead of depositing money into an account at your local bank, you load money directly onto a prepaid debit card. Some cards also let you set up a direct deposit so you can have the funds from your paycheck directly loaded onto your card.
You can only spend up to the amount of money you have on your card. This may help prevent hefty overdraft fees that some banks and credit unions charge. However, most prepaid debit cards charge other fees, such as monthly maintenance and transaction fees.
There are many reasons you might want to consider purchasing a prepaid debit card. For starters, prepaid cards are often more convenient and safer than carrying cash around. These cards can be a good option for those having trouble getting a standard bank account or facing excessive overdraft fees.
Because prepaid debit cards only allow you to spend the value on your card, they can help you curb your spending and gain better control of your finances. It’s important to note that prepaid debit cards don’t help build your credit. They also don’t accrue interest no matter what your balance is.
Prepaid debit cards are fairly easy to obtain. Many major retailers, such as Walmart and Target, sell these cards. Prepaid cards are also available through some banks and credit card companies. You may be required to provide proof of identification and incur a one-time activation fee.
When choosing a prepaid debit card, be sure to compare your options. Most prepaid cards charge a variety of fees, such as monthly maintenance and transaction fees. Be sure you understand all the costs involved when choosing the right prepaid debit card.
You also want to compare added features. For instance, if you want a prepaid card that allows you to have your paycheck directly deposited onto your card, make sure it offers this feature before purchasing it. Other features you may want to consider are the ability to link your bank account to your debit card so you can transfer money quickly or the ability to give a family member access to your account.
Using a prepaid debit card is pretty simple. Once you purchase the card, follow the activation steps before using it—keep in mind that you may incur a one-time activation fee. If you didn’t load money at the time of purchase, you must do so before using it.
Most prepaid cards allow you to add money by phone, online, or in person at the location you purchased the card. Depending on the type of prepaid card you purchase, you may also be able to set up a direct deposit to have your payroll check load directly on your card.
Once you have money on your card, you can make purchases at most locations that accept Visa or Mastercard, such as retail stores, restaurants, and grocery stores. You can also use ATMs to withdraw cash.
Additionally, you can use your card to pay bills or shop online. However, some cards require you to register your card before making online purchases. To register your card, you just need to follow the instructions that came with it.
Keep in mind that your purchases can’t exceed the balance on your card. For instance, if you try to purchase an item for $300 but only have $275 on your card, the transaction will be denied. The good news is that you won’t face any overdraft fees, and you can’t spend more money than you have available.
Before you purchase a prepaid debit card, it’s important to consider the advantages and disadvantages of using this card.
Reloadable prepaid debit cards have several great benefits, including:
These cards also have numerous disadvantages that you should be cautious of, including:
Before purchasing a prepaid debit card, it’s important to understand its fees and limitations. Be sure to read the fine print so you understand exactly what fees you might incur while using the card. Additionally, read through the policies to see if the card includes any deposit, withdrawal, or balance limitations that may hinder your ability to use and save funds.
Because prepaid debit cards don’t help you build credit, you may want to consider applying for a credit card instead. Start by checking your Free Credit Score to see if you might qualify for a credit-building credit card.
If your credit score is too low to qualify for a credit card, a prepaid debit card may be a good solution while you work on rebuilding your credit. Credit.com’s Extra Credit® subscription has tools that can help you take steps to build your credit and track your success.
Source: credit.com
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.
Credit mix refers to the different types of credit accounts a person has open at any given time. If your accounts are varied and include a diverse mix of loans and credit cards, they’ll positively affect your credit. However, it’s important not to take on more debt than you can handle as you work to increase your credit mix.
If you’re wondering “what is credit mix?” then this guide is for you. We’ll explain how this element impacts your credit and dispel several credit myths about credit mixes.
Credit accounts fall into two categories: installment loans and revolving debt. Installment loans refer to instances where you borrow a set amount of money and then repay your debt over time through installment payments.
Examples of installment loans include:
Revolving debt, on the other hand, refers to accounts that let you repeatedly borrow money up to a preset credit limit. Credit cards and home equity lines of credit are the most prominent examples of revolving debt.
A good credit mix will incorporate a combination of revolving debt and installment loans. Responsibly managing two to three credit cards, one auto loan and one mortgage will positively impact your credit.
Yes, which is one of the reasons why institutions like Equifax® recommend holding at least 2 different types of credit cards. For example, managing one credit card from a commercial bank and another from a retail store can steadily improve your credit.
Credit mix weighs on your credit score differently depending on which scoring model is considered. Most lenders use FICO score and VantageScore when approving people for loans—and both models have different credit score factors.
Created by the Fair Isaac Corporation (FICO), this model looks at the following five factors when calculating credit scores.
Credit mix will somewhat affect your FICO credit score, while payment history is the most significant factor.
VantageScore Solutions, LLC, created this model, which incorporates credit mix into the same category as credit age. Here’s how VantageScores are calculated:
Credit mix can moderately affect your VantageScore, though payment history is still the most important factor.
Opening a multitude of credit accounts might sound like a good idea, but this can significantly hurt your credit if these accounts are mismanaged. Instead, it’s better to gradually open new accounts that accommodate your financial situation—then commit to making timely payments on any account in your name.
Checking your credit report can help you understand your current credit mix and get a sense of what credit you might want to apply for next.
Lexington Law Firm offers tiered services to help clients with their credit needs and answer their credit questions. Get started with a free credit assessment now.
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
A fair credit score falls in the mid-lower range of the credit-scoring spectrum. With the FICO® scoring model, which ranges from 300 to 850, a fair score is 580 to 669.
Fair credit is better than poor credit but below the average credit score. While you’ll likely be able to get a credit card or loan with fair credit, you probably won’t qualify for the most favorable rates and terms.
Read on to learn how fair credit compares with other credit score ranges, the difference having good credit can make, and what you can do to build your credit.
What “fair credit” means will depend on the scoring model. With FICO, the most widely used credit scores by lenders in the U.S., fair credit is a score between 580 and 669. With VantageScore®, another popular scoring model, fair credit is a score of 601 to 660.
The fair credit range is above poor credit but below good credit, and is considered to be in the subprime score range.
Credit scores are calculated using information found in your credit reports (you have three, one from each of the major consumer credit bureaus). People typically have multiple, not just one, credit score, and these scores can vary depending on the scoring model and which of your three credit reports the scoring system analyzes. While each score may be slightly different, they typically fall into similar ranges and scoring categories, such as poor, fair, good, and excellent/exceptional.
💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.
As the name “fair” implies, this score is okay, but not great. A fair credit score isn’t the lowest category on the FICO chart — that’s the poor credit category, which runs from 300-579. But it’s definitely not the highest either. Above fair credit, there is good credit (670-739), very good credit (740-799), and exceptional credit (800-850).
With a fair credit score, lenders will likely see you as an above-average risk and, as a result, charge you more upfront fees and higher interest rates. They may also approve you for a lower loan amount or credit limit.
With fair credit, you might also have difficulty getting approved for certain financial products. For example, you might need a higher credit score to get the best rewards cards or certain types of mortgages. Landlords and property managers may also have credit score requirements. You might have to pay a larger security deposit if you have a fair credit score.
Yes, 620 is within the 580-669 range for a fair FICO score and, thus, would be considered a fair credit score. A 620 is also in the VantageScore range for fair (580 to 669).
Recommended: 8 Reasons Why Good Credit Is So Important
A credit score is a three-digit number designed to represent someone’s credit risk (the likelihood you’ll pay your bills on time). Lenders use your credit scores — along with the information in your credit reports — to help determine whether to approve you for a loan or credit line and, if so, at what rates and terms. Many landlords, utility companies, insurance companies, cell phone providers, and employers also look at credit scores.
Knowing your credit scores can help you understand your current credit position. It also provides a baseline from which you can implement change. With time and effort, you may be able to build your credit and gradually move your credit score into a higher category, possibly all the way up to exceptional.
Recommended: How Often Does Your Credit Score Update?
It’s a good idea to periodically review your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) to make sure all of the information is accurate, since errors can bring down your scores. You can get free weekly copies of your reports at AnnualCreditReport.com .
However, your credit reports will not contain your credit scores.
Fortunately, there are easy ways to get your credit scores, often for free. Many credit card companies, banks, and loan companies have started providing credit scores for their customers. It may be on your statement, or you can access it online by logging into your account.
You can also purchase credit scores directly from one of the three major credit bureaus or other provider, such as FICO. Some credit score services and credit scoring sites provide a free credit score to users. Others may provide credit scores to credit monitoring customers paying a monthly subscription fee.
Recommended: How to Check Your Credit Score for Free
Your credit scores are based on information in your credit reports, and different things can help or hurt your scores. FICO scores are based on the following five factors.
This looks at whether you’ve made your debt payments on time every month and is the most important factor in computing your FICO credit score. Even one payment made 30 days late can significantly harm your score. An account sent to collections, a foreclosure, or a bankruptcy can have even more significant and lasting consequences.
This notes the total amount you’ve borrowed, including how much of your available credit you’re currently using (called your credit utilization rate). If you’re tapping a sizable percentage of your available credit on your credit cards (such as 30% or more), for example, that can have a negative impact on your score.
Experience with credit accounts generally makes people better at managing debt (research bears this out). As a result, lenders generally see borrowers with a longer credit history (i.e., older accounts) more favorably than those that are new to credit. All things being equal, the longer your credit history, the higher your credit score is likely to be.
This looks at how many different types of debt you are managing, such as revolving debt (e.g., credit cards and credit lines) and installment debt (such as personal loans, auto loans, and mortgages). The ability to successfully manage multiple debts and different credit types tends to benefit your credit scores.
Research shows that taking on new debt increases a person’s risk of falling behind on their old debts. As a result, credit scoring systems can lower your score a small amount after a hard credit inquiry (which occurs when you apply for a new loan or credit card). The decrease is small, typically less than five points per inquiry, and temporary — it generally only lasts a few months.
While you may still be able to qualify for loans with fair credit, building your credit can help you get better rates and terms. Here are some moves that may help.
• Pay your bills on time. Having a long track record of on-time payments on your credit card and loan balances can help build a positive payment history. Do your best to never miss a payment, since this can result in a negative mark on your credit reports.
• Pay down credit card balances. If you’re carrying a large balance on one or more credit cards, it can be helpful to pay down that balance. This will lower your credit utilization rate.
• Consider a secured credit card. If you’re new to credit or have a fair or low credit score, you may be able to build your credit by opening a secured credit card. These cards require you to pay a security deposit up front, which makes them easier to qualify for. Using a secured card responsibly can add positive payment information into your credit reports.
• Monitor your credit. It’s a good idea to closely examine the information in your three credit reports to make sure it’s all accurate. Any errors can drag down your score. If you see any inaccuracies, you’ll want to reach out to the lender reporting the information. You can also dispute errors on your credit report with the credit bureaus.
• Limit hard credit inquiries. Opening too many new credit accounts within a short period of time could hurt your scores because credit scoring formulas take recent credit inquiries into account. When shopping rates, be sure that a lender will only run a soft credit check (which won’t impact your scores).
Building your credit takes time and diligence, but can be well worth the effort, since our scores impact so many different parts of our lives.
Credit scores are used by lenders to gauge each consumer’s creditworthiness and determine whether to approve their applications for loans. A higher score makes you more likely to qualify for mortgages, auto loans, and different types of personal loans. It also helps you qualify for more favorable lending rates and terms.
Credit card issuers typically reserve cards with lower annual percentage rates (APRs), more enticing rewards, and higher credit limits for applicants who have higher credit scores. A fair credit score may qualify you for a credit card with a high APR and little or no perks. Improving your credit score could potentially give you the boost you need to qualify for a better credit card.
Just found your dream apartment? A fair credit score could mean a higher security deposit than if you had a good or better credit score. With a poor or fair credit score, you may also be asked to pay security deposits for cell phones or basic utilities like electricity.
A fair or poor credit score can even limit which housing options are available to you in the first place. Some landlords and property management companies require renters to clear a minimum credit bar to qualify.
Recommended: Typical Personal Loan Requirements Needed for Approval
It’s possible to get a personal loan with fair credit (or a FICO score between 580 and 669) but your choices will likely be limited.
Personal loan lenders use credit scores to gauge the risk of default, and a fair credit score often indicates you’ve had some issues with credit in the past. In many cases, borrowers with fair credit may be offered personal loans with higher rates, steeper fees, shorter repayment periods, and lower loan limits than those offered to borrowers with good to exceptional credit.
Although some lenders offer fair credit loans, you’ll likely need to do some searching to find a lender that will give you competitive rates and terms.
💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.
Having a fair credit score is better than having a poor credit score and doesn’t necessarily mean you won’t qualify for any type of credit. However, the rates and terms you’ll be offered may not be as favorable as those someone with good or better scores can get. With time and effort, however, you can move up the credit scoring ladder. If you work on building your credit score until you have good or better credit, you’ll gain access to credit cards and loans with lower interest rates and more perks.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.
A fair credit score is neither good nor bad, it’s just okay. FICO credit scores range from 300 to 850 and a fair score is 580 to 669. It’s better than a poor credit score but below the average credit score.
According to the FICO scoring model, which ranges from 300 to 850, a fair credit score is one that falls between 580 and 669. It’s one step up from a poor credit rating but below good, very good, and exceptional.
Yes, a 620 credit score is considered to be in the fair range. According to the FICO scoring model, which ranges from 300 to 850, a fair credit score is one that falls between 580 and 669.
Photo credit: iStock/Ivan Pantic
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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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Source: sofi.com
According to the J.D. Power and Associates 2007 Primary Mortgage Origination Study released today, most homeowners have not been impacted negatively by the current mortgage crisis, and overall satisfaction has remained stable since 2006.
“While it’s true that borrowers with weaker credit and those seeking larger ‘jumbo’ loans experience longer approval times and requests for more documentation, satisfaction has remained steady among the 75 percent of mainstream borrowers with good credit applying for moderately sized loans,” said Tim Ryan, senior director of the mortgage practice at J.D. Power and Associates.
Wachovia was the highest ranked mortgage lender in terms of satisfaction, receiving a score of 827 out of a possible 1,000 points, particularly for its improvement within the closing process, while SunTrust came in a close second with 818, and Bank of America rounded out the top three with 760 points.
The study, based on responses from 4,378 consumers who originated new mortgages between September 2006 and August 2007, measures customer satisfaction with four key factors of the loan origination process, including application approval, interaction with the loan representative, closing, and problem resolution.
Interestingly, J.D. Power suggested working directly with a mortgage lender instead of using a mortgage broker or an online service, saying it would lead to a more positive experience with fewer problems.
“The percentage of borrowers working directly with their lender instead of through a third party has increased, which has helped maintain the stability of overall satisfaction since 2006,” said Ryan. “This has also contributed to the average borrower experiencing faster approval and closing times.”
It’s the latest in a series of blows against mortgage brokers who have received a good share of the blame for the current mortgage mess.
Here are the rankings of mortgage lenders in terms of satisfaction, based on a 1,000 point scale (Industry Average 750):
Wachovia – 827
SunTrust Mortgage – 818
Bank of America – 760
National City Mortgage – 759
CitiMortgage/Citibank – 753
Chase – 752
Wells Fargo – 749
Countrywide Home Loans – 745
GMAC Mortgage – 744
ABN AMRO Mortgage – 740
American Home Mortgage Corp. – 736
Washington Mutual – 733
First Franklin – 595
Source: thetruthaboutmortgage.com
Debt consolidation loans work by giving you access to a lump sum of money you use to pay off your unsecured debts, like credit cards, in one fell swoop. You’re then left with only one payment on your new debt consolidation loan.
Debt consolidation loans are a smart way to pay off debt if you can qualify for a lower annual percentage rate compared to the average rate across your existing debts. This lower rate means you’ll save money on interest, and you’ll likely get out of debt faster.
Debt consolidation loans also have fixed rates and terms, so you’ll pay the same amount every month, which makes the payment easier to budget for than revolving debts like credit cards. Plus, you’ll know exactly what day you’ll be debt-free, which can be especially motivating.
You can find debt consolidation loans at banks, credit unions and online lenders.
Banks typically offer the lowest interest rates on debt consolidation loans, but you may need good or excellent credit (a score of 690 or higher) to qualify. If you already have a relationship with a bank, it’s worth asking what their loan options and qualification criteria are before considering other lenders.
Credit unions also offer lower-rate loans and may be more lenient to borrowers with fair or bad credit (a score of 689 or lower). You’ll need to join the credit union before applying for a loan, but the membership process is typically quick and affordable. You can usually fill out the application online, and you may need to make an initial deposit of $5 to $25.
Online loans are available to borrowers across the credit spectrum, and they’re often the most convenient option. Some online lenders can make immediate approval decisions and fund loans the same or next day. Many also let you pre-qualify, which means you can check your potential loan terms without hurting your credit score. Since online loans can have a higher cost of borrowing, it’s best to pre-qualify with multiple lenders to compare rates.
You qualify for a debt consolidation loan based on the information in your application. Lenders typically look at three core factors: credit score, credit history and debt-to-income ratio.
Some lenders may publish minimum credit score or minimum credit history requirements to apply. Most like to see a good credit score and two to three years of credit history that shows responsible repayment behavior.
You’ll also need to list your income. This gives lenders an idea of your debt-to-income ratio, which divides your total monthly debt payments by your gross monthly income, and helps lenders assess your ability to repay a debt consolidation loan.
A debt consolidation loan should help build your credit score, as long as you use the loan to successfully pay off your debts and you pay back the new loan on time.
You’ll also undergo a hard credit check when you apply, which knocks a few points off your score, but this is temporary. Any missed payments on the loan can hurt your score.
The first step to getting a debt consolidation loan is knowing how much debt you have. Make a list of unsecured debts you’d like to consolidate, since this is the loan amount you’ll need to apply for.
You can also calculate the average annual percentage rate across your current debts using a debt consolidation calculator. You’ll want to get a debt consolidation loan with a lower rate in order to save money on interest and pay off the debt faster.
Not all lenders offer pre-qualification, so take advantage of those that do. This typically involves filling out a short application with basic personal information, including your Social Security number. The lender will run a soft credit check, which won’t hurt your credit score, and then display potential loan offers.
If your lender doesn’t offer pre-qualification, it doesn’t hurt to call and see what information they can tell you over the phone about applicant requirements, including minimum credit score.
Once you’ve pre-qualified or decided on a lender, it’s time to fill out your loan application.
A loan application asks for personal information — think name, birthdate, address and contact details — as well as information about the loan you want, including loan purpose, desired loan amount and repayment term. You may need to show proof of identity, address, employment and income. Once you submit your application, you’ll undergo a hard credit check.
Most applications are available online, but a smaller bank or credit union may ask you to visit a branch.
You can typically expect to hear back from the lender within a few days.
Once approved, funding time is typically within a week, though some lenders may offer same- or next-day funding. Lenders can deposit the loan funds in your bank account, but some may offer to send the money directly to your creditors on your behalf, saving you that step.
This is a convenient way to pay off your debts, but make sure to check your accounts to confirm your balances are $0. If the lender doesn’t offer direct payment, use the loan funds to pay off your debts yourself.
Once your debts are paid off, you’re left with only your new loan payment. Your first payment is typically due one month after funding and will be due every month until the loan is paid off. Make sure you add this payment to your budget. Missing a loan payment can result in costly late fees and hurt your credit score.
Debt consolidation loans aren’t the right choice for everyone, and they can be risky, particularly if you’re someone who struggles to stay out of debt. For example, if you use a debt consolidation loan to pay off your credit cards, but then start using your credit cards again, you’ll have even more debt than you started with. This can hurt your credit score and leave you struggling to repay your loan.
Terms on debt consolidation loans can also be long — sometimes up to seven years, depending on the lender. If you have good or excellent credit, you may want to consider other types of consolidation, like balance transfer cards, which come with 0% promotional periods. This can help you pay off debt faster, since there’s no interest.
If you can’t qualify for a balance transfer card or for a low enough rate on a debt consolidation loan, it may be best to choose a different debt payoff method.
Source: nerdwallet.com
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A personal loan enables you to borrow a lump sum of money and repay it in fixed installments. While personal loans can be a useful tool, there are important factors to consider before taking one out.
According to recent statistics, millions of Americans have personal loan debt, with the average loan amount being $16,931. Personal loans can be used for various reasons, whether for debt consolidation, medical expenses, or home improvements. But how do you know if a personal loan is right for you?
Everyone’s financial situation is unique, so be sure to understand what to know about personal loans before you determine if it’s the best way to go. Here are seven things you should know before taking out a personal loan.
A personal loan allows you to borrow money and repay it in fixed installments. You can get a personal loan from banks, credit unions, or online lenders. Once you choose a lender, you’ll need to submit a formal application. When filling out the application, you’ll likely need to include identification such as your Social Security card, your address, and proof of income.
If your application is approved by the lender, you will receive a lump sum of money that you will repay in monthly payments plus interest.
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With increasing amounts of credit card debt, personal loans are becoming increasingly popular. Although personal loans are a common solution for debt consolidation, that doesn’t mean it’s right for you. Here are a few indicators that debt consolidation through a personal loan is not the best solution, and you’d be better off seeking debt counseling or another financial avenue:
Consider these statements and compare current debt costs to the costs of a personal loan to determine if debt consolidation is the best option. Also, note that not all personal loan providers are the best for debt consolidation. Some lenders specialize in debt consolidation, whereas others don’t have good enough offerings to make debt consolidation with their loans worth it.
Most personal loans are unsecured loans. This means you do not have to offer any collateral to receive the loan. Types of collateral include owned property, a house, or a car—anything the lender can use to pay back the money owed if you default on the loan.
However, not all personal loans are unsecured, and some lenders offer secured loans that require collateral. For example, if you have little to no credit or a poor credit score, lenders may only offer you a secured loan because your credit report isn’t a good enough indicator that you will repay the loan. If you don’t mind putting up collateral and intend to pay back the loan in full, secured loans don’t have to be bad.
The annual percentage rate (APR) combines the personal loan interest rate and any additional loan fees, and it fluctuates based on the personal loan provider. APRs typically range between around 5% and 36%, and this is partly determined by your credit history.
Popular personal loan providers, such as Best Egg and Achieve, are known for low APRs, especially if you have above-average credit. However, if you have a good credit score and a loan provider is still requiring a high APR, you might want to consider looking into other options for a better APR. A bad APR could cost you hundreds of unnecessary dollars over the course of the loan.
A hard inquiry is when a lender or creditor pulls your credit for the purpose of offering you a loan. This will ding your credit a minimal amount. The hard inquiry will remain on your credit report for up to two years, but it will likely stop affecting your score after one year. Plus, if you repay your loan on time and take care of your credit in the meantime, your credit will bounce back.
It’s also important to note that you should keep your loan shopping within a specific time frame. In other words, only apply for personal loans for two weeks to 45 days at the most. If it takes any longer, you might receive multiple dings on your credit report rather than just one.
Personal loans can range between $2,000 to $50,000, and some lenders, such as SoFi, offer as much as $100,000 loans. With that in mind, you may qualify for a large amount, but that doesn’t necessarily mean you should take the highest offer. Consult your finances and budget before deciding what personal loan amount to accept, because if you accept one for more money than you can afford, you will likely regret this.
Most personal loan providers require at least a 640 credit score. However, some companies, such as Achieve and Upstart, offer loans to 620 credit scores and up. If you make your personal loan payments on time and responsibly handle your other credit responsibilities, a personal loan can improve your credit in the long run and immensely help your credit card utilization rate if you choose to use it for debt consolidation.
Before you determine if a personal loan is right for you, pull your credit first. With Credit.com, you can check your credit score for free.
Source: credit.com
Advertiser Disclosure: Credit.com has partnered with CardRatings for our coverage of credit card products. Credit.com and CardRatings may receive a commission from card issuers.
Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.
A credit card’s interest rate is obviously one of its most important factors. Some credit cards offer an ongoing APR that’s lower than average, while others offer a 0% interest rate for an introductory period after opening your account.
If you’re in the market for a low APR credit card, we’ve compiled a list of some of our favorites below. All of the cards in this list at least have a 0% introductory offer and have been ordered from least to greatest ongoing APR at the time of writing.
Note: You’ll notice that most of these credit cards have a variable ongoing APR. Ultimately your interest rate will be determined by your unique credit.
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credit score, you’ll also want to know what’s on your credit reports before you apply. When you apply for a credit card, most issuers will check your creditworthiness before approving you. This is what’s known as a hard inquiry (as opposed to a soft inquiry, when you check your own credit). Multiple hard inquiries within a short amount of time – like if you get rejected for a card and try to apply for others right away – can hurt your credit. Your best bet is to apply for a card only if you’re confident you’ll be approved.
Heads up: the best low APR credit card offers tend to require good credit. Many of these lenders want to see a credit score of at least 650 or higher as well as an income and debt situation that ensures you can make your payments.
APR is one thing, but you’ll also want to carefully consider the card’s other features. For example, if you travel a lot, you might be in the market for a travel rewards credit card with a 0% intro APR offer to spread out the cost of your trip over multiple interest-free payments.
Alternatively, if you like the idea of earning cash back on daily purchases, you might be more interested in a card that offers high amounts of cash back rewards on categories such as groceries or gas.
If you choose a card that offers a 0% intro APR period, make sure you also consider what the ongoing APR will be once the intro offer is over. You’ll also want to carefully consider what other fees the card comes with, including any regular usage fees or penalty fees. Depending on how you use the card, you could end up paying more in fees than what you save in interest.
If you haven’t checked your credit score in a while, or you’re wondering what may be on your credit reports, you can also take a quick look at your credit by signing up for a free account with Credit.com.
Advertiser Disclosure: Credit.com has partnered with CardRatings for our coverage of credit card products. Credit.com and CardRatings may receive a commission from card issuers.
Source: credit.com