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When you're sitting in the office of a mortgage lender or discussing with the local auto dealer the prospect of financing a new car, the words "We'll need to do a credit check" can either inspire you with confidence or leave you with sweaty palms, a racing heartbeat, and a knotted-up stomach. Calling up your credit score can have many ramifications. When you're financing a large purchase, when you are setting up installment payments, or when you are trying to apply for a credit card, line of credit or another retail credit card, your credit score and history will be strongly considered. A low score will make it more difficult to qualify for the size of loan you desire and will make the terms and rates more stringent and less in your favor. On the other hand, if you have a higher credit score, your worries and fears can be minimized, as your chances of securing the loan you want are greatly enhanced. If you currently have a less-than-ideal credit score, all hope is not lost. Rest assured that it is possible to raise your score and improve it. All that is needed is a little time, discipline, and hard work. Here are a few specific ways in which you can raise and improve your credit score: Make payments on time It may seem obvious, but this practice is critically important if you wish to keep your score on the high side or raise it up. If you do make your credit card, installment, auto loan, and mortgage payments on time, continue to do so. If you have struggled in the past with making your payments by the due date, make the commitment and the necessary changes in your finances and spending habits to ensure that you make the payments on or before the monthly due date. Late or missed payments will not only incur late fees, but they will negatively impact your score. When it comes to mortgage loans, payments more than 30 days late will cause a hit on your credit score. Keep credit card balances down and credit utilization ratio low Credit reporting agencies take into account a ratio between your current balances and the credit limit. Jeff Proctor, a personal finance writer over at DollarSprout.com, explains your credit utilization ratio "is how much credit you are using in relation to your maximum borrowing capability—and it’s the second most important factor in determining your credit score. In other words, if the maximum combined limit on all of your credit cards is $15,000 and you have $5,000 in credit card debt, your credit utilization ratio is 33%." Proctor continues, "Ideally, your credit utilization ratio should remain below 30%, and lower is even better. By aggressively paying off your existing debts, you will not only improve your credit score, but you will improve your ultimate financial situation (which is more important than your score, anyway)." Avoid closing credit cards Avoid closing credit card accounts, as that will lower your credit score. Nathan Grant, a Credit Industry Analyst with Credit Card Insider, suggests keeping credit card accounts open "even if you don’t use them and they are all paid off. The age of your accounts is another large factor in determining your credit score, so as long as you don’t have to pay an annual fee and you’re responsible enough to not rack up additional debt while keeping the card open," keep your credit card accounts open. Grant also notes, "Keeping a card open that is carrying no balance has a two-fold benefit. In addition to aging your accounts, it will also widen the gap between your total balances and your total available credit." Request a credit limit increase Increasing your credit limit has the ability to improve your credit score if you keep your credit utilization ratio low and make your payments on time. Joseph Allen, VP Mortgage Lending Officer at Quontic, gives this advice when looking to increase your credit limit: "When increasing credit limit, it’s important to know that most creditors will only allow one increase per year. Many creditors do not require a credit check in order to approve a credit line increase, however, some do. The best time to request a credit line increase is when you have little to no balance on your credit card. If your card is maxed out, then denial is more likely." Check your credit report You can request a credit report at no cost. The report will show all your current debts as well as any delinquencies or negative aspects of your credit. It's possible that some of these may be in error, so checking your reporting to find any inconsistencies or inaccuracies is vital. Manage credit cards with responsibility and prudence It's not necessarily a bad thing to have a credit card, but you must be vigilant in using it wisely. Plan to use credit cards for emergencies only. Or, if you decide to use it for incidental purchases, be dedicated to paying off the balance each month. Become an authorized user on a credit card You don't have to be the primary credit cardholder to get credit score benefits. Travis Holoway, CEO and co-founder of SoLo Funds, a mobile lending exchange connecting lenders and borrowers for the purpose of providing more affordable access to loans, recommends becoming an authorized user on a credit card. "This is an often overlooked non-traditional way to build credit but the major benefit is that a person with little or no credit can join ‘credit forces’ with someone that has more established credit. As payments are made to the credit card account, they will positively impact everyone associated and will help someone with no credit start to build indirectly." Practice responsible spending habits If you can't keep to a budget and spend responsibly, your financial situation will likely suffer and as a result, so will your credit score. Healthy spending habits typically equate to a good credit score, so make budgeting a priority. Don't spend more than you can afford and save when possible. Experienced in being frugal with her funds, Carol Gee explains an experience when she had to help repair her husband's credit after he wasn't budgeting correctly while overseas for the military. "He got behind on purchases I didn't know he had made, and his credit took a hit (I was the bill payer in our family). So when he returned and we received orders to a new base, I put a couple of our new utilities in his name and paid them on time monthly as usual. A year or so later when I checked both our credit scores, his was four points higher than mine." Gee's experience demonstrates that even if there is a time when you aren't budgeting correctly, your credit score isn't ruined forever. Just be sure to change course as soon as possible and to get back on track with your bills, and your credit score will slowly improve. Richard Best, a writer for dontpayfull.com (a savings, discount, and coupon aggregator that also provides tips and education for saving money and managing personal finances) with over 30 years of experience in financial services, echoes Carol's thoughts in noting that your payment history is one of the five most important factors that affect your credit score. Best explains that "payment history, which includes your on-time or delinquent payment record, accounts for 35 percent of your score." Do some credit house cleaning Best also suggests what he calls 'credit house cleaning.' Best explains, "The vast majority of credit reports contain errors—misapplied payments, incorrect credit limits, even wrong Social Security numbers—which can drag histories of other people into your own. By law, the credit bureaus must correct errors." Best concluded by saying that if you catch these inaccuracies, that "you can see your score improve instantly." Contact creditors or meet with credit counselors If you are behind on payments or are having difficulty making ends meet, speak with your creditors. In some cases, the lenders may be willing to renegotiate the terms and rates of your loan, and they may be willing to set up a plan with you to help you meet your obligations. You may also receive education on how to better manage your money and how to set up a plan for getting back on track. Your score will not automatically jump up to optimal levels, but abiding by these simple guidelines will improve your situation over time. A credit score will plummet if you fail to pay debts by the due dates and if you open several different lines of credit and assume several forms of debt. Also, when your credit cards are maxed out, your score will fall as well. *Josh McFadden also contributed to this piece.
Your credit score: That little three-digit number that is a key determining factor in so many important decisions, purchases and investments. You hear all the time the necessity of having good credit and of the dangers of having bad credit. Financial experts, mortgage professionals and economists alike preach against the dangers of bad credit and how low scores can hinder your opportunities and leave you shackled with debts and other restrictive obligations. So where is your credit score? In the imperfect world in which we leave, not everyone is going to have a glowing credit report. Just as all people come in different size and shapes, with varying personalities, backgrounds and experiences, so, too, will people be saddled with credit scores all over the board. Different credit scores and score ranges will qualify one for different levels of credit as well as various rates, terms and types of loans. For example, if you have diligently paid your installment loans, car payments and mortgage on time, and if you have kept credit card balances to a minimum, you likely have an excellent score in the range of 720 and above. This will enable you to receive favorable loan terms and qualify for higher amounts of credit. What about an average credit score? The typical American has a FICO score somewhere in the neighborhood of 690, which, according to the Fair Isaac Corp. teeters on the edge of average and good credit. The same institution reports that average credit-on the FICO scale-lies somewhere between 630 and 689. These numbers are based on a range from 300 to 850. Average credit is certainly nothing to be worried about, but an average score (particularly one on the lower end of the spectrum) does come with limitations, and it certainly would be advantageous to raise the score to the good or excellent level. Average scores can also vary from state to state. For example, it appears as though the Southern states seem to produce lower scores among its residents. Meanwhile, Minnesota has the highest average credit score at around 718. Other states with high average scores are North Dakota, South Dakota, Vermont, New Hampshire, Massachusetts and Montana. Be aware that there are definite levels within an average score. For instance, a person with a 635 score will have more going against him or her than a person with a 680 score. Though both are considered average, lenders will be more inclined to look at the score itself rather than the status of it being average, good, poor or excellent. Have more personal loan questions? Find answers on our Personal Loans FAQ page.
Back in March of 2015, personal finance company Springleaf Holdings, Inc. announced it would be acquiring personal loans provider OneMain Financial from Citigroup for $4.25 billion. This merger, to be completed by September 30th, 2015, will drastically increase Springleaf's footprint on the personal loans market while simultaneously promoting better internal management of its now more than 1,900 branches nationwide. Not surprisingly, existing customers of both companies have questions and even concerns about what this merger will mean for them. Fortunately, we have the facts to help put these customers' minds at ease. Increased Availability First and foremost, the Springleaf-OneMain merger signifies a noteworthy increase in nationwide availability of these personal finance and personal loans services. According to one projection, 88% of US citizens will now reside within 25 miles of a Springleaf branch. Springleaf is also doubling its customer base from 1.2 million to 2.5 million, and more than doubling its number of branches from 830 to nearly 2,000. Increased Transparency If this acquisition proves successful, Springleaf could become the nation's largest subprime lender. Consequently, the Justice Department's Antitrust Division is reviewing the merger to ensure it is in keeping with government regulations. According to The Wall Street Journal, representatives from both Springleaf and OneMain have met with the Justice Department and submitted relevant information voluntarily. Springleaf CEO Jay Levine maintains that this merger is ultimately "pro-consumer," and an opportunity to create some consistency in a "highly fragmented and competitive" market. As both Springleaf and OneMain have been very forthcoming with their plans and intentions so far, customers can expect these businesses to continue to do so as the merger comes to fruition. Consistent Branding According to a statement released by Springleaf, while the resources of Springleaf and OneMain will be pooled together, the two companies will maintain their individual brands until mid-2016, meaning that current OneMain customers will still be doing business with OneMain associates before gradually being introduced to the Springleaf brand. In addition to this transition, Springleaf will also consolidate approximately 200 branches by mid-2016, in keeping with government regulations. Who is OneMain? Originally founded as Commerical Credit in 1912, OneMain Financial is one of the leading personal loans providers in the nation, with over 1,100 branches spanning 43 states. In the 1940s, experienced major expansion, opening several stores throughout the country, and over the next 50 years, the firm's family of companies grew to include Primerica Financial and the Travelers companies. By 1998, Traverlers Group's parent company was acquired by Citicorp to create Citigroup, and subsequently CitiFinancial. From 1999 to 2004, CitiFinancial acquired two other consumer finance companies, including The Associates and Washington Mutual. Finally, in 2011, CitiFinancial changed its name to OneMain Financial to distinguish its specific personal lending services from the vast number of properties it has acquired over the past near-century.
Many graduates are finding themselves deep in their student loans and are searching for ways to help pay them off quicker. One option they are discovering is to use small personal loans to payoff and save on high-interest loans. The personal loan is a way to pay off the higher interest loans under new and more favorable conditions. Huffingtonpost has come up with thes following advantages and disadvantages: Advantages You may have access to a lower fixed rate loan by using a personal loan. Personal loans usually have shorter payoff periods if your goal is to pay off your loans as fast as possible. Your student loan can be combined into one convenient payment. You can release any cosigners you have on your student loans. If you qualify for the personal loan on your own, the person who cosigned for your student loans will not be obligated on your new loan. Unlike most student loans, a personal loan is dischargeable in bankruptcy Disadvantages Could lose the benefits of forbearance and deferment options on federal loans Most lenders have a limit on loan amounts for personal loans and if you have new credit a lender may not feel like you have sufficient credit history to warrant a high loan amount No tax benefits on a personal loan A personal loan could be a great option to help pay off your student loans. There are lenders that offer personal loans just for that purpose. Find out all your options of how to repay your loans and discover which option is best for you.
Payday loans are often frowned upon as a solution to help with finances until your next paycheck. Payday loans are designed to be about the size of the borrower's paycheck. The loan is usually due in two to four weeks after the loan is dispersed. Where payday loans can prove especially damaging is the extremely high interest rate. Currently, the rough average of payday loans is somewhere around 400% ARP, with many going above 1000% APR. Payday loans may be the right solution for some who need a cash advance, but many continue to defer payment which can increase the interest astronomically. Take a look at this example. On a payday loan, if you were to borrow $1,000 for one month, you would have to pay back $1,333.33. The total interest for one month would be $333.33. Now imagine after the initial month, that the borrower decided to keep the loan for another month. The total interest would be now be $777.63. After only two months, the interest owed is nearly 80% of the loan amount. This process continues to spiral out of control making it nearly impossible to catch up. By the third month the total interest owed is over 130% of the initial loan amount. Although payday loans are not designed to span multiple months, it can be a very hard loan to tackle and becomes a financial burden. Personal loans are a much more viable option to tackle debt, finish a home project, pay off credit cards, pay off student loans, etc. with lower interest rates than most credit cards. With the high interest of credit cards, consumers are starting to look elsewhere to the ordinary credit solution. According to CreditCards.com, the average American household carries nearly $15,910 in credit card debt, of those that have a credit card. Consolidation and installment loans have helped personal loans emerge as a relatively new solution to help consumers get rid of their debt at a much lower interest rate. Best Egg shares the following example of why personal loans are a better choice to get to get out debt and better your financial situation. If a consumer carried two credit cards with $10,000 on each card with rates of 14% and 18% APR, the total interest paid in 28 years (minimum payments) would be over $25,000. Here is where personal loans come in. The same consumer could apply for a personal loan in the amount of $20,000 for three years with a 5.99% APR would result in interest totaling to $1,901. The savings is over $23,000 in interest paid. Many personal loan companies aim to help consumers get out of debt at a much lower rate than credit cards. While both payday loans and personal loans are different in nature, personal loans do not carry the danger that payday loans can present. In fact, personal loans are sometimes the best option to better your long term financial situation.