What Everyone Should Know About the New VantageScore 4.0 Credit Score

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In the world of consumer credit reporting and credit scoring moves at glacial speed. Every few years credit scoring systems are rebuilt or, more formally, redeveloped.  But, it’s rare that the newer versions of credit scoring systems are meaningfully different than their predecessors.

However, today VantageScore Solutions announced the release of the 4th generation of their VantageScore credit score which will become available from the three credit reporting agencies in the Fall of 2017, and it’s a game changer.

What is the VantageScore Credit Score

VantageScore Solutions was created by the three credit reporting agencies in 2006. The VantageScore credit score is a tri-bureau credit scoring model, meaning it is available for purchase and use from all three of the credit reporting agencies. The score is scaled 300 to 850, and the higher the score the better you look to lenders. According to VantageScore some 8 billion of their scores were used during the 12-month period between July 2015 and June 2016.

How is VantageScore 4.0 Different Than Prior Versions

VantageScore 4.0 is the only credit scoring system that considers your “trended” credit data.

What trended data says about the consumer is whether they’re paying their credit card balances in full each month, or if they’re just paying a small amount and revolving some or most of the balances to the next month. In the older form of credit reporting, prior to trended data, there was no way to distinguish between someone who paid in full each month from someone who paid a small amount and rolled the remaining unpaid balance to the next month.

Several years ago the credit reporting agencies began maintaining and reporting the historical balances and payments made on your credit card accounts. So rather than just reporting what your balance was last month, all three credit bureaus now report the historical balances and the amount you paid going back 24 months. This information is being called “Trended Data.”  You can see your trended data by looking at your credit reports via www.annualcreditreport.com.

Why does trending data matter?

In short, people who do not pay their cards in full each month are riskier than people who do pay them off in full each month.

That’s not anecdotal. TransUnion performed an analysis comparing the risk between transactors and revolvers and the results were staggering. People who do NOT pay their cards off in full each month are 3 to 5 times riskier than people who do pay in full each month. But until VantageScore 4.0, there was no difference in credit scores for someone pays in full each month versus not doing so. That’s why this is a big deal for lenders…it’s a materially better scoring model.

When Will Lenders Start Using the New Score?

This is the million dollar question…when? Converting to a new credit score is expensive and time consuming, and not mandatory.  Because of that, the industry tends to take a very long time fully adopting new scoring systems. Even FICO 9, the most current version of FICO’s credit score, doesn’t have a critical mass of users and it has been commercially available since late 2014. But, the features of VantageScore 4.0 are very compelling so it’s reasonable to expect lenders to be very interested as soon as the model goes live at the credit bureaus.

Having said that, VantageScore has partnerships with a variety of websites, like Credit Karma and Credit Sesame, that give their scores away to the sites’ registered users. Converting to newer score version is much easier for these websites because they don’t have the same barriers that lenders have. VantageScore 4.0 will likely be live and available from one or more of these websites not long after it goes live in the Fall of 2017.

What does this mean for you?

  1. It will become more important to pay your bill in full each month.

For you, this new model underscores the importance of paying your card in full each month. The average interest rate on a credit card is about 16% so it’s expensive to revolve balances. Notwithstanding the fact that you’re paying interest on the unpaid balance, now by not paying your balance in full your VantageScore 4.0 score is likely to be lower because you’re a riskier consumer. Conversely, those of you who do make it a practice to pay your cards in full each month, your VantageScore 4.0 score is likely to be higher because you’re a less risky consumer…and you’re not paying interest.

  1. Liens and judgments won’t hurt your score quite as much.

On or about July 1, 2017 the credit reporting agencies will remove most of the judgments and about ½ of the tax liens from credit reports. VantageScore 4.0 has been engineered to be less reliant on liens and judgments because, not surprisingly, there will be considerably fewer incidents where those public records find their way to credit reports. This isn’t really a big deal for consumers but it is a very big deal for lenders that will rely on the new score.

  1. Medical collections less than six months old won’t hurt your score at all.

Further, VantageScore 4.0 will ignore medical collections that are less than six months old, as in they won’t hurt your score at all. And the credit bureaus, as part of the NCAP, will remove medical collections that are paid or are being paid by an insurance company. The hypothesis, which makes perfect sense, is to avoid any unfair score impact caused by the inefficient insurance claim process. And for those medical collections that are older than six months and are not paid by insurance, which will remain on credit reports, VantageScore 4.0 will discount them so they don’t have as much of a negative impact as non-medical collections.

The Bottom Line: The VantageScore 4.0 is better for consumers and better for lenders.

The changes that were made benefit consumers who pay their cards off each month, and/or have medical collections. The changes benefit lenders because the score is considerably more powerful because of the consideration of the trended data information. It’s rare that a new scoring system is a true win-win for consumers and lenders…and VantageScore 4.0 is just that.

The post What Everyone Should Know About the New VantageScore 4.0 Credit Score appeared first on MagnifyMoney.

Parents’ 10 Dream Schools for Their Kids (& the 10 Colleges Students Actually Love)

Spoiler: Parents and kids actually agree on their top choice.

Image: fstop123 

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These Are the Areas Where It Costs the Most to Retire

How much will you need to retire? $500,000? $1 million? $2 million? There’s no easy answer. Some people won’t be able to enjoy their dream retirement without millions of dollars in the bank. Others will try to get by with $100,000. It depends on your lifestyle.

It also depends on where you live, according to data from the Employee Benefits Research Institute. Many retirement-savings recommendations are based on national benchmarks, noted the authors of the report on geographic variations in spending in older households. But because there can be huge differences in how much people in different parts of the country have to pay for housing, health care and other necessities, it’s probably more useful for those who are planning for retirement to consider how much people in their region spend.

Nationwide, the average household with people between the ages of 65 and 74 spent $45,633 per year, including nearly $21,000 on housing costs, $4,300 annually on health care and $4,700 on food. (Data on spending came from the University of Michigan’s long-running Health and Retirement Study.) As people age, overall expenses decline and a greater share of the typical household’s budget goes to housing and health care, while spending on travel and entertainment falls. (The survey didn’t include people who were living in nursing homes or other care facilities.)

But when the Employee Benefits Research Institute’s authors broke down the data by Census division, they found big differences, with retirees in the most expensive regions spending $15,000 per year or more than those in cheaper states.

Where is it cheapest to retire? Let’s take a quick look to find out how much the average retiree spends in your part of the country.

Average spending is for households with residents ages 65 to 74, unless otherwise noted.

9. West South Central

Average spending: $28,540

Younger retirees in Texas, Oklahoma, Arkansas and Louisiana spent less than retirees in any other part of the U.S. At $11,742 per year on average, their housing costs are lower than anywhere else in the country. (Go here to see how much house you can afford.) They also spent less on health care. But unlike most regions of the country, where retiree spending falls over time, people in the West South Central region spend more as they get older. By the time people are between the ages of 75 and 84, they’re spending $33,257 per year, in part because of a jump in health care spending to $2,600 per year.

8. East South Central

Average spending: $29,140

Retirees in the East South Central region (which includes Mississippi, Alabama, Tennessee and Kentucky) have the second-lowest spending in the country. They also have the biggest difference in spending between pre-retirees (those ages 50 to 64) and people ages 64 to 74, with annual expenditures falling from $42,261 annually to a little less than $30,000. Downsizing might be the main reason. The older survey respondents spent nearly $7,400 less per year on housing than those in the 50-to-64 age group.

A low cost of living is another reason this region is also home to four of the 10 best cities for people who hope to retire early.

7. East North Central

Average spending: $35,201

People in the Great Lakes states of Wisconsin, Michigan, Illinois, Indiana and Ohio had the lowest average spending outside of the South. That’s good news for people retiring in that region, but it comes with a caveat. Average spending in this region didn’t decrease as dramatically with age as it did in some parts of the country. By the time people reached age 85, they were still spending $31,059 per year on average, more than any other region except New England.

6. Middle Atlantic

Average spending: $38,125

Retirees in the mid-Atlantic states of New York, Pennsylvania and New Jersey spend an average of $38,125 every year, only slightly less than those in the 50-to-64 age group. Their average expenses included $13,440 on housing and $1,940 on health care. (You can determine your housing budget here.)

5. Pacific

Average spending: $38,464

Retirees in Washington, Oregon, California, Hawaii and Alaska spent about $38,000 per year on average, including $2,360 on health care and $18,300 on housing. Their housing costs were the second-highest in the country after New England, which may not be surprising considering this region is home to eight of the 10 least affordable cities in the United States.

4. Mountain

Average spending: $39,411

Living isn’t cheap for retirees in the vast Mountain region, which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona and New Mexico. But things get better as you age. People in these states spend about $10,000 less per year between ages 75 and 84 than they do in the first decade of retirement.

If you end up retiring in the Mountain region, you’ll have lots of company. States such as Arizona, with its sunny skies and relatively low taxes, are perennially popular with retirees.

3. West North Central

Average spending: $42,240

Stereotypically frugal Midwesterners actually had the third-highest spending in the U.S. People in Minnesota, North Dakota, South Dakota, Iowa, Nebraska, Kansas and Missouri spent more than $42,000 per year on average from ages 65 to 74. About $20,000 went to housing and health care, with $22,000 left over for expenses, including food, transportation, travel, entertainment and dining out.

One reason retirees in this region can spend big? Some are quite wealthy. Minnesota, North Dakota, Nebraska and Iowa are all in the top 25 states in the number of millionaires per capita, according to a study by Phoenix Marketing International.

2. South Atlantic

Average spending: $44,350

Retirees in the sprawling South Atlantic region, which stretches from Delaware to Florida, have some of the highest spending in the U.S. People living in Delaware, Maryland, West Virginia, Virginia, North Carolina, South Carolina, Georgia and Florida spend $44,350 per year, on average, including $16,980 on housing and $3,000 on health care.

1. New England

Average spending: $46,019

New England retirees are the biggest spenders in the U.S., with annual expenditures of a little more than $46,000 per year. People in Maine, New Hampshire, Massachusetts, Vermont, Rhode Island and Connecticut have the highest housing costs in the country, at $19,507 annually — almost twice as much as those in the cheapest states — though costs fall significantly as people age. Health care spending among 65- to 74-year-olds is also higher than anywhere else, at nearly $6,000 per year, almost twice as much as what retirees in other parts of the country pay.

This article originally appeared on The Cheat Sheet.

Image: AleksandarNakic

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3 Signs Married Couples Need to File Their Taxes Separately

With April 18 just around the corner, chances are you and your spouse are knee-deep in tax work. Most couples file jointly to take advantage of various benefits but depending on your situation, you may want to file separately.

We tapped Kelly Phillips Erb, a Philadelphia tax attorney who blogs at Forbes, for some pointers on when to do this. (Sadly, love doesn’t conquer all when it comes to the tax man.)

1. When a Spouse Has a Tax Liability

Though your spouse’s liability won’t carry over to you, it could throw a wrench in your taxes if you file jointly, Erb says. “It can make filing taxes complicated because you have to file an injured spouse claim” if something goes wrong. For example, if your husband owed back taxes but as a couple you got a refund and the IRS decided to take it, you’d be prompted to file an injured spouse claim. This may help get part of your refund back.

Your spouse’s back taxes could also impact their credit score if the problem gets bad enough. The government could make a claim on your property until the debt is repaid, which is known as a tax lien. This will show up on your spouse’s credit report and could make it harder for them to borrow money in the future. (You can see how a tax lien and other factors may be hurting your credit by reviewing two of your free credit scores on Credit.com, which are updated every two weeks.)

2. When a Spouse Can’t Be Trusted 

“When you file a return, you sign under penalty of perjury,” Erb explains, noting taxpayers vow to report everything to the letter. “If you sign the return knowing they tend not to be forthcoming, you’re putting yourself at risk.”

Erb recalls a client who dealt with this issue for 15 years and “ended up with a liability in the millions she couldn’t pay.” However, she had signed a return with her husband claiming things were just fine. The IRS eventually chased both of them down for the money, even after they separated. “When you get married, you like to think everything’s rainbows and unicorns,” Erb says, but “don’t file if you think they’re not being truthful. Ignorance is not an excuse.”

3. When a Spouse Lives Abroad 

“There are some tax reasons why you might file separately, but as a rule, most people file separately for non-tax reasons,” Erb says. However, if one spouse has a different residency — not just between states but in another country entirely — it “might be advantageous to file separately, because depending on the situation, you could possibly lose credits or other tax breaks that you might not want to.”

Image: svetikd

 

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4 of the Most-Improved Credit Card Cash Back Offers of 2017

The competition for customers is growing and credit card companies have beefed up their cash-back offers in response. See the most generous new offers.

Many credit card issuers kicked off 2017 by launching attractive bread-and-butter rewards programs, which some experts say is part of an effort to steal market share and attract more middle-class cardholders.

Among the offers being rolled out or already available are 10% cash back on restaurant purchases and an offer of limitless cash rewards as part of a pilot credit card being tested by USAA.

“There’s a battle for dominance,” said David Robertson, publisher of the Nilson Report, which predicted this trend. “Credit card issuers are trying to create maximum loyalty.”

According to Robertson, the credit card market recently emerged from a period of escalating offers among premium cards. The focus has now trickled down.

Beverly Harzog, credit card expert and author of “The Debt Escape Plan,” said another driver of the current trend is credit card issuers trying to make rewards programs more straightforward for middle-class users who don’t necessarily have time to sign up for and pursue a variety of rewards deals.

Cash back cards are getting simpler and are breaking into categories that work for specific customers,” Harzog said.

This creates an intriguing landscape of credit card offers. Here are some of the best new middle-class offers identified by experts. And remember: It’s a good idea to know your credit score to have any idea of whether you’ll qualify before applying for a card. You can check two of your scores free, updated every 14 days, on Credit.com.

New Offers From American Express

American Express recently announced a limited offer for the Blue Cash Preferred and Blue Cash Everyday cards.

Both cards now reward new members with 10% cash back on U.S. restaurant purchases made within the first six months of sign-up, up to $200. In addition, new card members receive a welcome bonus after spending $1,000 within their first three months. For the Blue Cash Preferred card, the bonus is $150 and for the Blue Cash Everyday card, it is $100.

USAA’s Limitless Cash Back Rewards Visa Signature

The USAA Limitless Cash Back Rewards Visa Signature earns 2.5% on all purchases. What’s more, there’s no cap on the cash back rewards.

As long as cardholders maintain a $1,000 monthly direct deposit in a USAA checking account, they continue to earn 2.5% cash back. If that deposit minimum is not met, the cash back reward drops to 1.5% on purchases.

The downside of this card is that it has not been officially launched yet. It’s being pilot-tested, USAA spokeswoman Gloria Manzano said.

“If we determine this potential new product can help us serve our members better, we’ll make (it) available to all of our members as soon as possible,” Manzano said.

The card is available to those living in more than two dozen states where it’s being tested.

Premier Dining Rewards From Capital One

Capital One introduced its Premier Dining Rewards card last week.

The card offers an enhanced cash back earn rate in categories the company says consumers are spending more on.

Perhaps putting it in competition with USAA, the card’s rewards include unlimited 3% cash back on restaurant purchases, 2% cash back on grocery store spending and 1% on all other purchases.

Chase Freedom Unlimited

The Chase Freedom Unlimited (read our review here) is promoting a reward for those who spend $500 in the first three months after sign-up.

For those who meet the spending threshold, the card gives $150 cash back. While the offer has been around since 2016, Kerri Moriarty, of Boston-based Cinch Financial, said it’s still worth noting.

“The fact that you can get $150 cash back within the first 90 days for spending just $500 is an aggressive offer,” said Moriarty. “Other cards typically require $1,000 or more of spending before getting that cash back. It shows that they’re really trying to attract customers and steal them away from other cards.”

Image: NicolasMcComber

At publishing time, the Blue Cash Everyday From American Express, Blue Cash Preferred From American Express and Chase Freedom Unlimted cards are offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).

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Buying a House When You Have Student Loan Debt

Student loan debt is a reality for many people wishing to buy homes. Fortunately, it does not have to be a deal-breaker. But there’s no getting around the fact that a large amount of student loan debt will certainly influence how much financing a lender will be willing to offer you.

In the past, mortgage lenders were able to give people with student loans a bit of a break by disregarding the monthly payment from a student loan if that loan was to be deferred for at least one year after closing on the home purchase. But that all changed in 2015 when the Federal Housing Authority, Fannie Mae, and Freddie Mac began requiring lenders to factor student debt payments into the equation, regardless of whether the loans were in forbearance or deferment. Today by law, mortgage lenders across the country must consider a prospective homebuyer’s student loan obligations when calculating their ability to repay their mortgage.

The reason for the regulation change is simple: with a $1.3 million student loan crisis on our hands, there is concern homebuyers with student loans will have trouble making either their mortgage payments, student loan payments, or both once the student loans become due.

So, how are student loans factored into a homebuyer’s mortgage application?

Anytime you apply for a mortgage loan, the lender must calculate your all-important debt-to-income ratio. This is the ratio of your total monthly debt payments versus your total monthly income.

In most cases, mortgage lenders now must include 1% of your total student loan balance reflected on the applicant’s credit report as part of your monthly debt obligation.

Here is an example:

Let’s say you have outstanding student loans totaling $40,000.

The lender will take 1% of that total to calculate your estimated monthly student loan payment. In this case, that number would be $400.

That $400 loan payment has to be included as part of the mortgage applicant’s monthly debt expenses, even if the loan is deferred or in forbearance.

Are Student Loans a Mortgage Deal Breaker? Not Always.

If you are applying for a “conventional” mortgage, you must meet the lending standards published by Fannie Mae or Freddie Mac. What Fannie and Freddie say goes because these are the two government-backed companies that make it possible for thousands of banks and mortgage lenders to offer home financing.

In order for these banks and mortgage lenders to get their hands on Fannie and Freddie funding for their mortgage loans, they have to adhere to Fannie and Freddie’s rules when it comes to vetting mortgage loan applicants. And that means making sure borrowers have a reasonable ability to repay the loans that they are offered.

To find out how much borrowers can afford, Fannie and Freddie require that a borrower’s monthly housing expenses (that includes the new mortgage, property taxes, and any applicable mortgage insurance) to be no more than 43% of their gross monthly income.

On top of that, they will also look at other debt reported on your credit report, such as credit cards, car loans, and, yes, those student loans. You cannot go over 49% of your gross income once you factor in all of your monthly debt obligations.

For example, if you earn $5,000 per month, your monthly housing expense cannot go above $2,150 per month (that’s 43% of $5,000). And your total monthly expenses can’t go above $2,450/month (that’s 49% of $5,000). Let’s put together a hypothetical scenario:

Monthly gross income = $5,000/month

Estimated housing expenses: $2,150
Monthly student loan payment: $400
Monthly credit card payments: $200
Monthly car payment: $200

Total monthly housing expenses = $2,150

$2,150/$5,000 = 43%

Total monthly housing expenses AND debt payments = $2,950

$2,950/$5,000 = 59%

So what do you think? Does this applicant appear to qualify for that mortgage?

At first glance, yes! The housing expense is at or below the 43% limit, right?

However, once you factor in the rest of this person’s debt obligations, it jumps to 59% of the income — way above the threshold. And these other monthly obligations are not beyond the norm of a typical household.

What Can I Do to Qualify for a Mortgage Loan If I Have Student Debt?

So what can this person do to qualify? If they want to get that $325,000 mortgage, the key will be lowering their monthly debt obligations by at least $500. That would put them under the 49% debt-to-income threshold they would need to qualify. But that’s easier said than done.

Option 1: You can purchase a lower priced home.

This borrower could simply take the loan they can qualify for and find a home in their price range. In some higher priced real estate markets it may be simply impossible to find a home in a lower price range. To see how much mortgage you could qualify for, try out MagnifyMoney’s home affordability calculator.

Option 2: Try to refinance your student loans to get a lower monthly payment.

Let’s say you have a federal student loan in which the balance is $30,000 at a rate of 7.5% assuming a 10-year payback. The total monthly payment would be $356 per month. What if you refinanced the same student loan, dropped the rate to 6%, and extended the term to 20 years? The new monthly payment would drop to $214.93 per month. That’s a $142 dollar per month savings.

You could potentially look at student loan refinance options that would allow you to reduce your loan rate or extend the repayment period. If you have a credit score over 740, the savings can be even higher because you may qualify for a lower rate refi loan. Companies like SoFi, Purefy, and LendKey offer the best rates for student loans, and MagnifyMoney has a full list of great student loan refi companies.

There are, of course, pros and cons when it comes to refinancing student loans. If you have federal loan debt and you refinance with a private lender, you’re losing all the federal repayment protections that come with federal student loans. On the other hand, your options to refinance to a lower rate by consolidating federal loans aren’t that great. Student debt consolidation loan rates are rarely much better, as they are simply an average of your existing loan rates.

Option 3: Move aggressively to eliminate your credit card and auto loan debt.

To pay down credit debt, consider a balance transfer. Many credit card issuers offer 0% introductory balance transfers. This means they will charge you 0% interest for an advertised period of time (up to 18 months) on any balances you transfer from other credit cards. That buys you additional time to pay down your principal debt without interest accumulating the whole time and dragging you down.

Apply for one or two of these credit cards simultaneously. If approved for a balance transfer, transfer the balance of your highest rate card immediately. Then commit to paying it off. Make the minimum payments on the other cards in the meantime. Focus on paying off one credit card at a time. You will pay a fee of 3% in some cases on the total balance of the transfer. But the cost can be well worth it if the strategy is executed properly.

Third, if the car note is a finance and not a lease, there’s a mortgage lending “loophole” you can take advantage of. A mortgage lender is allowed to omit any installment loan that has less than 10 payments remaining. A car is an installment loan. So if your car loan has less than 10 payments left, the mortgage lender will remove these from your monthly obligations. In our hypothetical case above, that will give this applicant an additional $200 per month of purchasing power. Maybe you can reallocate the funds from the down payment and put it toward reducing the car note.

If the car is a lease, you can ask mom or dad to refinance the lease out of your name.

Option 4: Ask your parents to co-sign on your mortgage loan.

Some might not like this idea, but you can ask mom or dad to co-sign for you on the purchase of the house. But there are a few things you want to make sure of before moving forward with this scenario.

For one, do your parents intend to purchase their own home in the near future? If so, make sure you speak with a mortgage lender prior to moving forward with this idea to make sure they would still qualify for both home purchases. Another detail to keep in mind is that the only way to get your parents off the loan would be to refinance that mortgage. There will be costs associated with the refinance of a few thousand dollars, so budget accordingly.

With one or a combination of these theories there is no doubt you will be able to reduce the monthly expenses to be able to qualify for a mortgage and buy a home.

The best piece of advice when planning to buy a home is to start preparing for the process at least a year ahead of time. Fail to plan, plan to fail. Don’t be afraid to allow a mortgage lender to run your credit and do a thorough mortgage analysis.

The only way a mortgage lender can give you factual advice on what you need to do to qualify is to run your credit. Most applicants don’t want their credit run because they fear the inquiry will make their credit score drop. In many cases, the score does not drop at all. In fact, credit inquiries account for only 10% of your overall credit score.

In the unlikely event your credit score drops a few points, it’s a worthy exchange. You have a year to make those points go up. You also have a year to make the adjustments necessary to make your purchase process a smooth one. Do keep in mind that it is best to shop for mortgage lenders and perform credit inquiries within a week of each other.

You should also compare rates on the same day if at all possible. Mortgage rates are driven by the 10-year treasury note traded on Wall Street. It goes up and down with the markets, and we’ve all seen some pretty dramatic swings in the markets from time to time. The only way to make an “apples-to-apples” comparison is to compare rates from each lender on the same day. Always request an itemization of the fees to go along with the rate quote.

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Why Student Loan Borrowers Are Being Treated Like Criminals

If it sometimes feels like student loan borrowers are treated like criminals, that's because the law actually does.

Student loans are different from almost any other form of borrowing. Unlike credit cards or other unsecured debts, they can rarely be discharged in bankruptcy. (You can learn more about the implications of bankruptcy here.) Legally, it’s better to think of college and grad school debt as akin to a child support payment.

The $1.3 trillion student loan crisis has many causes, but the slow erosion of consumer rights to gain student debt relief ranks right near the top. That $1.3 trillion debt is truly an anchor for life to the 44 million Americans who owe it. (And not paying those loans can have pretty severe consequences, including serious credit damage. You can see how your student loans affect your credit by a free snapshot of your credit report every 14 days on Credit.com.)

How It All Started 

The trouble began in the mid 1970s, as student loans became common and urban legends around “deadbeat” former students started to spread. In 1976, Congress considered a dramatic change to the nature of student loans — taking them out of the bucket that makes them similar to credit cards or personal loans, and moving them into the bucket that governs criminals like tax scofflaws. Back then, Congress was wise enough to commission a Government Accounting Office study, making such a step permanent.

The study came back showing that fewer than 1% of student loan borrowers had declared bankruptcy. That led Rep James O’Hara (D-Mich.) to say it would be grossly unfair to lump them in with the deadbeats. Soon after, the U.S. Senate voted to strip the provision from a proposed bankruptcy reform bill that made college debt non-dischargeable. But for reasons unknown, a group of Congressmen in the House, led by Rep. Allen E. Ertel (D-Pa.), held firm to their conviction that student loans were creating a moral hazard. They won the day, and non-dischargability of student loans was included in the Bankruptcy Reform Act of 1978.

The 1978 limitation meant students had to try to pay their loans back for at least five years before they could seek relief in bankruptcy court. Even today, critics of the way bankruptcy laws work don’t find fault in that notion — to prevent someone from leaving school and immediately erasing their debt before making an honest effort to earn an income.

However, the 1978 law opened the door for further tightening of the debt noose on borrowers, which happened methodically over the next decades. In 1990, the repayment period before a discharge was extended to seven years. The Debt Collection Improvement Act of 1996 allowed Uncle Sam to garnish Social Security checks. Then, in 1998, the seven-year ban became infinite. Loans made or guaranteed by Uncle Sam to students could never be discharged, with very few exceptions.

Worse still, in 2005, the permanent ban on bankruptcy for student borrowers was extended to private student loans — those that have nothing to do with Uncle Sam. Private banks lending teenagers money for college now hold a “till death do us part” contract.

Times Have Changed

Steven M. Palmer, a Seattle-based bankruptcy attorney who has written about the history of student loans, said it’s important to keep some perspective about what Congress might have been thinking back in the 1970s.

In 1976, tuition, room and board cost an average of $2,275, according to the Department of Education (in current dollars). By 2015, it was $25,810.

“Back then, the cost of education was so much less,” Palmer said. “The total amount of debt was a tiny fraction of what it is today … The system has led us to where we are now, where everyone has to take out student loans. And then they are getting out of school and not able to find jobs.”

For the desperate student borrower, there is an exception to the bankruptcy code, known as “undue hardship.” But practically speaking, that’s legalese for “nearly impossible.” (Disabled borrowers may also qualify for a total disability discharge of their education debt.)

An attempt to discharge a student loan requires a separate legal process from a traditional bankruptcy, called a Complaint to Determine Dischargeability. It’s an adversarial process that can require discovery, depositions and even arguments in court against Department of Education lawyers.

This can cost the debtor 10 times the price of a standard bankruptcy, Palmer said. And an attempt to get free from student loans can easily cost $20,000 to $30,000 in fees — which still may not work. Also, said Palmer, it’s critical to remember that declaring bankruptcy is hardly easy, nor does it erase all a family’s problems.

“Many of my clients have so much they still need to end up paying after bankruptcy, my counseling is often to ask, ‘How will you be better off?’ In some cases, they are really in a terrible spot … really still pretty well screwed after the bankruptcy.”

More Calls for Reform

In 2007, Michigan Professor John A. E. Pottow wrote the definitive history of the issue in an academic paper, “The Nondischargeability of Student Loans in Personal Bankruptcy Proceedings: The Search for a Theory.”

“This is harsh and dramatic treatment, and it is worthy of scholarly attention,” he wrote.

Pottow dispensed with most operating theories using data – that bankruptcy encourages students to commit fraud, or that Uncle Sam is merely protecting taxpayers, for example. He ultimately suggested some kind of income-contingent test, which ties bankruptcy eligibility to a calculation that takes into account school costs and potential post-school income.

“In addition to being attractive theoretically, income contingency could also help a troubling trend,” he wrote. Apparently certain “sub-prime” schools target a financially vulnerable client base by upselling classes and educational programs of dubious worth, confident that they will have repayment leverage through non-dischargeability in bankruptcy. An income-contingent approach might dry up this unwelcome market.”

More recently, in a 2012 report, the Consumer Financial Protection Bureau called on Congress to make bankruptcy available to some student debt holders.

“(It would be) prudent to consider modifying the code in light of the impact on young borrowers in challenging labor market conditions,” CFPB director Richard Cordray said.

Palmer, the bankruptcy lawyer, noted giving such debtors a fresh start wouldn’t only help former students. College debt has been tied to delayed household formation, which can have a domino effect: Young graduates may get married later, start families later, buy homes later, and so on. (If this sounds like you, here’s how to tell if you’re ready to shop for a home.)

Other critics have gone even farther.

David Graeber, author of the book, “Debt: The First 5000 Years,” says the punishing student loan situation is wrecking a generation, and by extension, its future.

“If there’s a way of a society committing mass suicide, what better way than to take all the youngest, most energetic, creative, joyous people in your society and saddle them with, like $50,000 of debt so they have to be slaves?” he said at a talk in 2013. “There goes your music. There goes your culture.”

Image: Jacob Ammentorp Lund

The post Why Student Loan Borrowers Are Being Treated Like Criminals appeared first on Credit.com.

17 Ways to Save at Lowe’s

It's easy to overspend at the home improvement chain this time of year. Fortunately, it's just as easy to save.

Whether you’re finishing your basement, fixing a leaky bathroom faucet or trying your hand at built-in bookshelves for your family room, Lowe’s is your one-stop-shop for all things home improvement related. While it can be super-easy to spend a ton of cash there, it’s also just as easy to save. Here’s how.

1. Wait for Things to Go on Sale

If you can, it pays to wait for the bigger items you need to go on sale at the home repair superstore … because they inevitably will. Beginning of the year sales, for example, included up to 40% on bathroom essentials like toilets and sink basins, as well as up to 40% off select custom kitchen cabinets when you spent $3,500 or more.

2. Apply for a Lowe’s Credit Card

If you’ll be shopping here enough and you can pay the credit card off on time (the APR is a variable 26.99%, so this strategy only really works if you can absolutely pay your bill on time), apply for the Lowe’s credit card. New cardholders can pick from between 5% off items every day or six months of special financing with a $299 minimum purchase. Just be sure your credit can handle an inquiry before you apply. You can see where you stand by viewing your free credit report summary, updated every 14 days, on Credit.com.

Like to shop around? We’ve got some picks for the best credit cards for shopping here.

3. Shop Their Exclusive One-Day Deals

Be sure to check the site for Lowe’s one-day only deals, which are good for that day only and while supplies last.

4. Peruse Their Shop Savings Section

Lowe’s adds new discounted items every week to their Savings section, and deals generally last for a couple days or, even, up to a few months.

5. Check Out Their Weekly Ad

Search through your local paper or check online for the Lowe’s Weekly Ad for savings on items that generally last through that week only.

6. Take a Look at Clearance Items

Use the clearance section of the site to find even more discounts on items like cleaning supplies, flooring, home décor and more. Some items are up to 75% off, but the deals generally expire, so check back frequently for what you need.

7. Submit for a Rebate

Many Lowe’s products come with rebate offers, especially if they’re energy-efficient products. The store makes it easy to find out which products will save you a little cash — just check out the current rebates section on the site and submit an online application if your product applies. You can check the status of your rebates there, too.

8. Sign Up for Their Email Newsletter

Submit your email for the Lowe’s newsletter to get the weekly ad, exclusive offers and promotions, sneak peaks of upcoming events and more, directly to your inbox.

9. Join Their Garden Club

Sign up for Lowe’s Garden Club and you’ll receive an email every week with special promotions and offers, as well as gardening plans, advice and more.

10. Never Miss a Sale When You Follow Lowe’s on Social Media

Catch all the current deals and promotions by following the brand on Facebook, Twitter and Instagram.

11. Get a Price Match

Lowe’s guarantees everyday competitive pricing. As such, if you find a competitor offering a lower price on an identical item, bring in the competitor’s current ad and Lowe’s will beat their price by 10%. If a competitor is offering a percent off discount, they’ll match the final net price the competitor is offering.

12. Use Online Price Protection

If you’re already in the store, be sure to check online to see if the item you want is cheaper there before heading to the checkout line. You can shop for your Lowe’s products online to receive the lower of the online store price or the price at your local Lowe’s store. Or, select “store pickup” to order your items online and pick them up in your local store later, thus avoiding the shipping fee —unless you have $49 or more in items, in which case shipping is free.

13. Ask for a Military Discount

If you currently serve in the armed services or are a retired veteran, you and your immediate family receive a 10% discount. Check here for the stipulations.

14. Load Up on Free Services

While it’s not an immediate way to save, taking advantage of all the workshops and personalized services offered at Lowe’s is a great way to ensure you do your project right, which will save you time and money in the long run. Check out a full list of in-store services, including workshops, clinics and other services, on Lowe’s website.

15. Buy Gift Cards at a Discount

Shop sites like Gift Card Granny to purchase Lowe’s gift cards at a discounted price.

16. Install a Coupon Aggregator on Your Computer

Never miss another online coupon or savings offer when you install a coupon aggregate collector, like Honey, on your computer. The search engine will automatically look for discounts at your time of online checkout and could score you even more in savings.

17. Ask When a Sidewalk Sale Is Happening

A couple times a year you’ll notice that Lowe’s has a ton of items out on the sidewalk. These items are often on sale big-time, and their sidewalk sale happens a couple times a year, so be sure you don’t miss it.

Making home improvements this year? We’ve also got some ways to save at Home Depot (as a well as a full review of its credit card) here.

Got a brand you’d like to see us tackle? Leave it in the comments section and we’ll get it in our queue. 

Image: PeopleImages

The post 17 Ways to Save at Lowe’s appeared first on Credit.com.

How to Fix the Big Things You Hate About Your Credit Cards

reasons-people-hate-credit-cards

Credit cards may be in the wallets of most Americans, but not everyone is happy with their travel companion.

The Consumer Financial Protection Bureau (CFPB) released its monthly snapshot of consumer complaints in the financial services industry this week. The report, which regularly focuses on a different financial product to highlight consumer complaint trends, focused on credit cards and what irks consumers about their plastic friends (or foes, depending on how you view it).

Credit cards represent only about 10% of total complaints to the CFPB, a small amount considering how prevalent the cards are in Americans’ daily routine. That puts them in fourth for the most complained-about financial products, behind debt collection, credit reporting and mortgages.

Here are four of the major credit card complaints that surfaced in the bureau’s review.

1. Disputes Over Fraudulent Charges

Billing disputes were number one on the CFPB’s top credit card complaint list. Of the nearly 100,000 complaints the CFPB analyzed, 17% were over billing disputes. Credit cards often offer purchase protections and chargebacks — tools consumers can use to combat faulty merchandise or high prices — and these tools are rarely offered by debit cards and never offered by cash. But fraud seems to be the source of most complaints, as consumers finding fraudulent charges cite trouble removing or getting re-billed for them.

How to Avoid It: The best way to keep yourself from having to dispute fraudulent charges is to keep your credit card information as safe as possible from fraudsters. Never share your credit card with shady sites that don’t have a “lock” symbol or https:// when taking your data. And even though it’s convenient, avoid letting shopping websites “remember” your credit card info for next time. While some of those sites have excellent security, data breaches are becoming more and more common and credit card info is a literal gold mine for a hacker. (To keep an eye out for signs of identity theft, you can view your free credit report summary on Credit.com.)

2. Rewards Program Murkiness

If you’ve ever owned a rewards credit card, you know that to make the most of your card’s program, you need to read up on all the details (and those details do change). The CFPB found that confusion over how a credit card rewards program works was sometimes attributed to differences between what consumers encountered online and what they were told by customer service representatives over the phone.

How to Avoid It: The CARD Act of 2009 did a lot to make credit cards more consumer-friendly, but little regulation pertained to rewards programs specifically and business credit cards were not included at all in the act’s purview. That means you need to be a careful shopper, as you should be with all financial products — mortgages, business loans, you name it. Before you sign up for a rewards credit card, read the rewards terms carefully — they are often in a separate piece of paperwork from the APR and fee disclosures.

3. Being a Victim of Fraud/Identity Theft

Identity theft/fraud/embezzlement as a category came in third on the CFPB’s list at 10% of all credit card complaints. Many complaints pertained to account activity that the cardholder didn’t initiate, the report said. It points back to that top complaint of fraudulent charges as well — fraud is a problem for consumers as well as credit card issuers too.

How to Avoid It: In addition to keeping your credit card information safe (see tip #1), keep your identifying information safe. To open a new credit card in your name, a fraudster would need to have access to your Social Security number, name, address and other details. Protect that info and you limit your chance of getting got. And because “embezzlement” is included in this category as well, business owners should be sure to have a policy in place if they’re extending a company credit card to an employee. The rules should be clear so you don’t have to go through the painful process of disputing charges with your issuer.

4. Trouble Closing/Canceling an Account

Even though closing a credit card can do some credit score damage, it doesn’t stop consumers who want to avoid the temptation of spending too much or just have too many cards to manage. Roughly 7% of the CFPB’s credit card complaints pertained to consumers struggling to close accounts.

How to Avoid It: Call your issuer directly (you normally have a number on the back of your credit card) and ask to close the account. Be ready though — you’ll most likely be transferred to a department that is specifically going to try to keep you as a customer, perhaps offering a lower APR or a waived annual fee for that year. (Some consumers use this as a tactic to get a better credit card, in fact.) If you’re adamant on closing the card, just stick with your plan and make sure to monitor your email or mail for your last statement. You don’t want to miss the last payment on your card and put a black mark on your credit report just because you thought the card was closed. A credit card with a positive payment history, even though it’s closed, can still help your credit score. But missing a payment will definitely hurt it, and if you have a business credit card, it could impact not just your personal credit, but your business credit scores as well. You can find a full explainer on canceling credit cards right here.

Image: Anchiy

The post How to Fix the Big Things You Hate About Your Credit Cards appeared first on Credit.com.