Here’s How to Prepare Your Credit for a Job Search

Don't let your credit hold you back from your dream job.

Conducting a job search after graduating from college can seem like a monumental task, one filled with challenges and uncertainties. But here’s one thing recent grads shouldn’t be uncertain about when embarking on the journey to secure a job — what’s on their credit report.

Just as hours and days are devoted to creating a professional resume and poring over every last word on a LinkedIn profile, your credit report also needs to be reviewed and, if necessary, improved. The importance of one’s credit history during a job search will of course vary by profession, but there are employers who will look at your credit report as part of their application process. And if you’re applying for a job that requires you to handle cash or balance books, a blemish could hurt your chances of securing the position.

Why Does an Employer Want to See my Credit? 

“Employers will look at credit history as a measure of responsibility,” said Deidre Davis, vice president of marketing and communications for the university-based MSU Federal Credit Union. “They’re looking to see if that potential employee has successfully managed their financial obligations, because that will tell them how someone might manage overall workload and deadlines.”

According to credit-industry experts, it’s most often within the banking and financial services industry that a credit report review is part of the application process, as well as for some government jobs that require security clearance, law enforcement officers and those seeking executive-level positions. It’s important to note, however, there are about a dozen states where local laws either prohibit or severely limit the use of consumer credit reports as part of an application, according to the site Employment Screening Resources.

Plus, employers are not allowed to check your credit report without your consent, which you must provide in writing. And they won’t have access to your actual credit score, explained Davis. They’ll be looking at the credit report, which is slightly different. It shows such things as whether you’ve missed payments and are delinquent on accounts, and whether you carry large balances.

Having a clean credit report isn’t just important to a job search, post-college. Prospective landlords, insurers, cell phone companies, utility providers and more will check your credit when deciding whether to do business with you and/or what to charge. Of course, you’ll also need good credit to get an affordable loan.

With that in mind, here’s some advice from credit experts on getting your credit profile ready for the interview process.

1. Know What’s on Your Credit Report

The first step is to pull your credit report and conduct a thorough review of everything on it. Under federal law, you’re entitled to one free credit report every 12 months from each consumer credit reporting agency. You can pull your free annual credit reports from AnnualCreditReport.com. (And, if you’re looking for your digits, you can view two of your credit scores for free on Credit.com.)

“Know your starting point,” said Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network. “Many young adults already have credit profiles and don’t realize it. Start by finding out if you do.”

Once you’ve reviewed your report(s), correct any inaccuracies and dispute any erroneous items. (You can learn more about disputing errors on your credit report here.) Under the terms of the Fair Credit Reporting Act, credit bureaus must investigate disputed items and remove them from the report if they cannot be verified, Gallegos explained.

2. Seek Guidance From a Finance Professional

If the credit report turns up negative factors, or you simply don’t have a firm understanding of the key aspects of a credit profile, consider obtaining the advice of a professional.

“Get some tips to improve things going forward,” said Davis of MSU Federal Credit Union. “Talk to someone who can tell you, ‘For the next six months these are the behaviors that will improve your credit score.’ Sometimes people need some basic advice and guidance. That’s where going into a local financial institution can help. You can say to them, ‘Here is my credit report, how can I make it better?’ ”

According to the site LendEDU, many college students know very little about building, maintaining or repairing consumer credit. In 2016, the site surveyed 668 current college students at both two-year and four-year public and private institutions, and found that 59.3% of students could not define a credit score. In addition, 45.5% were unable to identify any of the factors used to determine a credit score, and 42.4% were unable to identify at least one way to improve a credit score.

Building good credit is important, so don’t be afraid to seek assistance.

3. Improve Your Credit

One of the most critical things you can do to improve your credit report moving forward is pay bills on time, said Gallegos.

“On-time payments are the most important factor in developing good credit, accounting for 35% of one’s credit score,” he said.

In addition, maintaining a low balance, or using only about at least 30% and ideally 10% of your available credit, will improve your score. You should also aim to pay your bills in full each month, if possible. Likewise, paying student loans on time, which are considered installment loans, can help improve your credit score. (You can find more ways to improve your credit here.)

What If You Haven’t Established Credit?

Some college graduates may not have an extensive credit history to show a prospective employer. If this is the case, there are a few ways to help establish a solid record fairly quickly.

One approach is to be added as an authorized user on a parent’s credit card, ideally a card the parent has had for a long time and kept in good standing. By being added to such a card, the payment history on the account will become part of your credit report as well.

Be aware not all credit card companies report authorized users’ names to credit bureaus because there’s a fee involved in doing so, says Davis. That means being added to the card won’t accomplish your goal of establishing a solid credit history. Always find out first if the card reports authorized users to credit bureaus.

Another approach is to open a secured credit card in your name. Secured credit cards require a cash deposit as collateral, which then becomes the line of credit. The key when opening the card, or any card for that matter, is being responsible, said Davis.

“Only use the card for small dollar purchases that can be paid when the bill comes in so that you’re not getting into debt but are showing responsible use,” she said. “Buy a pizza with the card, and pay it off. Buy a pair of tennis shoes, and pay it off. Don’t go open 15 cards. Open one and use it responsibly.”

Trying to get a full-time gig now that college has ended? We’ve got your covered. Here’s a full 50 things recent graduates can do to score their first job

Image: vgajic

The post Here’s How to Prepare Your Credit for a Job Search appeared first on Credit.com.

9 Ways to Lower Your Monthly Credit Card Payment

The average American between 18 and 65 has credit card debt. Here's how to get rid of yours.

If you have a monthly credit card payment you could do without, you aren’t alone. The average American between 18 and 65 has more than $4,000 in credit card debt, and if you carry a balance from month to month, you’re automatically making a larger credit card payment than necessary.

Here are nine common-sense ways to shrink your credit card payment.

1. Make Larger Payments Now

While it may sound counterproductive, making larger credit card payments now will reduce future payments — provided you aren’t racking up too many charges and undoing your progress. By making more than the minimum payment, you can reduce your overall balance — and the amount of interest you’re accruing.

If you have disposable income, this should be an easy step. If you don’t, some budget tightening can help free up cash for a larger payment.

2. Reduce Credit Card Spending

If your purchases are affecting your ability to manage your credit card payments, it could be time to curb your spending. You can analyze your monthly credit card statement to determine what types of purchases are costing the most. For instance, if restaurants and bars make up a large portion of your credit card bill, you may want to start cooking more meals at home.

3. Stop Using Your Card Entirely

If your balance is out of control or way over the recommended credit-utilization rate, you may want to eliminate credit card spending altogether. Instead, you can use only your available funds for expenses as you work to pay down your debt. This way, you won’t add to your balance and over time your minimum payment will drop.

“For many people, the problem isn’t that they aren’t paying money toward their balance but that they keep charging more to it,” said Brian Davis, cofounder of SparkRental.com. “In that case, they should leave their credit card at home, in a drawer, and only spend cash until they’ve paid off their credit card debt. Spending cash feels quite different than swiping plastic — people intuitively track their spending and how much cash is left in their wallet, because it’s real and tangible.”

4. Negotiate Lower Interest Rates

One of the simplest ways to reduce your monthly credit card payment a bit is to lower your interest rate. You can call your credit card company and ask them to adjust your annual percentage APR (more about lowering your interest rate here). If you have a long history of timely payments, they may comply without much fuss. Even if you don’t have success at first, you can keep calling to reach other representatives or ask to speak with a manager.

5. Transfer Your Balance

Balance transfers are another common way to lower interest rates. Many credit cards offer introductory periods of a 0% APR for balance transfers, which gives you an interest-free timeframe to pay down your balance. The APR will kick in when that timeframe is up, so you’ll want to choose a card with a lower APR than you currently have and/or do your very best to pay off the balance before that window is up. Keep in mind you’ll likely have to pay a one-time fee per balance transfer, which usually amounts to $5 or 3 to 5% of the transfer amount, though there are one or two cards out there that will let you avoid that fee.

“One way to lower your monthly credit card bill is to open a new card with a 0% APR for an introductory period, and transfer your existing credit card balances to it,” said Davis. “That will buy you some breathing room to pay down the balance without huge portions of the payment going toward interest.”

6. Prioritize Payments

If you’ve got multiple balances, some strategic resource allocation can help you pay them down more quickly — and ultimately lower your monthly obligations. Make sure you’re making all your minimum payments on-time, but put the most money you can toward the balance with the highest interest rate. That’ll keep that balance from burgeoning and save you more dough in the long run.

7. Ask Your Card Issuer for a Payment Plan

If you’re in serious financial trouble, you could talk to your credit card issuer about a long-term repayment plan. That’s not going to go a long-way to lowering your credit card bill in the short-term, but it can help you avoid late fees, default and bigger money woes while you work to improve your financial health.

Credit card companies sometimes offer alternative payment plans to customers experiencing financial hardship. Keep in mind these plans will differ from company to company and may require you to close your account.

8. Improve Your Credit Score

Better credit usually leads to better interest rates, which can lead to lower payments. Once you’ve significantly improved your credit, you may be able to negotiate a better rate with your current credit card issuer or qualify for other cards that have better rates. If you’re not sure where your credit stands, you can view two of your credit scores on Credit.com for free.

9. Pay Off Your Balance Each Month

Paying off your balance each month is the ideal way to use a credit card. It eliminates interest and keeps you from accruing debt. No matter your financial standing, paying off your balance in full each month should be the ultimate goal.

Trying to lower all your monthly bills? You can find a full 13 ways to lower your car insurance premium here. And if there’s a bill you just can’t seem to get down, let us know in the comments section below and we’ll get an expert to provide some suggestions!

Image: Juanmonino

The post 9 Ways to Lower Your Monthly Credit Card Payment appeared first on Credit.com.

Earnest: Personal & Student Loans for Responsible Individuals with Limited Credit History

Earnest - Personal & Student Loans for Responsible Individuals with Limited Credit History

Updated January 24, 2016

Earnest is anything but a traditional lender for unsecured personal loans and student loans. They offer merit-based loans instead of credit-based loans, which is good news for anyone just starting to establish credit. Their goal is to lend to borrowers who show signs of being financially responsible. Earnest is working to redefine credit-worthiness by taking into account much more than just your score.

They have a thorough application process, but it’s for good reason – they consider different variables and data points (such as employment history, education, and overall financial situation) that traditional lenders don’t.

Earnest*, unlike traditional lenders, says their underwriting team looks to the future to predict what your finances will look like, based upon the previously mentioned variables. They don’t place as much emphasis on your past, which is why a minimal credit history is okay.

Additionally, as their underwriting process is so thorough, Earnest doesn’t take on as much risk as traditional lenders do. With their focus on the financial responsibility level of the borrower, they have less defaults and fraud, which allows them to offer some of the lowest APRs on unsecured personal loans.

Personal Loan (Scroll Down for Student Loan Refinance)

Earnest offers up to $50,000 for as long as three years, and their APR starts at a fixed-rate of 5.25% and goes up to 12.00%. They claim that’s lower than any other lender of their type out there, and if you receive a better quote elsewhere; they encourage you to contact them.

Typical loan structure

How does this look on paper? If you needed to borrow $20,000, your estimated monthly payment would be $599-$638 on a three- year loan, $873-$911 on a two- year loan, and $1,705-$1,744 on a one-year loan. According to their website, the best available APR is on a one-year loan.

Not available everywhere

Earnest is available in the following 36 states (they are increasing the number of states regularly, and we keep this updated): Arkansas, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C., West Virginia, Wisconsin and Wyoming.

Get on LinkedIn

Earnest no longer requires that you have a LinkedIn profile. However, if you do have a LinkedIn profile, the application process becomes a lot faster. When you fill out the application, your education and employment history will automatically be filled in from your LinkedIn profile.

What Earnest Looks for in a Borrower

Earnest AppEarnest wants to lend to those who know how to manage and control their finances. They want borrowers to know the importance of saving, living below their means, using credit wisely, making timely payments, and avoiding fees.

They look at salary, savings, debt to income ratio, and cash flow. They want borrowers with low credit utilization – not those maxing out their credit cards and experiencing difficulty in paying.

Borrowers must be over 18 years old and have a solid education background. Ideally, they attended college or graduate school, have a degree, and have a history of consistent employment, or at least a job offer that gives them the opportunity to grow.

Overall, Earnest wants to make sure borrowers are taking their future as seriously as they are. After all, they’re investing in it! The team at Earnest knows that money often holds people back when it comes to being able to achieve their dreams and goals, and they’re all about helping borrowers get there.

For that reason, Earnest seeks to learn more about those that apply for loans with them. They review every line of your application, and they want to develop a lifelong relationship with their borrowers. They genuinely want to help and see their borrowers succeed.

The Fine Print – Are There Any Fees?

Earnest actually doesn’t charge any fees. There are no late fees, no origination fees, and no hidden fees.

There’s also no penalty for prepaying loans with Earnest – they encourage borrowers to prepay to reduce the amount of interest they’ll pay over the life of the loan.

Earnest states that one of its values is transparency (and of course, here at MagnifyMoney, that’s one of ours as well!), and they are willing to work with borrowers who are struggling to make payments.

Hala Baig, a member of Earnest’s Client Happiness team, says, “We would work with the client to make accommodations that are appropriate to help them through their situation.”

She also notes that if borrowers are late on payments, they do report the status of loans on a monthly basis.

What You Can Do With the Money

The $30,000 loan limit is enough to pay off debt such as an undergraduate student loan, medical debt, or consumer debt, relocate for a job, improve your home or rental property, help you fund a down payment, or further invest in your education.

Earnest’s APR is much, much better than you’ll receive on many credit cards, and it could be a viable way to decrease the burden of debt you’re currently experiencing.

Earnest logo 1

Apply Now

The Personal Loan Application Process

Earnest does a hard inquiry upon completion of the application. They’re very open about this on their website, stating that hard inquiries remain on credit reports for two years, and may slightly lower your credit score for a short period of time.

Compared to Upstart, their application process is more involved, but that’s to the benefit of the borrower. They aim to underwrite files and make a decision within 7 business days – it’s not instantaneous.

However, once you accept a loan from Earnest and input your bank information, they’ll transfer the money the next day via ACH, so the money will be in your account within 3 days.

Student Loan Refinance

When refinancing with Earnest, you can refinance both private and federal student loans.

The minimum amount to refinance is $5,000 – there’s no specific cap on the maximum you can refinance.

We encourage you to shop around. Earnest is one of the best options, but there are others. You can see the best options to refinance your student loans here.

Earnest offers loans up to 20 years. Unlike other lenders, Earnest allows borrowers to create their own term based on the minimum monthly payment you’re comfortable making. Yes, you can actually choose your monthly payment, which means the loan can be customized to your needs. Loan terms start at 5 months, and you can change that term later if needed.

You can also switch between variable and fixed rates freely – there’s no charge. (Note that variable rates are not offered in IL, MI, MN, OR, and TN. Earnest isn’t in all 50 states yet, either.)

Fixed APRs range from 3.75% to 6.64%, and variable APRs range from 2.76% to 6.24% (this is with a .25% autopay discount).

If you refinance $25,000 on a 10 year term with an APR of 5.75%, your monthly payment will be $274.42.

The Pros and Cons of Earnest’s Student Loan Refinance Program

Similar to SoFi, Earnest offers unemployment protection should you lose your job. That means you can defer payments for three months at a time, up to a total of twelve months over the life of your loan. Interest still accrues, though.

The flexibility offered from being able to switch between fixed and variable rates is a great benefit to have should you experience a change in your financial situation.

As you can see from above, variable rates are much lower than fixed rates. Of course, the only problem is those rates change over time, and they can grow to become unmanageable if you take a while to pay off your loan.

Having the option to switch makes your student loan payments easier to manage. If you can afford to pay off your loans quickly, you’ll benefit from the low variable rate. If you have to take it slow and need stability because you lost a source of income, you can switch to a fixed rate. Note that switching can only take place once every 6 months.

Earnest also lets borrowers skip one payment every 12 months (after making on-time payments for 6 months). Just note this does raise your monthly payment to adjust for the skipped payment.

Beyond that, Earnest encourages borrowers to contact a representative if they’re experiencing financial hardship. Earnest is committed to working with borrowers to make their loans as manageable as possible, even if that means temporary forbearance or restructuring the loan.

Lastly, if you need to lower your monthly payment, you can apply to refinance again. This entails Earnest taking another look at your terms and seeing if it can give you a better quote.

Who Qualifies to Refinance Student Loans With Earnest?

Earnest doesn’t have a laundry list of eligibility requirements. Simply put, it’s looking to lend to financially responsible people that have a reasonable ability to pay their loans back.

Earnest describes its ideal candidate as someone who:

  • Is employed, or at least has a job offer
  • Is at least 18 years old
  • Has a positive bank balance consistently
  • Has enough in savings to cover a month or more of regular expenses
  • Lives in AR, AZ, CA, CO, CT, FL, GA, HI, IL, IN, KS, MA, MD, MI, MN, NC, NE, NH, NJ, NY, OH, OR, PA, TN, TX, UT, VA, WA, Washington D.C., and WI
  • Has a history of making timely payments on loans
  • Has an income that can support their debt and routine living expenses
  • Has graduated from a Title IV accredited school

If you think you need a little help to qualify, Earnest does accept co-signers – you just have to contact a representative via email first.

Application Process and Documents Needed to Refinance

Earnest has a straightforward application process. You can start by receiving the rates you’re eligible for in just 2 minutes. This won’t affect your credit, either. However, this initial soft pull is used to estimate your rates – if you choose to move forward with the terms offered to you, you’ll be subject to a hard credit inquiry, and your rates may change.

Filling out the entire application takes about 15 minutes. You’ll be asked to provide personal information, education history, employment history, and financial history. Earnest takes all of this into account when making the decision to lend to you.

The Fine Print for Student Loan Refinance

There aren’t any hidden fees – no origination, prepayment, or hidden fees exist. Earnest makes it clear its profits come from interest.

There are also no late fees, but if you get behind in payments, the status of your loan will be reported to the credit bureaus.

Earnest logo

Apply Now

Who Benefits the Most from Earnest

Those in their 20s and 30s who have a good grip on their finances and are just getting started with their careers will make great borrowers. If you’re dedicated to experiencing financial success once you earn enough money to actually achieve it, you should look into a loan with Earnest.

If you have a history of late payments, being disorganized with your money, or letting things slip through the cracks, then you’re going to have a more difficult time getting a loan.

Amazing credit score not required

You don’t necessarily need to have the most amazing credit score, but your track record with money thus far will speak volumes about how you’re going to handle the money loaned from Earnest. That’s what they will be the most concerned about.

What makes you looks responsible?

Baig gives a better picture, stating, “We are focused on offering better loan alternatives to financially responsible people. We believe the vast majority of people are financially responsible and that reviewing applications based strictly on credit history never shows the full picture. One example would be saving money in a 401k or IRA. That would not appear on your credit history, but is a great signal to us that someone is financially responsible.”

Conclusion

Overall, it’s very clear that Earnest wants to help their borrowers as much as possible. Throughout their website, they take time to explain everything involved with the loan process. Their priority is educating their borrowers.

While Earnest does have a nice starting APR at 4.25%, remember to take advantage of the other lenders out there and shop around. You are never obligated to take a loan once you receive a quote, and it’s important to do your due diligence and make sure you’re getting the best rates out there. If you do find better rates, be sure to notify Earnest. Otherwise, compare rates with as many lenders as possible.

Shopping around within the span of 45 days isn’t going to make a huge dent in your credit; the bureaus understand you’re doing what you need to do to secure the best loan possible. Just make sure you’re not applying to different lenders once a month, and your credit will be okay.

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The post Earnest: Personal & Student Loans for Responsible Individuals with Limited Credit History appeared first on MagnifyMoney.

This Dating Site Questions Your Credit to Help You Find Romance

More often than not, dating begins with the exchange of a number. But perhaps it’s the wrong one.

Instead of trading digits with someone you’re interested in, maybe the first information you offer up should be your credit score. (You can view two of your scores for free on Credit.com.)

It’s certainly a unique spin on the dating game, and one being championed by Niem Green, founder of the site Creditscoredating.com and author of a recently released book about dating and money called “Credit Score Dating: The Sexiness of Credit.” Yes, good credit is sexy, Green said. And bad credit doesn’t have to be a deal breaker, it should just be discussed upfront.

“One of the biggest causes of divorce is finances,” Green said. “The problem is that often people don’t talk about finances. So when I started this site, I figured at the very least I’m creating the icebreaker to have this conversation.”

Green may be on to something. Many surveys show money is one of the primary things couples squabble about. A 2016 study from the American Institute of CPAs found that money issues are a source of weekly and daily stress in relationships. In particular, 88% of adults 25 to 34 who are married or living with a partner said financial decisions are a source of tension in their relationship. Only 42% have discussed their long-term financial goals as a couple.

If the thought of discussing finances with a stranger, let alone on a dating website, makes you uneasy, here’s what you need to know.

How it Works

Green’s site is based on the honor system. Users are asked to provide their credit score as part of creating a profile, but the site does not check the accuracy of the scores. (You can learn how credit scores are calculated here.)

Green said he’s created an algorithm that uses a series of questions to suss out financial habits and whether they’re being honest about their score. The questions cover topics such as delinquent accounts in the past and what they would do with a sudden cash windfall. The answers are included on each user’s profile, alongside other pertinent dating information like age and hobbies. In addition, the information gleaned by the algorithm, which Green said has a 92% accuracy rate, is used to match compatible site users.

“I’ve trained my algorithm to think like me, a former underwriter, and based on the answers to your profile questions, the algorithm is able to asses what your credit score likely is,” Green said. “But it’s not about matching people who have the exact same credit score. It’s more about matching people who are financially compatible. It’s about how people handle their finances.”

As an underwriter, Green often found that couples sitting on the other side of the table had no idea of their partner’s credit score and had not had important conversations about each other’s financial history. Green’s dating site was an attempt to fix this. People need to know their potential partner’s weaknesses upfront so they can make informed decisions, Green said.

In addition, the answers to the algorithm’s questions indicate how well someone handles commitment and deals with pressure and more, Green said.

The site is free to use and has about 500,000 members, of which 60,000 to 80,000 are active on a monthly basis.

Beyond the Algorithm

No matter how you meet, Green and other financial experts said discussing your partner’s approach to money, credit and finances in general is critical. Green suggests financial role playing if you’re getting serious.

“If you’re thinking of having a baby with this person, then go through the role playing of ‘Let’s take a look at how much it would cost’ and how we would handle the costs,” he said. “You could do the same thing to determine how someone would handle an unexpected financial emergency if something really bad happens. You talk about how are we prepared for it and see how that person is really built.”

Ronit Rogoszinski, a certified financial planner, devoted a chapter in her book, “Money Talks: 100 Strategies to Master Tricky Conversations about Money,” to the topic as well. She said credit scores and attitudes about money will have a variety of impacts throughout the life of a relationship and like Green suggests establishing an open dialogue about finances from day one.

“If someone is coming into a relationship with, let’s say a huge student loan, that burden may in fact delay the purchase of that first home the couple may want to own down the road,” Rogoszinski said. “Knowing the numbers upfront and putting together a joint effort to address these individual debts is crucial and helps establish realistic expectations.”

Image: ArthurHidden

The post This Dating Site Questions Your Credit to Help You Find Romance appeared first on Credit.com.

Here’s How Many People Actually Have the Worst Credit Score

It is possible to have a rock-bottom credit score. Find out exactly how many U.S. residents meet this dubious threshold.

As confusing as credit scores can be, most people get the basic concept: You want a high score, not a low one. What qualifies as a good credit score depends on the scoring model you’re talking about (and there are dozens of them), but a common range is 300 to 850. The higher your score, the better. You don’t have to aim for an 850 to get the best terms on a loan or qualify for top-tier credit cards, but anywhere in the high 700s is a good place to be.

Ideally, you’re not anywhere near the bottom of the range, but it is possible to have a 300 credit score on a 300 to 850 scale. The good news: A very small portion of the population has such a score. The bad news: Some people do.

How Many People Have the Worst Credit Score?

There are 294 million “scoreable” consumers, and only 0.01% of them had a 300 credit score, according to data credit bureau TransUnion pulled for Credit.com in March 2017. (A scoreable consumer is someone with enough information in their credit files to generate a VantageScore 3.0. TransUnion said 4.28% of the population is not scoreable.) While 0.01% is a really small portion of consumers, it still means 29,400 people have the worst credit score (on the VantageScore 3.0 scale). In other words: It’s totally possible for your credit to hit rock-bottom. (You can see where you stand by getting two of your credit scores for free on Credit.com.)

 

Though it’s uncommon to have the worst credit score, having bad credit isn’t. More than a quarter (27.66%) of consumers have a credit score between 300 and 600, which is considered bad credit or subprime credit. Conversely, 20% have a super prime credit score (781 to 850). The average credit score was 645 when TransUnion pulled the data.

How to Deal With Terrible Credit

TransUnion didn’t identify common factors among consumers with a 300 credit score, but they pointed out some characteristics of subprime credit files: “Generally speaking people with poor credit (300-600 score) usually make late payments, only contribute the minimum amount, carry high percentage balances on multiple cards and apply for multiple lines of credit within a short period of time,” said Sarah Kossek, a spokeswoman for TransUnion, noting that the factors vary by individual.

So if you want to avoid joining the population of people with bad credit (or you want to get out of the club), it’s smart to make credit card and loan payments on time, pay down your debts, use a very small portion of your credit card limits and apply for credit sparingly. It’s also a good idea to regularly review your credit reports for accuracy, as errors may be hurting your credit. You can pull your credit reports for free each year at AnnualCreditReport.com.

If your credit is the worst, figuratively or literally, well, you can find a full explainer on how to fix it right here.

Image: mikkelwilliam

The post Here’s How Many People Actually Have the Worst Credit Score appeared first on Credit.com.

Notice Something Different About Your Free Credit Report Card? Allow Us to Explain

Credit.com’s free credit report card has changed — Here's what that means for you.

Hey, credit-builder: The team here wanted to let you know that Credit.com’s free credit report card has changed. Don’t worry, you’ll still be getting two free credit scores, along with a letter grade for how you’re doing in the five key credit scoring categories: payment history, debt usage, credit age, account mix and inquiries.

But, starting April 11, the three-digit-number located in the upper left corner of your credit report card, along with your customized action plan, will reflect your VantageScore 3.0 Advantage Score. Previously, the credit report card was based off of your Experian National Equivalency Score (NES), which is your secondary score, visible once your click the “Other Scores” hyperlink.

Why are we making the switch? Well, as you may have heard, there are lots of different credit scores out there, but the most widely known models, including the VantageScore 3.0, follow a range of 300 to 850. The NES score, on the other hand, follows a less common range of 360 to 840. Plus, as you may have gathered, it’s used solely by Experian, whereas VantageScore 3.0 is used by all three of the major credit reporting agencies: Equifax, Experian and TransUnion.

The swap will help us provide you better credit card recommendations as you monitor and improve your credit score. It should also clear up some confusion, as the 300 to 850 range is the one most people are familiar with.

You can find more on VantageScore here. And, to give you an idea of where your credit stands generally, here’s how the ranges on both scores break down.

Vantage 3.0 Score: 300 to 850

Excellent Credit: 750+
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: below 600

NES Score: 360 to 840

Excellent Credit: 750+
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: below 600

In either case, if your scores have been fluctuating, your credit report card should provide some valuable insights as to why. Remember, while scores and their associated algorithms vary, they are all based on information in your credit reports, so focusing on your risk factors or negative line items should help you boost your standing across the board.

We get it: All this credit stuff can be confusing and it’s easy to stress about whether you’re acing every score. However, instead of trying to track down all your digits (which is pretty much impossible anyway, given lenders buy proprietary algorithms), it’s a good idea to compare apples to apples by choosing a common score, like VantageScore 3.0, and monitoring your standing over-time.

Our credit report card will provide some helpful hints for how you can improve along the way.

And, so long as you pull your full credit reports from each credit bureau regularly and/or right before you apply for a loan, you shouldn’t be in for any major surprises. (Remember: Viewing your own credit doesn’t damage your scores.) You can get your credit reports for free every 12 months by visiting AnnualCreditReport.com. Checking them will help you spot any errors or line items that might be on only one of your credit files. (Some lenders just report to one credit bureau.) If you find an error, be sure to dispute it. And don’t hesitate to reach out with any credit-related questions in the comments sections below. Our Credit Experts will do their best to help!

Image: Georgijevic

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A New Credit Scoring Model Is On the Way: Here’s What to Expect

VantageScore is rolling out a new version of its credit score model this fall.

A new credit scoring model — expected to roll out in fall 2017 — aims to more accurately measure credit risk by using more historical data and machine-learning techniques while culling less reliable information.

On Monday, VantageScore Solutions announced the release of the fourth version of its credit scoring model, to be used by the three national credit bureaus. (It may seem like these credit scoring models don’t change much, but they do update from time to time. You can find out 13 ways credit scores have changed in the past 20 years here.)

VantageScore 4.0 improves on its predecessor in three main ways, said Sarah Davies, senior vice president of product management and analytics for VantageScore. First, it looks at a consumer’s credit behavior over time, incorporating more of what’s known as “trended data.”

For example, the score takes into account how a consumer’s credit balance has changed over a period of months, rather than taking a single snapshot in time. This has made the score upwards of 20% more predictive than 3.0 for customers with good credit, Davies said.

The new model also excludes a lot of public record information, especially liens and judgments. In many cases, Davies said, this information was difficult to accurately link to individual consumers.

“In all likelihood, almost all civil judgments will be removed from credit files and a substantial portion of tax liens will be removed from credit files,” Davies said.

With this new model, medical collections won’t be reported on credit files until after six months have passed. That’s because there is often confusion as to whether the consumer or insurer is responsible for the payment, Davies said.

The third big update is the use of machine-learning techniques to help score consumers with thin credit files. VantageScore used large data-processing platforms to examine thousands and thousands of combinations of consumer behaviors to identify which ones were associated with people paying their bills on time.

Despite the high-tech method, this led to some intuitive conclusions, Davies said. For example, for consumers with big collections accounts, VantageScore was able to parse out that those who are looking for credit are higher risks than those who aren’t.

It seems obvious, but a human may not have identified this as a risk factor. Davies said the technique has made VantageScore 4.0 about 17% more predictive than its predecessor for people who haven’t used credit in the last six months and 30% more predictive for people who don’t have activity on any accounts, just collections.

What Leads to a Good Score?

VantageScore still rewards the same behavior as any other credit scoring model, Davies said. The model uses the same 300-to-850 scoring range familiar to many people. (You can find out more about what a good credit score consists of here.)

“You’ve still got to pay your bills on time,” she said. “You should still keep your credit card balances low. What this is going to do is look more thoroughly and holistically at some of the other pieces of data.”

VantageScore, which launched in 2006, claims to be able to assign scores to more than 30 million people than traditional models, like the widely used FICO score. The 4.0 version, however, will likely score about 500,000 fewer people than its predecessor because of the removal of many civil judgments and tax liens from credit files.

The removals are part of expected changes coming to credit reports as part of the National Consumer Assistance Plan, an effort by the three major credit reporting agencies expected to boost scores for many people. The agencies agreed to the plan in order to settle an investigation by 31 state attorneys general in 2015.

VantageScore vs. FICO

While Davies didn’t have numbers on how often VantageScore is used compared to FICO, she said VantageScore is increasingly popular. Version 3.0 was used 8 billion times in 2016, she said, up from 6 billion the prior year. (You can see your VantageScore 3.0 for free on Credit.com.)

More than 2,000 financial institutions use VantageScore and most credit issuers, she said. The fourth version of VantageScore has shown improvements in predicting mortgage risk, and Davies said the company hopes the new score will help them break into the mortgage market.

Davies said it would be naive to think that VantageScore could end the dominance of FICO, but the goal is to improve the scoring marketplace overall.

“The ideal world would be that we have meaningful market share, but that, more than anything, we’re an organization that’s about pushing all scoring organizations to deliver better products,” she said.

Image: NKS_Imagery

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Get The Highest Credit Score Possible: New Credit Card Study Reveals the Key

Getting a high credit score can make it easier for consumers to save on life’s biggest purchases. But many Americans who are stuck with average or below average credit may find it difficult to move up the credit score ladder.

In a new study, MagnifyMoney, a leading financial comparison and education website, partnered with  VantageScore Solutions to see how much credit consumers are using — and how that impacts their credit score.

In the study, VantageScore delved into the credit score profiles of U.S. consumers who are using credit cards in 2017. Scores analyzed were on a 300 – 850 scale, using the VantageScore 3.0 score model.

We decided to home in on utilization — that’s how much credit people are using compared to how much credit they have available to them. Then, we looked at how their credit utilization corresponded to their credit score.

What we found is that people with excellent credit share one main trait in common: They have incredibly low utilization rates.

If you want the highest score, you need to make sure you haven’t missed any payments in the past and don’t have any public records, collection items or judgments. However, what this data shows is that even if you have a perfect payment history, low utilization is critical to get the highest score.

Key findings include…

  • The best scores have 16x the credit limit of the worst scores: People with the best scores (above 800) have available credit of $46,735, 16x that of the $2,816 of those with the worst scores (below 450), but their outstanding balances are about the same at $2,231 (above 800) vs $2,653 (below 450)
  • People with scores 601-650 have the biggest credit card bills: People with scores between 601 and 650 carry the biggest balances, at over $10k, or nearly 2x the average of all consumers.
  • The average credit card holder has $29,197 in credit lines. With an average balance of $5,720, the average holder is using 20% of available credit.
  • Getting above 700 is the biggest hurdle. People with scores 701-750 have average utilization of 27% vs 47% for those with scores 651-700, the biggest utilization gap of any score band. Average balances for people with scores 651-700 are about $3,000 higher than those with scores in the 701-750 range.

The Power of the Utilization Rate

One of the most influential metrics in credit scoring is called “revolving utilization.” This metric, informally referred to as the debt-to-limit ratio, calculates just how leveraged your credit cards are at any given time by comparing your balances to your credit limits. According to VantageScore, and using data provided by the three credit reporting agencies, people with credit scores above 800 have an average debt-to-limit ratio of just 5%.

To calculate the debt-to-limit ratio you must do a little math. The first thing you’ll do is add up the balances on all of your credit cards, which includes retail store and gas credit cards. Now add up the credit limits of those same cards and any other unused credit cards. Now you’re ready to do the math. Divide the total credit card balance by the total credit limit, and then multiple that number by 100 and you’ll get your percentage.

NOTE: Do NOT include any balances or original loan amounts from installment loans like mortgages, student loans, or auto loans. Revolving utilization is only calculated from your revolving credit card accounts.

Inside the Wallet of Someone With Perfect Credit

As you can see from the chart below, those of you with VantageScore credit scores over 800 have an average debt-to-limit ratio of just 5%. The math it took to get to 5% looks something like this: you have an average total balance of $2,231 and an average total credit limit of $46,735. When you divide $2,231 by $46,735 you get 5% — 5% is a fantastic debt-to-limit ratio. This is where you want to be!

Inside the Wallet of Someone With Bad Credit

On the other end of the score range — those of you with the lowest possible scores, 450 and below — you have an average debt-to-limit ratio of 94%, which is very high and very poor. Your average total balance is $2,653 and an average total credit limit of $2,816. When you divide $2,653 by $2,816 you get 94%. Ninety-four percent is simply too high and a significant reason why your scores are so low. This is not where you want to be!

 

It is important to point out that the debt-to-limit ratio is just that, a ratio. It’s all about the relationship between the balance and credit limit, not so much how large or how small your balances are or how large or how small your credit limits are. In fact, the people whose scores are the very lowest don’t have that much more average credit card debt than the people with the highest scores — $2,231 for the high scorers and $2,653 for the low scorers.

The significant difference between the two populations is in the credit limits. The folks with the highest scores have the largest total credit limit, $46,735 as compared to $2,816 for the people with the lowest scores.

You can see just how problematic it is to have lower limits as it makes even modest credit card balances very problematic for your credit scores as they take up a considerable portion of your available credit. You get too close to maxing out your available credit too quickly.

Use These Findings to Boost Your Credit Score

Here are MagnifyMoney’s tips on improving a low credit score:

Step 1: Get a line of credit

In order to establish credit history, you need to have a form of credit. The simplest way for you to begin will be to open a credit card. If your score is low or non-existent, then you’ll need to apply for a secured card or a store card.

  • Secured Card:  You’ll use your own money as collateral by putting down a deposit of a few hundred dollars with the bank. Typically, that amount will then be your credit limit. Once you prove you’re responsible, you can get back your deposit and upgrade to a regular credit card. [Read more here]

  • Store Card: People with a low credit score can often still get store cards because banks are more likely to approve users who apply through the store. The catch is that the interest rates are often very high if you can’t make your payments. [Read more here]

Step 2: Keep your utilization rate low

Utilization is the amount of your credit limit you spend each month. For example, if you have a $500 credit limit and spend $50 in a month, you’re utilization will be 10%. Your utilization is part of what determines your credit score.

Your goal should be to never exceed 30% of your credit limit. Ideally, you should be even lower than 30% because the lower your utilization rate, the better your score will be.

We recommend you make one small purchase (hello, pack of gum) a month to keep your utilization low and help increase your credit score at a faster rate.

Step 3: Pay in full, and on time, each month

The easiest way to prove you’re responsible is to only charge what you can afford. Never use your credit card to buy an item you won’t be able to pay off on time and in full each month.

Being late on your payments has a huge, negative impact on your credit score.

There is also no advantage to only paying the minimum amount due on your card. That will only result in you paying interest and does nothing to help your credit score. So just save yourself money and pay your entire bill.

Step 4: Avoid credit card debt

This goes hand-and-hand with step three. By only purchasing what you can pay off in full, you’ll never accumulate credit card debt.

If you’re already in debt from the misuse of credit cards, then make sure you continue to pay at least the minimum due on time each month. Paying on time is the number one indicator of a responsible borrower. You should consider applying for a personal loan, and using the money from the loan to pay off your credit card debt. Personal loan companies have interest rates that start as low as 4.25%, and they are approving people with credit scores as low as 550. You can shop around for a personal loan without hurting your score, because the lenders will approve you using a soft pull (which doesn’t impact your score). A recent study by Lending Club showed that people who paid off their credit card debt with a personal loan saw their score increase by 31% on average, right away. You can look for the best personal loans using this personal loan tool. After you pay off your credit cards with the proceeds on the loan, do not build up your debt again. Instead, just make one purchase each month and pay it off in full.

Once you pay off your cards, resist the urge to close them. Closing your cards will not only lower your utilization but remove history which damages your score in the “length of history” category.

Step 5: As your score improves, so do your options for better credit cards

You’ll start to get credit card offers as you begin to build your credit history and improve your score. Credit card companies still love sending snail mail.

Beware of any offers, especially for cash back cards, while your score is below 650. These cards typically provide little value and can smack you with high interest rates if you fail to follow step three.

Not sure if an offer is a good deal? Try checking it out in our cashback reward cards page. Our Magnify Transparency Score will let you know if it’s the real deal.

Once you get your credit score above 680, the good credit card offers will start rolling in. You can have your pick of the top-tier reward credit cards and start using your regular spending to get cash back or rack up points for travel.

Step 6: Protect your score

Once you’ve achieved a higher credit score, but sure to protect it by following these simple steps:

  • Always pay on time – late or missed payments will cost you dearly

  • Try to keep your credit used below 30% of your available credit

  • If you apply for a store card to increase your credit then immediately put in the freezer (literally if you have to) and avoid spending

  • Be sure to check your credit reports for accuracy and signs of fraud – you’re entitled to one free report per year from each of the three credit bureaus

If you have any questions or just want a helping hand, please reach out to us at info@magnifymoney.com or tweet us @Magnify_Money.

The post Get The Highest Credit Score Possible: New Credit Card Study Reveals the Key appeared first on MagnifyMoney.

Credit Bureaus Announce Free Credit Freezes for Military Members

Active-duty military members are given a number of financial protections, and the major credit reporting agencies just added one more perk to that list.

Active-duty military members are given a number of financial protections that average consumers aren’t privy to, and this week the major credit reporting agencies added one more perk to that list — free credit freezes.

The move was announced Wednesday in a release from the Consumer Data Industry Association, a trade group that represents the major credit reporting agencies. Experian, Equifax and TransUnion are all participating in offering free credit freezes for active-duty military, which is expected to roll out in the first half of 2018.

Freezes are a tool used for identity theft victims to stop their credit from being used without their permission. It essentially blocks anyone from opening new lines of credit using the consumer’s identity, unless the consumer has the freeze temporarily lifted or removed.

“Given the nature of the military lifestyle, with frequent location moves and overseas deployments, these brave men and women, and their families, may find it particularly challenging to address an identity theft situation,” said Eric J. Ellman, Interim President and CEO of CDIA.

Placing, lifting or removing a security freeze can cost up to $10 each time, depending on the state you live in and the bureau offering it. Active-duty military members already can place a one-year credit alert on their file for free, though this will not stop a new application for credit by default like a freeze would. The alert just requires the lender or creditor to take extra measures to ensure the applicant is legitimate.

Identity theft can do major credit score damage both upfront and in the long term. An identity thief with enough information to apply for credit in your name can make a bunch of applications for credit in a short period of time before you notice the theft. That will cause an immediate drop in your score by inflating your inquiries. And if the theft goes unnoticed, any new accounts that they’ve opened will go without payment, sinking your score even more.

The move by the bureaus to offer free credit freezes is especially important when you consider the long-lasting impact of identity theft on military members and veterans. Buying a home, getting credit cards, even starting a business (9% of U.S. businesses are veteran-owned, according to the Small Business Administration) are extremely difficult to do with a bad credit score, and identity thieves with personal information like your Social Security number can lie in wait for years since these numbers rarely change, hurting servicemembers long after the theft has occurred.

The best protection against identity theft is vigilance. Keep an eye on your credit reports and scores, checking for signs of identity theft. (You can see two of your credit scores for free right here on Credit.com.) Keep your personal identifying information on lockdown. And if you still find your information being used fraudulently, credit alerts or freezes can help keep you safe.

Image: AleksandarNakic

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