3 Things You Must Do Before You Lease a Car

Three Things You Must Do Before You Lease a Car

I tend to drive my cars until they die, and a couple of years ago that’s what happened. In need of a new car, but not sure what I wanted for the long-term, I considered leasing a vehicle. But if buying and financing a car seemed confusing, leasing seemed even more overwhelming. I ended up buying instead.

Turns out, though, that while leasing isn’t for everyone, it can have some advantages. Lower monthly payments and more flexible credit score requirements may be two of them.

If you are thinking about leasing, here are three things you can do to help improve your chances of getting approved.

1. Check Your Credit

Your credit score plays a key role in the lease you get. “There are going to be different tiers of credit that will be evaluated,” said Scot Hall, Executive Vice President of WantALease.com, an online marketplace for new lease deals. “If you have better credit, you will get better rates unless it’s a dealer-subsidized lease.”

Checking your credit reports at least a month before you plan to start shopping is ideal, since that will give you time to dispute and fix mistakes. While you are at it, check your free credit scores as well (you can access two of your scores free on Credit.com). You will get an idea of where you stand and whether there are potential issues with your credit.

What kind of credit scores are required to qualify for a lease? “(If) you do have good credit it really unlocks the door to the best lease deals. You’ll be able to take advantage of some of the lease specials,” said Edmunds.com Consumer Advice Editor Ron Montoya.

In addition, it may be easier to qualify for a lease than a loan on certain vehicles, at least when it comes to your credit scores. The make and model of the vehicle you choose will also affect your options. Experian Automotive found, for example, that the average credit score of someone who took out a loan for a new Jetta in the fourth quarter of 2014 was 716, while the average credit score for someone leasing one was 692. But for someone driving a new Grand Cherokee, the average credit score for a loan borrower was 735, while the average credit score for a lessee was 728.

average credit score

2. Know Your Cash Flow

One of the distinct advantages of leasing is that it may allow you to pay less per month than if you financed the same vehicle. According to Experian Automotive, the average monthly payment for a new lease was $420 in the fourth quarter of 2013, and the majority of leases (66%) were for a 24- to 36-month term.

But your lease payments may be lower than a loan payment for a similar vehicle. For example, the average lease payment for a Jetta was $287 while the average loan payment was $389. And for a Grand Cherokee, the loan payment averaged $611, compared to $470 for the lease payment.

average payment

Keep in mind that these monthly payments don’t take down payment or trade-in into account. And if you lease, you’ll either have to turn in the vehicle or purchase it when the lease term is up. “Consumers need to fully understand any potential cost on the back-end and be sure they can meet the terms of the lease – such as mileage limits and wear and tear,” said Melinda Zabritski, senior director of automotive credit for Experian Automotive.

3. Don’t Just Shop for a Car, Shop for a Lease

Unlike auto loans (which are available from a variety of sources including banks, credit unions, dealers and even online), leases today are largely controlled by the manufacturer. “Nearly all leases are done on a captive basis,” said Hall. For example, “Ford Motor Credit Company does most of the leases for Ford vehicles.”

That means you may be able to get a better deal if you are flexible and willing to consider a vehicle from a different manufacturer.

In addition to credit, the company offering the financing looks at your debt-to-income ratio and the “lease-to-value” ratio – in other words, how much you are financing compared to the value of the vehicle, said Hall. If you are having trouble qualifying, you may need to put additional money down or get a co-signer, he adds.

The good news is most people who apply for a lease qualify for one. Lease approval rates during the month of January were above 70%, according to SwapALease.com. Though that’s down from 73% in December of 2013, it’s up from September 2013 when a little more than 62% of applications were approved.

And there’s still another option: If you’re not ready to commit to a two- or three-year lease, you can consider taking over the remaining term on someone else’s lease. As long as your credit is in the same “tier” or better than the person whose lease you are assuming, you shouldn’t have much trouble qualifying, says Hall. Sites like SwapALease.com and LeaseTrader.com help bring together consumers who want to get out of leases and those who want to assume one and allow you to try out leasing without a longer-term commitment.

Image: Len44ik

This article has been updated. It originally ran on March 20, 2014.

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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

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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

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4 Ways Your Credit Card Can Help You Build Credit (For Real)

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For plenty of people — and millennials especially — a credit card is a scary prospect. And we get why: Phenomenal spending power plus itty-bitty charging restrictions equals a major opportunity to go into debt.

But if you’re foregoing credit cards completely, you could be making it harder on yourself when it comes to another important facet of your finances: building a solid credit score. That’s because credit cards are fairly easy to qualify for — there’s actually a whole category of them designed specifically for people who need to build or rebuild. (You can monitor your progress by viewing two of your credit scores for free on Credit.com.)

Plus, while installment loans (think auto loan or mortgage) come with an automatic price tag and, more often than not, automatic interest, you don’t need to take on debt to build credit with a credit card. That’s actually a common misconception, but, trust us, no balance here required.

To help you how to best leverage your plastic, here are four ways a credit card can help you build credit.

1. You’ll Establish a Payment History

And that’s the number one most important factor when it comes to credit scores. Of course, to build good credit, you’ll want to make all of your credit card payments on-time. (One misstep can really cost you and your score.) To avoid any blemishes, set up alerts that reminds you when your due date approaches or even consider setting up auto-payments each month. Just be sure to keep an eye on your statements for any errors or fraudulent charges.

2. Its Limit Can Bolster Your Credit Utilization Rate

That’s how much debt you’re carrying versus your total credit. Experts generally recommend keeping your credit utilization below at least 30% and ideally 10% of your total available limit(s) — which is easier to do when you have a credit card you’re consistently paying off in full.

3. Your Credit Will Start to Age

And that’s a good thing because length of credit history accounts for about 15% of your credit scores. Length of credit history, also referred to as the age of your credit, is essentially how long you’ve had your credit lines. When it comes to building credit in this category, there’s little credit newbies can do, except, you know, wait. But because a credit card represents one of the easier points of entry into the financing world, that plastic in your wallet can help you get started.

4. You Could Be Rewarded for Having a Mix of Accounts

Credit scoring models like to see that you can manage different types of credit. So, if you’ve got an installment loan on your file — like, say, that student loan you took out to pay for college — adding a revolving line of credit, like a credit card or home equity line of credit, could improve your performance in this key credit category. Mix of accounts, or credit mix, accounts for roughly 10% of the points in your credit score.

Of course, there are ways to build credit outside of simply using your own credit card. That includes looking into credit-builder loans at your local bank or credit union or becoming an authorized user on a friend or family member’s credit card. (The account will appear on your credit file and bolster your performance in the aforementioned credit scoring categories, but you won’t be liable for the charges.) And if your credit is kind of shoddy, you can try disputing any errors on your credit report, limiting credit inquiries and addressing accounts in default. You can find a full 11 ways to improve your credit scores here.

Got a credit score question? Ask away in the comments section and one of our experts will try to help!

Image: g-stockstudio

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9 Signs You’re on Your Way to a Perfect Credit Score

Because we get it: Sometimes you just have to have that A-plus.

Hey, there, overachiever. Are you really trying to attain a perfect credit score? Here’s the thing: You don’t need to. Any score over 760 will pretty much net you a lender’s best rates and terms. Plus, even if you do score that elusive 850, you probably won’t keep it for long. Credit scores are mercurial: They change as new information hits your credit report or, most notably, as your loan balances go up and down. (Translation: Perfection is fleeting.)

But we get it. Sometimes you need that A-plus. So, in the interest of indulging your financial dreams, here are nine signs you could one day see a perfect credit score.

1. You’ve Never Missed a Loan or Credit Card Payment …

Payment history is the most important factor of credit scores, accounting for 35% of most popular scoring models. Plus, one little slip can do big damage once it hits your credit report — and it can stay on record for up to seven years. In other words: Don’t expect to see the highest score ever if you’ve missed a payment (or two) in that time frame.

2. … Or Any Other Bill’s Due Date for That Matter

Sure, utility companies, doctors, gyms and other service providers don’t routinely report missed payments to the credit bureaus, but collection agencies do. And, if you leave any old bill unattended long enough, that’s where the debt might end up, with a credit score fall to follow.

3. Your Debt Levels Are Virtually Non-Existent

The rule you commonly hear involves keeping the amount of debt you owe below at least 30% and ideally 10% of your total credit limit(s), particularly when we’re talking credit cards. If you’re trying to achieve credit perfection, you’ll want to focus on the ideal part.

Expert Intel: It’s a bit of a misnomer that you need to carry debt to build credit — you simply need to have credit accounts on the books that are being managed responsibly. So, for instance, someone could conceivably build a good credit score with a single credit card they pay off in full each month. People with 850s tend to have more than one loan on the books (more on this in a minute), but you’ll be best served in the long run by adding financing as you truly need (and can afford) it.

4. You’ve Had Good Credit for a While …

There’s a reason older demographics tend to have higher credit scores: Credit history, or the length of time you’ve been responsibly using credit, accounts for 15% of most scores. Technically, though, this category doesn’t have anything to do with your age. Instead, your credit history “starts” when you open your first credit account.

5. … But Haven’t Applied for Any New Loans Recently

That’ll boost your credit history, which also factors in the average age of your credit accounts. Plus, loan applications generate credit inquiries, which can ding your score for up to one year and hang out on your credit report for up to two. (More on how long stuff stays on your credit report here.)

6. You’ve Got a Mix of Credit Accounts on the Books

Credit scores give you maximum points for responsibly managing different types of credit. That’s why having, say, a mortgage, an auto loan and a credit card (or two) — all in good standing — tends to be a common characteristic of people in the 850 club. In technical terms, this means you have revolving lines of credit, like a credit card, and an installment loan, like that mortgage, on the books.

7. Your Public Record Is Clean

Judgments and liens can wind up on your credit file, though there are indications that will soon be changing. For now, though, a matter of public record could wind up hurting your credit score.

8. Your Credit Report Is Error-Free

Credit report errors can happen for a number of reasons and most misinformation will needlessly harm your credit. To achieve perfection, your file needs to be pristine — which you can help to ensure by diligently pulling your free annual credit reports from each major credit reporting agency and disputing any error you see.

9. You Keep a Compulsive Eye on Your Standing

You know the old adage “if a tree falls in a forest and no one’s around to hear it, does it make a sound?” Well, the same can be said about an 850 credit score. You’ve got to play all your credit cards right, and then you’ve got to be lucky enough to check your score at the precise moment perfection strikes. (Like we said earlier, that 850 probably isn’t going to stick around for long.) Fortunately, you can view two of your free credit scores, updated every 14 days, on Credit.com.

Image: m-imagephotography

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Are Fast Cars More Expensive to Insure?

Are fast cars more expensive to insure? Not quite, and here's why.

Even just a decade ago, cars weren’t nearly as fast as they are today. In fact, 300 horsepower was expected only from V-8 engines, writes Forbes. But because of “direct fuel injection, turbocharging and other advances in engine technology and design, power and speed can be bought in a range of body styles, vehicle sizes and powertrain configurations.”

Speed — as measured by quickness of acceleration and pure engine power, and not top speed, which only matters on race tracks — is now more accessible than ever, and as Tesla just proved, as cars move to electric power, we might see faster and faster cars on the road. Tesla’s Model S is now the third fastest car in the world, writes The Verge (behind just the Ferrari LaFerrari and the Porsche 918 Spyder — both million-dollar hypercars). Upgrades to the battery allow the Model S to go from 0 to 60 mph in 2.5 seconds, making us wonder: Do the fastest cars cost more to insure?

We looked at cars people might actually drive (we’ll save concept cars and supercars for another list and another day) and calculated insurance premiums based on a standard profile: a 30-year-old single man living in Austin, Texas (ZIP: 78702), who rents his home, owns his car, has a good driving history, a good credit score, and has had consistent insurance coverage for a basic level of insurance with a national carrier. (You can view two of your credit scores, with helpful updates every two weeks, for free on Credit.com.)

Keep in mind, the time it takes for a car to accelerate from 0 to 60 mph can vary widely based on each driver’s skill, so results may vary. In no particular order (because their specs and model years differ), here are 10 of the fastest cars on the road and their stats.

1. 2017 Chevrolet Camaro
MSRP: $37,900
Engine Details: 6.2-liter V8, 455 horsepower
Acceleration Speed: 0-60 in 4.0 seconds
Average Yearly Insurance Premium for a Chevy Camaro: $1,620

2. 2016 Jaguar XJR
MSRP: $118,000
Engine Details: 5.0 Liter V8 550 HP Supercharged
Acceleration Speed: 0-60 in 4.4 seconds
Average Insurance Premium: $2,148

3. 2017 Cadillac CTS-V
MSRP: $85,995
Engine Details: 6.2-liter V, 640 horsepower
Acceleration Speed: 0-60, 3.7 seconds
Average Yearly Insurance Premium: $2,112

4. 2016 BMW M5
MSRP: $94,100
Engine Details: 4.4-liter V8 TwinPower Turbo, 560 horsepower
Acceleration Speed: 0-60 in 4.2 seconds
Average Yearly Insurance Premium: $2,112

5. 2016 Dodge Charger SRT Hellcat
MSRP: $67,645
Engine Details: 6.2-liter supercharged Hemi V8, 707 horsepower
Acceleration Speed: 0-60 in 3.7 seconds
Average Yearly Insurance Premium: $1,512

6. 2017 Audi RS 7
Engine Details: 4.0-liter V8 with two turbochargers, 560 horsepower
MSRP: $110,700
Acceleration Speed: 0-60 in 3.7 seconds
Average Yearly Insurance Premium: $2,268

7. 2017 Volkswagen Golf R
MSRP: $39,375
Engine Details: 4-cylinder turbo, 292 horsepower
Acceleration Speed: 0-60 in 4.5 seconds
Average Yearly Insurance Premium: $1,560

8. 2017 Ford Mustang GT Fastback
MSRP: $33,195
Engine Details: 5.0-liter V8, 435 horsepower
Acceleration Speed: 0-60 in the mid-4 second range
Average Yearly Insurance Premium: $1,512

9. 2016 Dodge Challenger R/T Scat Pack
MSRP: $39,995
Engine Details: 6.4-liter V8, 485 horsepower
Acceleration Speed: 0-60 in the low-4 second range
Average Yearly Insurance Premium: $1,608

10) 2017 Volvo S60 Polestar
MSRP: $60,000
Engine Details: 3.0-liter Turbocharged inline 6-cylinder 345 horsepower
Acceleration Speed: 0-60 in 4.7 seconds
Average Yearly Insurance Premium: $1,428

Compare these insurance prices with the prices of the five most popular sedans for 2017, based on our new State of Auto Insurance Report, for the same insurance customer profile.

Chevrolet Cruze
MSRP: $16,975
Acceleration Speed: 0-60 in 7.6 seconds
Average Yearly Insurance Premium: $1,056

Honda Accord
MSRP: $22,455
Acceleration Speed: 0-60 in 6.1 seconds
Average Yearly Insurance Premium: $1,176

Hyundai Elantra SE
MSRP: $17,150
Acceleration Speed: 0-60 in 8 seconds
Average Yearly Insurance Premium: $1,344

Nissan Altima
MSRP: $22,500
Acceleration Speed: 0-60 in 7.7 seconds
Average Yearly Insurance Premium: $1,260

Toyota Camry
MSRP: $23,070
Acceleration Speed: 0-60 in 8 seconds
Average Yearly Insurance Premium: $1,236

Final Word: Do Fast Cars Cost More to Insure?

Our assessment: We can’t say for sure whether or not all cars with more powerful engines that can accelerate faster always cost more to insure than their slower counterparts, but all of the faster cars above come with more expensive insurance premiums than all of the slower cars we looked at.

Another potential insurance price factor: All of the faster cars also cost more (in some cases, a lot more) than all of the slower cars. We know that price has something – though not everything – to do with insurance pricing (which is still somewhat of a mystery, even to us).

As we’ve seen, equating insurance rates with one definable feature is tough: Insurance rates weren’t strictly correlated with safety rating, either. But while we might not be able to say with absolute certainty that faster cars will mean more on your monthly premium, we do have proof that using that speed illegally is practically guaranteed to cost you.

The Insurance Consequences of Speeding Convictions

If you drive a certifiably fast car, always remember to follow the rules of the road, not only because it’s safer for you and everyone driving near you, but because beyond any traffic citations you might receive for speeding, speeding also has some pretty detrimental effects on insurance rates.

In 2016, if you were convicted of speeding, your insurance rates went up by the following percentages (national U.S. averages from The Zebra’s State of Auto Insurance Report):

  • Speeding in a School Zone: 18%
  • Speeding 6-10 MPH over the limit: 17%
  • Speeding 11-15 MPH over the limit: 18%
  • Speeding 16-20 MPH over the limit: 19%
  • Speeding 21-25 MPH over the limit: 20%
  • Speeding In 65 MPH Zone: 23%

That means if we’re looking at the national average premium of $1,323, a single speeding ticket could raise your rates from $225 to $304. (And that continues for three years after the violation occurs.)

Fast cars with great handling make for excellent driving – but stay safe (and under the speed limit!) – or you could pay in more ways than one.

Image: mevans

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5 Fumbles That Can Seriously Mess With Your Credit

When it comes to credit, it pays to sweat the small stuff.

Hate to break it to you, but when it comes to your credit, it pays to sweat the small stuff.

That’s because a first fumble can leave a big old blemish on your credit report. And seemingly small missteps can really swing your scores in the wrong direction. Plus, under federal law, negative information can stay on your credit file for up to seven years — 10 years if we’re talking bankruptcy (you can learn more here on how long stuff stays on your credit reports)— and thanks to the agreements most creditors have with the credit bureaus, it can be hard to get certain line items removed ahead of schedule.

But knowledge is power. So, with that in mind, here are five fumbles you should avoid so you don’t seriously damage your credit score.

1. Taking Your Good Credit for Granted

It’s very easy to turn a blind eye to your credit scores, especially if you were at an 850 last time you checked and aren’t looking for any new loans. But it’s important to check your credit reports regularly since errors can crop up unexpectedly. (Here’s what to do if you find one.) Plus, there could be legitimate line items you weren’t aware of (ahem, medical bill) that’ll need addressing.

You can keep an eye on your credit by viewing your free credit report snapshot, updated every 14 days, on Credit.com. You can also pull your credit reports for free each year at AnnualCreditReport.com. If you find your credit score needs improving, consider paying down any high credit card balances, addressing any delinquent accounts and limiting new credit applications until those numbers rebound.

2. Missing Just One Loan Payment

We’ve said it before, but given how important payment history is to credit scores, we’re going to say it again: A first missed loan payment can cause a good credit score to fall by up to 110 points and an average score to fall by up to 80 points. That’s why you’ll want to set up alerts or automatic payments for those monthly bills and, if you do accidentally miss a payment, give your lender a call ASAP. They may be willing to forgive the fumble “this one time.” (P.S. See if they’ll let you skip the late fee, too. Most issuers will accommodate previously perfect customers.)

3. Your Recent Shopping Spree

Retail therapy isn’t going to help your credit much if you charge all those purchases to your credit card — particularly if you can’t even come close to paying them off anytime soon. Credit utilization is the second-most-important factor of credit scores, and, if you’re using more than 10% to 30% of your total available credit limit(s), you can expect your credit scores to take a hit. Keep in mind, too, that credit card interest can quickly accumulate, and the higher your balances climb, the bigger that hit will be.

Be sure to keep your credit card charges to a minimum. And, if you do rack up a big bill, be sure to come up with a solid plan to pay it off. Strategies for getting rid of credit card debt include prioritizing payments (usually by smallest balance or highest annual percentage rate), drafting a new budget to find funds you can put toward your debts or looking into a balance-transfer credit card or debt consolidation loan.

4. An Unpaid Medical Bill

We know. Medical bills are the worst. Half the time you don’t know you have one and the rest of the time, the cost can be hard to cover. But leave any medical bill unattended long enough and it could wind up going to collections — which can end up on your credit reports and do big damage to your credit scores. The same goes, incidentally, for unpaid parking tickets, lapsed gym memberships and even outstanding library fines, so be sure to keep a close eye on your mail. And, if you get an unexpected bill, see if you can negotiate with the creditor or collector before they report it late on your credit reports.

5. That Boatload of Credit Card Applications You Just Filled Out

Sure, credit card churning sounds great in theory. Just think of all those points you can readily rack up. But each credit card application likely generates a hard inquiry on your credit report — and while each one should only cost you a few points, a whole bunch of inquiries in a short time span can really add up. Plus, points aside, the mere presence of too many inquiries can lead to a loan denial. Lenders see it as a sign of money troubles to come, meaning you’ll want to apply for credit cards (and those all-too-alluring signup bonuses) carefully.

Image: Geber86

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5 Easy-to-Forget Things That Influence Your Credit Scores

It's time to think beyond your student loans and credit card statements. You may have some items you forgot about that are damaging your credit.

Your credit scores can have a huge impact on your finances, as they are a major determining factor for getting approved for loans or new lines of credit. That’s reason number one as to why you should know where your credit stands. (If you don’t you can find out now — Credit.com offers two free credit scores, which are updated every 14 days.) Beyond simply getting approved, keeping your scores as high as possible can help ensure that when you go to get a mortgage for your dream home (or any kind of loan), you’ll see good terms and conditions paired with that loan.

Everyone knows that your credit score will take a hit if you’re late paying your credit cards or skip mortgage payments. However, there are some things that could be dinging your scores that may not seem like they should matter — but they do.

Let’s take a look at these five easy-to-forget things that can hurt your credit.

1. Library Fines

While holding onto that copy of “To Kill a Mockingbird” for a few extra weeks may not have seemed like a big deal at the time, it came at a cost. And if you opted to ignore that fee, you may be in for a surprise — not paying your library fine could wind up hurting your credit scores. Libraries can send overdue fines to collections, and then you’re in trouble. The New York Public Library’s policy on fines states: “The Library is obligated to attempt the recovery of all outstanding debt and/or library materials. To that end, borrowers with fines or fees of $50 or more are subject to contact from a collection agency. A non-negotiable collection fee will be applied to the account of any borrower who reaches this threshold.”

Moral of this story: Turn those books in on time! Or at least be sure you pay your fines.

2. Parking Tickets

Like library fines, cities and towns are more frequently turning unpaid parking tickets over to collection agencies, and that can have a huge impact on your credit score. In Houston, Texas, not paying your parking tickets on time can earn you a delinquent fee after 30 days, and you’ll be hit by a $30 fee and wind up in collections after 90 days.

3. Setting Up Your Cable

When you move to a new place and want to get cable, the company may run what’s called a hard inquiry on your credit. Hard inquiries are made when you’re actively seeking credit, whether it’s for a student loan or a mortgage. Sometimes this can extend to when you get HBO, as it’s a way for a company to see if you’re truly able to take on a new financial obligation. Remember: Inquiries don’t have an extremely long-lasting impact on your scores. In fact, according to credit bureau Experian, inquiries “have minimal impact on credit scores, and that impact is even less after three to six months.”

4. Renting a Car

As with setting up your cable, some car rental companies will do a hard inquiry on your credit if you’re renting with your debit card, and that could hurt your credit score. It’s also important to make sure you pay all of your fees and fines — whether from accident damage, returning the car without enough gas, or extra fees that weren’t covered by your insurance company (if they’re covering your rental) — so the outstanding balance doesn’t land your account in collections.

5. Your Gym Membership

From automatic payments that get declined when your credit card information changes (like if you have to close an account that’s been hacked) to cancelled contracts that wind up in collections, your gym membership could be hurting your credit scores. Be sure to pay attention to the conditions in your contract concerning late payments, fees for cancellation, or what happens when you put your membership on hold. Otherwise, it won’t just be your body that needs to get in shape.

Image: Choreograph

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Dating Someone with Bad Credit? Here’s How to Protect Your Score

These tips can help ensure their bad credit doesn't indirectly affect yours.

Building a strong credit score can take years of paying your bills on time, spending wisely and avoiding too much debt. If you’ve spent a lot of time and effort building a great credit score, you may be very protective of your credit.

But if you’re in a relationship with someone who has poor credit and you’re at a point that you’re moving in together or otherwise sharing expenses, your credit score could be in jeopardy. Not because your Valentine’s bad credit will directly impact yours: Credit reports don’t get merged, even after you’re married. But a person’s poor money habits can have an indirect effect of your financial standing and any joint accounts you decide to sign up for will appear on your credit file.

In other words, if your beloved has bad credit, you’ll want to take steps to avoid damaging your own. Here’s how you can safeguard your credit score from your partner’s bad credit.

1. Consider Keeping Your Funds Separate …

There are a number of reasons your partner could have poor credit, including unexpected financial hardship or identity theft.

“Someone with a low credit score could still be responsible with money and pay all the bills on time, but may just have some unexpected medical debt,” says Matt Gulbransen, owner of Callahan Financial Planning Corporation. But your partner could also have poor money-management skills. And, if that’s the reason for their credit score woes, you may want to keep your bank accounts separate for awhile. You can still split expenses while restricting access to your personal bank account.

2. … the Same Goes for Other Accounts

You can apply the same strategy to other accounts, including credit cards, loans and any accounts with monthly payments. Missed payments on shared accounts will inflict mutual damage to both of your credit scores. Your partner’s poor credit could be due to a history of late payments or accounts in collections, so think twice before sharing. (And, if you do decide to share, keep a close eye on those accounts.)

“I suggest you don’t join credit cards until you build the credit of the other party,” says Gulbransen.

It’s also risky to co-sign a loan, which can have the same impact on your credit as sharing a joint account.

3. Avoid Applying for Credit Together

If you want to apply for a credit card or loan, you may be better off doing so independently. If you apply together, your partner’s poor credit could result in higher interest rates, poor loan terms or even an outright rejection. You should use your own good credit to negotiate the best terms.

“Banks remain wary of making loans to borrowers with tarnished scores,” says Gulbransen. “And low scores can deny one access to a mortgage.”

Even adding your partner as an authorized user on your credit cards can be risky if your partner runs up your credit card balances. That’s because the amount of debt you owe can directly impact your credit scores. (Plus, the primary accountholder is the one responsible for actually paying the bills.)

4. Work on a Credit Improvement Plan

Poor credit doesn’t have to doom a relationship. It can be challenging, but you can help your partner by understanding their situation and working together to create a credit improvement plan.

If you’re both committed to the relationship, you may want to merge finances and share financial decisions in the future. The best way forward is to openly discuss what led to your partner’s poor credit, and come up with a plan to improve it together.

The details of the plan will depend on the factors contributing to your partner’s poor credit score. Improving their credit score for your partner could require monitoring his or her credit report, building a solid history of timely payments and paying down debt. There are also a number of tools, such as secured credit cards that are ideal for people who have struggled with managing their credit. And, if your beloved discovers their credit is being affected by a boatload of errors, credit repair could be an option.

Bottomline: By working to improve your partner’s credit, you can both move toward a greater financial future together.

Image: g-stockstudio

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6 Ways Student Loans Could Impact Your Credit Score

ways-student-loans-could-impact-credit

When most 18-year-old college freshmen sign on the dotted line to take out federal student loans, they’re not thinking about credit scores. They’re thinking about class schedules, life goals and avoiding the infamous “freshman fifteen.”

But the truth is that student loans can (and do) impact your credit scores from the very moment you take them out. Whether you’re a brand new college student who hasn’t even started repaying student loans yet or a 30-something still struggling to pay back that debt, you need to understand how student loans can impact your credit scores and your ability to borrow. (You can see how your student loans may be affecting your credit by viewing two of your credit scores, updated every 14 days, on Credit.com.)

1. They’ll Likely Open Your Credit File

Most straight-from-high-school college freshmen don’t have a credit file to speak of before taking out student loans. But because the federal government doesn’t require good credit for most types of student loans, that doesn’t matter. As soon as you take out a loan, you’ll have a credit file opened, likely with all three major credit reporting bureaus. This is the start of your credit history and subsequent numerical credit scores.

2. They Can Help Establish a Longer Credit History

One portion of your credit scores comes from the length of your credit history. The longer you’ve had credit, the higher your score will be. For many students, student loans are their first piece of credit. And because they’re likely to stick around on your credit reports for ten years or more while you’re in repayment, student loans can give your score an automatic lift.

3. On-Time Payments Can Keep Your Score Growing

On-time payments are the most heavily-weighted portion of the credit score algorithm. After all, lenders want to be sure you’ll repay your loans on time each month. Paying your student loans on time from the time you enter into repayment can keep your credit scores growing, slowly but steadily.

One thing to note here is that if you have to put your loans into deferment or forbearance due to financial hardship, this shouldn’t harm your credit scores. Call the lender as soon as you know you’ll be unable to keep making payments. They can put the loan into forbearance, which will stop payments for a while. This doesn’t get you out of repaying the loan, of course, but it will save you from late payment reports on your credit scores.

4. Missed Payments Can Quickly Tank It

Steadily repaying your loan with on-time payments will increase your scores, but slowly. On the flip side, missing payments can tank it, and quickly. However, most federal student loan servicers won’t report a payment as late until it’s been 60 days late by the end of the month. So you often have more grace with these loans than other types. Still, it’s best to get into the habit early on of making on-time payments each and every month.

5. They Can Help You Add Variety to the Mix

A few high school and college students have other debt coming into the student loan process. For instance, you might have a low-limit credit card on your report already. If this is the case, adding student loans as an installment loan can add variety to your credit file. Because variety is one thing lenders look for, this can also help boost your credit scores.

6. Resolving Delinquency Can Immediately Increase Your Score

Resolving delinquency on other types of loans isn’t always easy, and the delinquency reports may take months or even years to recover from. This isn’t always the case with student loans. If you lose your job, for instance, and miss three months’ worth of payments, your score will quickly fall. But if you later work out with your lender to back-date the deferment of your loan, they can forgive those late payments, effectively erasing them from your credit scores.

It’s better to never become delinquent on your student loans, of course. But if you do, resolving the problem as quickly as possible can help you increase your credit scores almost immediately.

Bonus: Your Debt-to-Income Ratio Can Be Important

It’s a common misconception that a person’s debt-to-income ratio — the amount of your minimum payments each month versus the amount of income you make— is a part of your credit scores. It’s actually not. Credit bureaus don’t know how much money you make, and they don’t really care. As long as you’re meeting your obligations each month and your credit utilization rate is in good shape, your credit scores should stay intact. (Note: Your credit utilization rate, also referred to as your credit-to-debt ratio, is essentially how much debt you’re carrying versus the amount of credit extended to you. For best credit scoring results, it’s generally recommended you keep the amount of debt you owe below at least 30% and ideally 10% of your total available credit limit.)

Lenders, on the other hand, care about debt-to-income ratio very much. If 50% of your monthly income is eaten up by minimum debt payments, you’ll likely have trouble obtaining a mortgage.

So even though your minimum student loan payments in comparison to your monthly income don’t affect your credit scores, they can affect your ability to borrow. This is why it’s so important when taking out student loans to examine how much your chosen career is likely to earn you. Then, compare that to what you’re likely to pay in minimum student loan payments before you sign on the dotted line for that loan.

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