What to Do When Your Parents Kick You Off Their Credit Card

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Plenty of parents make their kids authorized users on their credit cards, and for good reason. Credit cards provide a way to build credit, giving teenagers an early financial leg up (provided the card is managed responsibly) by establishing a credit history before they’re old enough to get a credit card on their own.

It can also be a great chance for parents to supervise how their children are spending and help them learn financial lessons, like making payments on time or reading a credit card statement. Even checking credit scores and reports through free credit score tools (such as those on Credit.com) and free annual credit reports at AnnualCreditReport.com can help them reach their financial goals.

But at some point, there comes a time when all parents cut the cord (and the card), kids must make it on their own in the world of credit. What now?

If that recently happened to you, there are two starting points where you’ll likely find yourself: having a good credit score or having a not-so-good credit score.

If Your Credit Scores Are Good

If your parents have been making timely payments on the card you also carry, you likely have a credit score that is good enough to get your own credit card. If that’s the case, you can consider some of these credit cards for good credit. If you’re still in school, you might want to consider a credit card specifically designed for students.

Remember, if you’re under 21, you’ll need to demonstrate an ability to repay or have a willing co-signer to qualify — federal law prohibits issuers from extending credit cards to you otherwise. You should also check your credit before applying so you know where your score stands, because the inquiry will temporarily ding it.

If your parents are only just now starting to talk about removing you as an authorized user from their card, it might be a good idea to ask them to wait until you apply for a new card in your own name. This will ensure that your credit score remains high — closing credit card accounts can have a negative impact on your credit scores — while you go through the application process.

Better yet, you can ask your parents to take your card but keep you as an authorized user on their account. As long as they are making payments on time and not carrying high balances, this will help you even further in establishing a good credit history. That’s because roughly 15% of major credit scores is based upon the length of your credit history. So the longer you’ve had credit, the more points you’ll earn toward your total credit score.

If Your Credit Scores Aren’t So Hot

If your parent or parents are having financial difficulties and haven’t been making timely payments on the credit card or have run up a high balance — credit utilization is a big factor in credit scores — you might not have very good established credit.

The good news is, you have options, and getting disconnected from your parents’ credit could be a very good thing for your scores. Authorized users are not considered responsible for making payments, so if negative information is appearing on your credit reports because of the account, you can contact your lender and asked to be removed from it. After that, the account should stop appearing on your credit reports. If it doesn’t, you can file a dispute with the credit bureaus.

Next, you can start on your own financial road by first checking your credit scores to see exactly where you stand. You might also want to check your credit reports to make sure everything on them is accurate (see the free credit scores and reports links in the second paragraph). If afterward you’re certain you have “thin” or “bad” credit, there are some credit cards — both secured and unsecured — that you can consider applying for to help you establish or rebuild credit.

If you find out through checking your credit scores that the situation is actually not all that bad, you can try applying for a credit card for fair credit.

Credit cards can be a simple way to establish and build credit, but they’re not your only option. You can also consider credit-builder loans to get you started.

Whatever your decision, remember that your credit is an important for everything, from getting a car loan to renting an apartment, opening utilities and sometimes even landing a job. So taking care of it should be a top priority. You can build good credit in the long-term by making all loan payments on time, keeping debt levels low, limiting new credit inquiries and only adding a mix of credit accounts as your wallet and score can afford them.

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Is There a Difference Between a Co-Signer & a Co-Applicant?

The terms “co-signer” and “co-applicant” may sound like they’re the same, but there are actually some key differences between the two that are important to understand if you’re thinking about financing a loan alongside friends or family members.

What’s the Difference?

A co-applicant, also sometimes referred to as a co-borrower “is a full-fledged partner in the account or loan transaction,” Thomas Nitzsche, media relations manager for ClearPoint Credit Counseling Solutions, said in an email. Each person has all the same rights and responsibilities pertaining to the loan and, when it comes to applying for the financing, both parties’ financials, including income, are generally used to calculate how much credit should be extended, he said.

Co-applicants are typically common when it comes time to buy a home.

“For mortgages, this divides the responsibility of repayment equally between the two property owners,” Bruce McClary, vice president of public relations and external affairs at the National Foundation for Credit Counseling, said in an email.

But, no matter what type of financing is involved, both parties are on the hook for any missteps.

“If defaulted, both parties are equally fully responsible even if it was only one of them who ran up the charges (we usually see this with credit card accounts when clients divorce),” Nitzsche said.

Co-signers, on the other hand, are generally added to an account in order to help someone with no credit or bad credit get financing.

“The healthy credit record of the co-signer can help the other person get past credit approval thresholds and qualify for more affordable rates,” McClary said. But, despite that role, a co-signer generally isn’t granted the same usage rights as the primary borrower. (For instance, a co-signer on a mortgage may not have property rights to the home.)

Still, “if the primary applicant fails to repay the account according to the terms of agreement, the lender can [pursue] the co-signer for the remaining balance,” McClary said.

It’s also possible to be a guarantor, someone who “guarantees” a loan for a friend or family member.

“A ‘guarantor’ … is similar to a co-signer except that the guarantor doesn’t become liable until the bank has exhausted all other means of collection from the primary borrower,” Nitzsche said. “With a cosigner, the bank can come after both parties right away for collection.”

Considering a Co?

Remember, in all these instances, you could ultimately be on the hook for payments and charges. Plus, any unpaid bills, defaults, collections accounts, or, if the debt is attached to a mortgage, short sale or foreclosure, will likely appear on your credit report and damage your credit score. That’s why you should always consider all your options very carefully before signing alongside someone on those dotted lines.

And, no matter what route you go, it’s important to keep an eye on your credit so you know how any co-signed or joint accounts may be affecting your credit. (You can view two of your credit scores for free each month on Credit.com.)

If a co-signed or joint account has tanked your credit, you may be able to improve your score by disputing errors on your credit report, paying down high credit card balances and limiting new credit inquiries until your score rebounds.

More on Credit Reports & Credit Scores:

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Review: American Business Lending Small Business Loan

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American Business Lending is a Preferred SBA non-bank lender offering SBA small business loans. SBA Loans are guaranteed by the Small Business Administration. Since the government may guarantee up to 85% of this small business loan, the lender is able to qualify business owners with more lenient standards and offer a lower interest rate than traditional loans.

You can borrow $300,000 to $5,000,000 for commercial financing. This loan can be used for expansion, refinancing, business acquisitions, start-ups, franchises, furniture, fixtures, equipment, inventory and working capital.

Loan interest on the American Business Lending SBA Loan is the prime rate + up to 2.75%. The Wall Street Journal prime rate at the time of publication is 3.50, so you can expect an interest cap of 6.25%. However, interest on this loan is floating, which is another way of saying variable. Interest rates will adjust quarterly based on the prime rate.

The loan term is 7 to 25 years. Collateral may be required. There’s a minimum 10% down payment. You may be able to avoid a down payment if you’re getting a loan for a refinance.

The American Business Lending Loan Process

There are four steps to the loan process. First, you’ll get assigned a loan officer. They’ll help you choose which loan product is the best for you and then you put in an application. During the application process you’ll turn in a few documents to qualify you for the loan including:

  • Financial statements
  • Federal tax returns for your business from the last 3 years
  • A business plan or projections for the next two years if your business is a start-up
  • A purchase agreement if you’re buying real estate or business assets
  • The franchise agreement if you run a franchise business
  • A copy of the note being refinanced if you’re refinancing a loan

From there, your application goes into underwriting where your loan request will be reviewed. An underwriter will possibly follow up with questions to qualify you. You get a credit decision within 72 hours of turning in your complete loan application.

Once approved, you’re given a commitment letter, which includes: your interest rate, loan amount, collateral required and other loan terms. You’ll have to pay a good faith deposit, which will later be used to cover the closing costs, credit reports and other fees associated with taking out a loan. After signing the commitment letter and turning in your good faith deposit, you can expect your loan to close within 30 to 45 days.

Since we just mentioned closing fees, now’s a good time to go into how much this is going to cost you.

Fees and Gotchas

American Business Lending charges a $1,500 fee for packaging the loan on top of the SBA guarantee fee charged by the Small Business Administration and other closing costs.

The Small Business Administration fee is charged to the lender and the lender can choose to eat the cost or charge it back to you. In this case, American Business Lending will charge you. The SBA guarantee fee for this loan will range from 3% to 3.75% of the guaranteed portion depending on how much you borrow.

Aside from packaging and the guarantee fee, there’s a prepayment penalty to consider. If you take out a loan that has a term less than 15 years, there’s no penalty for paying early.

If you have a loan term of 15 years or more you can prepay up to 25% of the principal during the first 3 years without penalty. Payments you make above 25% will cost you 5% of the principal the first year, 3% the second year and 1% the third year.

Pros and Cons

We’ve gone over the basics. Let’s head into the pros and cons of this loan:

Pro: Competitive interest. Loans guaranteed by the Small Business Administration have an interest cap. The prime rate has been at a low, so even though interest is variable it’s still a good deal for now.

Con: Fees. This lender is transparent with most fees there’s just many fees to consider. Particularly the closing costs and early prepayment fee. American Business Lending doesn’t say how much closing costs are exactly but you will be charged to cover appraisals and environmental reports, loan closing attorney’s fees, credit reports and lien searches. You may also get penalized if you’re able to repay this loan early.

Pro: Loan size. American Business Lending gives you the flexibility to take out a large loan amount and you can borrow for a longer time span than you can for other non-SBA business loans. We’ll cover a non-SBA business loan below so you can see the difference in loan amounts and terms.

Con: Loan size. The loan size is a plus for business owners who want to borrow over $300,000, but a negative if you’re looking for a smaller loan amount. Other SBA Loan products like the SBA Express Loan allow you to borrow $50,000 through an expedited process. American Business Lending doesn’t appear to have this option.

Pro: Experience with SBA loans. One of the downsides of SBA Loans is the application process. You have to qualify with the lender and also have your paperwork approved by the Small Business Association. According to the American Business Lending site, it’s a preferred SBA lender and the loan officers are experienced in processing these loans. Ideally, this experience will make the process less burdensome.

Con: Long wait time for funds. Applying and closing this loan will take awhile. Getting a credit approval will take 3 days. Then closing will take up to 45 days after you sign off on the contract. If anything should hold up the process like an appraisal you could be waiting for a few months until you get your hands on the loan.

American Business Lending

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Alternatives to American Business Lending

In our comparison section, we’re going to put the American Business Lending SBA Loan against two competitors including one that also offers the SBA Loan and another lender that doesn’t offer SBA Loans.

SmartBiz has an SBA Loan process that’s handled completely online. You can borrow $30,000 to $350,000 for 10 years. Interest ranges from variable 6.25% to 7.25%. Interest is higher at SmartBiz because the Small Business Administration sets a higher interest cap for smaller loans that have shorter loan terms.

You can pre-qualify for a SmartBiz loan within 5 minutes and get funding within 7 days of completing your application. SmartBiz doesn’t have a prepayment fee. The packaging fee is 4% in addition to closing costs. For loans above $150,000, there’s a 2.25% SBA guarantee fee.

smartbiz

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Funding Circle can get you funds quickly and with a competitive interest rate, if you have a good to excellent credit score. You can borrow $25,000 to $500,000. This is comparable to the amount you can borrow from American Business Lending. However, the loan terms are shorter.

You have between 1 and 5 years to repay your loan. If you’re taking out a six-figure loan a short repayment window could be a challenge. Interest is from 5.49% to 21.29% APR. There’s an origination fee of 1.49% to 4.99%.

Funding Circle

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Who Will Benefit the Most From an American Business Lending Loan?

SBA Loans open the door to financing for small business owners who can’t qualify for traditional financing. So, an American Business Lending SBA Loan could be a good choice if you need to borrow a large sum with a low-rate.

Instead of a percentage package fee like SmartBiz, American Business Lending has a flat $1,500 fee, which can save you money and gives it an edge. One the other hand, SmartBiz has a quick and streamlined application process that is more convenient for smaller loans.

One question you should ask a loan officer at American Business Lending and SmartBiz before borrowing is how much the closing costs will be beyond the packaging and guarantee fees for the loan you choose.

The post Review: American Business Lending Small Business Loan appeared first on MagnifyMoney.

“How I Changed My Lifestyle to Pay Off $26,000 in Loans More Quickly”

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When Heather Braggs graduated from Weber State University she still owed $14,000 in student loans. “That might not seem like much because I worked full-time through school and paid $200/month through the majority of my education,” she says,” but I also still owed over $12,000 on my car loan,” so debt obviously weighed heavily on her mind.

Braggs knew going into her education that she didn’t want to leave school in a ton of debt, so she worked full-time while earning her degree, which paid for a large portion of the fees for tuition. She also used a federal unsubsidized loan for the remaining amount she owed. “Interest was 6.8% on the unsubsidized loan and 3.4% on the subsidized one,” she recalls.

Despite working full-time throughout school and graduating with $14,000 in debt, Braggs kept up her determination to pay down her loans as quickly as possible. “I decided to attack my school loans and leave no survivors, so to speak,” she said. “I wanted them gone as soon as possible, so I figured out exactly what I needed monthly to get by — including fuel, food, etc. — and then sent the rest of my wages directly to my loan repayment.”

While Braggs was only required to pay $305 monthly on her loans, she ended up paying $300 from each pay period (or $600 monthly) instead. “It was nearly my whole income when I was making $8.50 an hour,” she said. “But as I got promoted and earned a raise, I had more income available so I upped my payments. Once I started making $600 payments each pay period, the amount started dropping rapidly, which helped me stay motivated.”

Braggs also helped cushion her income by cutting back on going out to lunch, expensive activities, shopping for clothes and makeup and basically spending on anything frivolous. “Also, I was living with my parents during this time so it helped remove the stress of rent, which I know is not possible for everyone, but is helpful if possible,” she said.

Braggs graduated in August of 2013 and paid her final debt payment (which was over $26,000, including her car loan), on March 27, 2015. “The trick is learning self-control and spending less on temporary things,” she said. “Packing a lunch every day instead of going out to eat with coworkers, not going to stores when you are feeling impulsive and don’t have a list of exactly what you need, and other sacrifices like that have made the biggest difference.”

In Braggs’ case, the small efforts added up quickly. For recent grads facing a similar student loan situation, she suggests admitting what your weaknesses are and facing them head on. Consolidation also helps, which she did with her car and student loans (check out this piece for the best debt consolidation personal loan options). “It makes it less stressful when you only have one payment to make, and if you do it right, the interest rates will be a ton lower,” she added.

Braggs estimates she saved about $2,375 by consolidating and making larger payments to pay her loans off more quickly than she would have otherwise (her original projected date of final payment was some time in 2018, more than five years after she graduated).

After her experience Braggs’ biggest piece of advice is to not wait to start paying off loans. “If you can send even $10/month to your lending company while you are in school, do it,” she suggests. “Work hard and do your best to have control over your money. If you don’t spend as much, there will be more available to send to your loan. The feeling of being debt free is amazing. It is like a huge weight has been lifted off your shoulders, so trust me … it’s worth it!”

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High School Dropout Tries to Get Out of Paying $67K in Student Loans

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A 44-year-old Florida man is making local headlines for his unconventional approach to getting out of student loan debt: a legal loophole. Ian Torch Locklear of Tampa graduated from the University of South Florida more than 20 years ago with a degree in interdisciplinary social sciences, despite never having finished high school, the Tampa Tribune reported.

Locklear’s filed a lawsuit and it hinges on that lack of a high school diploma. In the complaint filed March 17, Locklear’s attorney, Nancy L. Cavey, argues that his $67,375 of federal education loans (including interest as of the filing date) should be discharged under a provision in the Higher Education Act of 1965. It says the Secretary of Education must discharge student loans if the student’s school “falsely certified that the student had the ability to benefit from program for which the student’s loan were taken out [stet].”

Locklear withdrew from high school in 1989 while he was in the 11th grade, after receiving acceptance from USF. At the time he left high school, he had a GPA of 3.51 and a 1210 SAT score. The Department of Education cited those accomplishments when it denied Locklear’s application for student loan discharge, saying that “The University has also stated that with your recorded high school GPA and SAT score, you exceeded the state and institutional minimum requirements.” (This lawsuit challenges that denial). Still, Cavey argues, that without a high school diploma, GED or entrance exam at USF, Locklear qualifies for the False Certification Discharge. (Attempts by Credit.com to reach Locklear were unsuccessful, though he declined to comment to the Tampa Tribune. Cavey, his lawyer, did not immediately respond to a request for comment.)

Given that Locklear chose to drop out of high school in order to jump-start his college education, pinning his student loan debt on his school seems like a cop-out to some (just read the comments on the Tampa Tribune article). Almost every student loan borrower has to repay their debt, whether or not they graduate college or find any success after getting an education.

Even falling on hard times usually doesn’t get you out of student loan debt, which Locklear likely knows from personal experience: Florida court records show that Locklear filed for Chapter 7 bankruptcy in 2008, though student loan debt is generally not dischargeable in bankruptcy.

The lawsuit calls for the Education Department to cease debt collection activity on Locklear’s unpaid loans, reimburse Locklear for the student loan payments he’s already made and remove the loan information from his credit reports. Meanwhile, interest will continue to pile up on his outstanding loan balance, and the defaulted student loans will continue to damage his credit.

If you’re struggling with student loan debt, you can review these little-known ways to get your student loan debt forgiven to see if any are right for you, or you can try to defer or forbear your loans while you shore up your finances. Remember, missing payments will impact your credit. If you’ve already done so, you can see how bad the damage is by checking your free credit report summary on Credit.com.

More Money-Saving Reads:

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Car Leasing Is All the Rage. Is It a Good Deal?

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Old Betsy’s reign in the American driveway may be over. After all, why would you name a leased car?

Americans are no longer looking for a long-term relationship with their cars. Auto leasing is in the midst of a historic rise, setting all-time records quarter after quarter, and now makes up nearly one-third of the new car market, with millennial leasers leading the way. Consumers have begun to treat cars the way they treat cellphones — holding on to them until contracts run out, then happily exchanging them for the newest thing.

The records come just a few short years after leasing was all but left for dead during the Great Recession, when auto sellers shunned the practice, and leasing fell to only about 10% of the market. At the end of last year, auto leases made up 33.6% of all new car financing during the quarter — and 28.9% of all purchases — according to Experian Automotive.

A Nicer Car for Less

The appeal of leasing to consumers is obvious: The monthly payments are less. Experian offers these examples: An average new Toyota Rav4 loan last year cost $431 per month, while a lease cost $322; a Chevy Silverado costs even less per month, $544 vs. $384.

Many consumers use that savings to end up in nicer cars, and leasing can really expand consumers’ options. Here’s a calculation from Edmunds.com: Buyers with a $3,000 down payment and willing to pay only $300 per month can buy a $20,000 car, but they can lease a $35,000 car.

“People shop for vehicles largely based on monthly price, and right now, average dollar amounts for new-vehicle loans are soaring,” Melinda Zabritski, senior director of automotive credit for Experian Automotive, said. “In order to stay within their budget goals, we have seen that more consumers — even those within the prime and super-prime risk categories — are turning to leasing.”

Millennials are even more likely to opt for leasing, according to Edmonds. Leasing among younger adults is up 46% in the past five years, the firm says.

“Most millennials understand and accept that they’re on a tight budget and that they need to stick to it,” said Jessica Caldwell, director of industry analysis for Edmunds.com. “But it doesn’t mean that their financial constraints limit them only to the most basic vehicles to get from Point A to Point B. If they see a chance to get into a nicer car while staying within their budget, they’re likely to explore that opportunity. In most cases, leasing opens the door to the bells and whistles that they couldn’t otherwise afford.”

The Drawbacks of Leasing

Of course, leasing is hardly perfect, and has a well-earned reputation for causing consumer headaches. The biggest bugaboo is mileage limits: Many limit drivers to 12,000 miles annually, a serious disincentive for road trips. Also, while it’s easy to turn in a leased car and get into a new lease, it can be harrowing to drop off a leased car at the end of a term and face potential damage claims from the dealer or mileage overage payments. Many drivers find their insurance rates go up when they lease because of increases in mandatory coverage (check with your insurance company before you shop around).

And while leasing is attractive to people with long-term car commitment issues, a lease can be even more of an anchor than an owned car. Consumers who move and can’t take their car find out the hard way that getting out of a lease is even worse than getting out of a cellphone contract. Car leases can be transferred, but it’s easier to sell a car you own.

Still, leasing has become mainstream. Once more popular with luxury car drivers, leasing is now common for mid-level and discount brands. The Honda Civic was the most-leased car last year, followed by the Accord, Camry and Rav4, Experian says.

So, should you lease? One truth overrides all the details about leases: In the end, leasing costs more than buying. You pay for those lower payments by not owning anything at the end of the lease term. The best deal, financially, is buying the car. But the difference can be only a few thousand dollars, and that may not matter to you.

On the other hand, if you are leasing mainly because it feels cheaper than buying, you are almost certainly making a mistake. Long-term, buying is the cheaper option, especially if you don’t mind holding onto your car for more than a few years.

Luxury cars that lose value quickly (and often aren’t needed as “everyday” cars) still make the most sense to lease. People who live very close to work (or work at home) and don’t pile up telecommuting miles are good lease candidates. And if you really do want a new car every three years, and don’t mind knowing that you haven’t gotten the absolute best deal you can, consider leasing. But know that there is always a risk when you turn the car in at lease’s end that a dealer in a bad mood may try to nickel-and-dime you for every carpet stain. If you tread very lightly on your floor mats, you’ll probably be fine. But if you drive hard, a surprise end-of-lease wear-and-tear bill could make those lower monthly payments seem pretty expensive.

Remember, your credit score can directly impact your ability to get the best deal on a car lease. You can check your scores, along with the major factors impacting them, with your free credit report summary each month on Credit.com.

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Attention Online Loan Shoppers, There’s Now a Place to Take Your Gripes

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Consumers with complaints about firms offering person-to-person loans can now register their displeasure with the Consumer Financial Protection Bureau, the federal regulator announced this week. The watchdog also published a consumer bulletin with general information about the “P2P” lending industry, also known as “marketplace lending.”

“When consumers shop for a loan online we want them to be informed and to understand what they are signing up for,” said CFPB Director Richard Cordray in a press release. “By accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn to when they encounter problems.”

There’s no reason to believe complaints are swirling around P2P lending at a higher rate than traditional lending. The CFPB has merely updated its systems to account for this new segment of the financial industry. But the announcement comes as the marketplace lending industry has hit a few bumps in the road.

What Is P2P Lending?

P2P lending is mostly what it sounds like: market makers like Prosper.com match people who want to borrow money — in Prosper’s case, up to $35,000 — with people who want to lend and get decent returns. Interest rates are high, averaging around 15%, but can be substantially lower than bank personal loan rates or credit card rates.

Lenders must follow consumer protections like the Truth in Lending Act and the Fair Debt Collection Practices Act, so the marketplace is fairly heavily regulated. Still, growth has been explosive. From 2010 to 2014, the national online lending market grew from $1 billion in loans to $12 billion, and Morgan Stanley estimates that by 2020 the volume will grow to $122 billion.

But there have been bumps in the road recently. In December, the California Department of Business Oversight announced it had opened an inquiry into the industry.

“These online lenders are filling a need in today’s economy, and we have no desire to squelch the industry or innovation,” CDBO Commissioner Jan Lynn Owen said in a press release. “We have a duty, however, to protect California consumers and businesses, and they have more and more at stake as this industry grows. We want to assess the effectiveness and proper scope of our licensing and regulatory structure as it relates to these lenders.”

Prosper told Credit.com it’s cooperating with the CDBO.

In February, citing a “turbulent market environment,” Prosper announced it was raising interest rates by an average of 1.4% to 14.9%. (Lending Club announced it was raising its rates back in December.)

At nearly the same time, Moody’s said it placed bonds linked to Prosper loans “on review for downgrade,” warning of higher default rates.

“Moody’s original estimates of loss were well below Prosper’s internal forecasts as well as those set by rating agency Fitch,” said Sarah Cain, Prosper spokeswoman. “Most importantly, our portfolio of unsecured consumer loans continues to deliver net returns between 6-8%.”

Vetting P2P Loans

Of course, plenty of other loans — like car loans — are also facing higher default rates. And an “inquiry” should not be considered an investigation. Still, the activity has spooked investors; Lending Club, which is publicly traded, has seen its share price cut by more than half in the past year. (Lending Club did not respond to request for comment regarding the CDBO investigation and the recent Moody’s downgrade.)

Consumers, however, should maintain a critical eye when considering marketplace loans, as the CFPB suggests. The traditional advice about obtaining any kind of loan applies – shop around, know your credit score before you apply, borrow as little as possible. (You can check your credit by pulling your credit reports for free each year at AnnualCreditReport.com and viewing your credit scores for free each month on Credit.com.) The CFPB also makes a critical point to potential P2P borrowers: When using a new loan to repay an old one, make sure you are not losing any important protections.

“While some marketplace lenders may advertise lower interest rates, in some cases consumers could lose important loan-specific protections by refinancing an existing debt,” the CFPB warns. “Specifically, consumers should know that they may sign away certain federal benefits, such as income-driven repayment for federal student loans or servicemember benefits related to debt incurred prior to entering active duty.”

The CFPB marketplace lending brochure is available here.

Have you tried P2P lending? What did you think?

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Lenders Are Backing Away From Using Facebook for Your Credit Scores

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Lenders appear to be backing away from the idea of using individuals’ Facebook profiles as part of determining whether they’re creditworthy.

But that doesn’t mean the effort to tap social media and other forms of alternative data as a predictor of creditworthiness have completely fallen to the wayside.

While social media giant Facebook was seemingly interested in the idea for a time — even going so far as to secure a patent on technology that would allow lenders to evaluate loan applicants based on their social network connections — the company revamped its data access policies for third parties last May, meaning online banking institutions would not be able to download data from public profiles for their scoring metrics, the Wall Street Journal reported late last month.

And regulators have caused other online lenders and credit data providers to slow efforts to use social media platforms for credit scoring purposes, the paper said.

This January, the Federal Trade Commission released a report suggesting that if social media platforms used data for loan criteria purposes, it could regulate those companies as consumer-reporting agencies. These companies could then potentially be held accountable for violations of the Fair Credit Reporting Act, equal opportunity laws and the Federal Trade Commission Act.

Lenders and fin-tech startups had been experimenting with the idea of using social media to assess creditworthiness because the wide-reaching data could potentially tell more about a person’s credit background than a traditional credit score.

Traditional credit scores generally assess a person’s ability to repay a loan via five major factors: payment history, amounts currently owed, length of credit history, types of credit and search for new credit (inquiries.) You can see where you currently stand in these areas by viewing your two free credit scores each month on Credit.com.

What About Other Social Data?

The use of alternative data may not be going away entirely — in fact, it could be used to open up financing for small businesses who don’t have thick credit files.

Experian DataLabs currently is looking to harness the power of social media and other big data sets for this very purpose. Its data scientists are analyzing social media and other “alternative” data in hopes of helping small businesses better establish themselves, show their worth, and have a better chance of getting approved for a business loan.

It turns out something as seemingly simple as an online review could one day help a small business establish creditworthiness.

Eric Haller, executive vice president of Experian DataLabs said the group looks at these alternative data sets — like foot traffic, credit card transaction data and social media — then pairs that with commercial credit data to see if it’s predictive in small business credit risk. If it is, the group could feasibly build credit scoring models based on these data sets.

“When you don’t have any information on a business, your ability to predict the [creditworthiness] outcome drops dramatically,” Haller said. “In an environment where there’s no credit data, social media data, card transaction data, foot traffic, that actually all is meaningful.”

How meaningful? It’s not the same as a robust credit file, but so far the models in the lab are positive.

“We’ve tested all the major social media sites … we know the data’s predictive — things like check-ins and likes and ratings are definitely predictive of credit risk,” Haller said.

“So it’s bringing new credit to businesses who don’t have credit,” Haller said. He estimates that as many as a third of small businesses do not have significant traditional credit profiles that lenders could use to determine their creditworthiness.

“We’re always, broadly, looking for good things to do with data for small businesses,” he said.

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So, About Those ‘Free’ Wedding Loans…

Never mind, dearly beloveds: A Seattle-based startup is reneging on its vow to offer free wedding loans, repayable only upon divorce.

SwanLuv made headlines late last year when it announced plans to offer $10,000 to engaged couples looking to fund their dream weddings. These funds would remain free, so long as the pair stayed together, company CEO and founder Scott Avy told Credit.com back in December. Upon divorce, each ex would have to pay the full amount of the loan, plus all the interest that accrued over the course of their marriage, split right down the middle.

The pitch (at the time at least) was that all the interest SwanLuv made off of divorces would be used to fund more loans. The company would make revenue through advertising partnerships, Avy said, though he provided few other details on how his service would actually work.

Well, it appears the business model did not come together as planned since on Feb. 15 (the startup’s advertised launch date), SwanLuv announced it would no longer be a lending platform. Instead, it plans to help couples crowdsource funds for their big day from friends, family and community members.

“Due to overwhelming demand (nearly two billion dollars at $10,000 per couple) and unanticipated legal regulations/restrictions in the lending space, rather than pull out we came up with a tool we believe still helps couples with their wedding financing,” Avy said in a written statement posted on the company’s Facebook site and forwarded to Credit.com, when asked for comment on the change. “We sincerely apologize to anyone we have upset by adjusting our funding platform.”

The Unhappy Couples

According to Avy, surveys the company conducted among prospective users showed high interest in a wedding crowdfunding platform, which, per its Facebook page, still entails paying the money back upon divorce, just to dear old mom and dad, Aunt Sue or anyone else kind enough to contribute toward your nuptials.

Still, the company’s about-face hasn’t been entirely well-received, as many people who had registered on the site took to social media to air their grievances.

“I’m BEYOND upset about this!” one commenter wrote on SwanLuv’s Facebook page. “Do you honestly think that some of us haven’t tried crowdfunding or asking everyone we can think of for help. I feel completely betrayed. I waited MONTHS to be told to start a crowdfund?!”

Another woman who had been hoping to use a SwanLuv loan to fly family out for her wedding posted a video to YouTube, taking issue with the reversal. “I and a few other applicants did not receive the survey that Swanluv claims to have sent out,” she wrote beneath the vlog. “Frankly, I am immensely disappointed in all of this.”

Some consumers were more sympathetic to the startup’s plight.

“With as much grief as you are receiving from everyone, I appreciate that instead of throwing in the towel you guys are adjusting into something that will work in the meantime,” another Facebook commenter wrote. “Thank you for working through it instead of giving up!”

Of course, the fact some people reported difficulties accessing the site during the past few days only contributed to the outrage. Per Avy’s Facebook post, the outage was related to server overload, not a formal closing of business. “We are currently working on a stable solution to the volume of site traffic we are experiencing,” he said.

You Still Have Options for Paying for Your Wedding

The overwhelming interest in SwanLuv’s initial offering isn’t exactly surprising. These days, weddings can cost couples a small fortune. An annual survey from TheKnot put the average 2014 wedding cost at $31,213, up from $29,858 the year before. 

If you’re having trouble financing your big day, you could potentially lower the cost of your wedding by saving during a long engagement, cutting back on unnecessary expenses and taking on additional jobs or side gigs ahead of the big day. You also can look into a low-interest credit card or personal loan. Just be sure to read the terms and conditions carefully and shop around for competitive rates. It can also help to check your credit scores before applying so you can qualify for the best offers. (You can pull your credit reports for free each year at AnnualCreditReport.com and view your credit scores for free each month on Credit.com.)

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