Tag: credit reporting

What is the Impact of a Student Loan on Your Credit Score?

Posted on | by Kevin Strauss | Leave a Comment on What is the Impact of a Student Loan on Your Credit Score?

Having to pay back a student loan can be a real bummer and it’s a frustrating process, especially because of the student loan impact on credit score. But there can be an upside if you pay back the loans on time. In fact, regular payments can help your credit.

How Can a Student Loan Impact On Your Credit Score

There can be both a negative and positive student loan impact on credit score depending on your payment practices. A student loan typically has a long repayment period so the score will get a boost from a long credit history. Your payment history has a big impact on your score so if you make your payments on time every month, it helps build up your credit. However, if you do default on the loan or have late payments, it can hurt the score.

Positives Impact of Student Loans on Credit Score

Student loans are not impossible to deal with. There are some positives when it comes to a student loan impact on credit score. If you make at least the minimum payment and make those payments on time, you can build the score with a positive credit history.

Paying On Time Makes Up 35% of the Score

Payment history has a big student loan impact on credit score. Many things you make a payment on, such as car insurance and rent, aren’t usually reported to credit bureaus until you stop paying them.

Even though some payments aren’t reported to credit bureaus and don’t have a positive impact on your score, student loans do. The payments you make on your student loans can help you establish a good payment history. If you don’t have any other loans in your name then paying a student loan on time can help you start building credit from a younger age.

Easier to Build a Credit Mix

A credit mix doesn’t have as big of an impact on your credit score but it’s still important. A credit mix is the mixture of credit you have and this can include auto loans, credit cards, and mortgages. The more you have and the better variety, the better it will look on a credit report. If you already have a credit card then a student loan will help give you more credit mix.

Long Repayment Means Long Credit History

Another positive student loan impact on credit score is the following. The length of your credit history will influence about 15% of the score. Since student loans usually come with 10-year repayment plans, having a student loan can help you build a long credit history. If you do have the opportunity to pay off your loans faster, you should still take it since there’s no reason to stay in debt for longer.

Loan officer sends credit burear reports to bank manager.

Negatives Impact of Student Loans on Credit Score

If you aren’t properly handling your repayments then student loans can wreak havoc on your credit score and you can get a negative student loan impact on credit score.

Paying Late

Since paying on time has a good impact on the score, paying late will have the opposite effect. In fact, paying late can be the most negative student loan impact on credit score. Getting behind on paying your loan will hurt your score as well as your credit history. Bad marks can stay on the report for seven years.

Your student loan servicers can report the delinquency as early as 30 days after payment is due so don’t think you can just skip a month and it won’t have an impact. If you can’t afford to make your student loan payments, you may qualify for an income-driven repayment plan if you have federal loans. If you have private loans, you may be able to refinance for a lower monthly payment.

Defaulting Greatly Damages Score

Another negative student loan impact on credit score is an account in collections. This is even worse than a late payment. Accounts in the collection will stay on your credit score for seven years, just like late payments. These accounts stay on your credit report even after you pay them off.

Creditors don’t want to lend you money unless you can be trusted to pay it back and defaulting will show creditors you can’t be trusted. Defaulting on student loans means that it can be harder to get credit for other things in the future.

Types of Student Loans

There are different types of loans for students. No matter which one you choose, the student loan impact on credit score will be similar.

Private Loan

Private loan can be hard to get if you don’t have a good credit score or someone with a good credit score who can co-sign your loan. A private lender will run a credit check to decide if you qualify. If your credit score passes but is still low then you will likely have to pay more in interest. A private student loan impact on credit score can be possible if you qualify.

Federal Loan

You may not have a credit score when you are just starting out in life and a fed student loan can be a good option. You can get a federal loan without a credit check and it can have a positive student loan impact on credit score.

Personal Loans for Students

A personal loan can be helpful to students who are drowning in debt and aren’t able to make ends meet. Students don’t have that many lending options that are available to help them get out of debt. Credit cards can only make the matter worse and it can be frustrating to keep borrowing from friends and family. A personal loan for students can come with a lower interest rate that is more manageable. The lower rate can help you invest money in other projects that can help your income grow.

If you have already gotten into some bad borrowing habits and your credit is not that great then you can still get a personal loan for students. Some lenders may offer slightly higher interest rates if your credit isn’t that great and others will shorten the amount of time you need to repay the loan. Personal loans can be processed quickly, allowing you to have the money that you need. Personal loans don’t need any collateral, which makes them easier for students to get since the chances are likely students don’t have a lot to borrow against.

Should You Do Debt Consolidation for Student Loans?

A personal loan will allow you to do debt consolidation. This process allows you to take your accumulated debts and make one payment with hopefully a lower interest rate. It can help to start getting your debt under control after graduation and when payments for student loans begin.

Since you already know about the student loan impact on credit score, does debt consolidation also hurt your credit score? Determining if debt consolidation can hurt your credit score will depend on the different options you choose. When you first are selecting a loan for debt consolidation, you are applying for new credit, which means a hard inquiry on your credit report. Any time you do have a hard inquiry, your credit score can suffer.

While it initially seems that getting a loan for debt consolidation can hurt your credit score, adding new credit or a new loan can cause your utilization ratio to go up and this can actually help your score. However, for this to work, you need to not be acquiring any new debt.

Is There Help for Student Loans?

Chances are if you are applying for college and are looking at how to afford it then you have heard of FAFSA. This stands for Free Application for Federal Student Aid. If you want to be considered for financial aid or even have a work-study job during your college years then you will need to fill out this form. The form will take your income and your family’s income into consideration. It will then determine your aid eligibility for loans or grants. Grants are financial aid you want since they won’t need to be repaid.

Even if you think your family earns enough money to prohibit you from qualifying for aid, it is still a good idea to complete the form. The form is needed if you are going to receive any scholarships and will also be needed if you want access to federal student loans. Even if you do have to take out student loans, and many people do, it helps to have the most options for paying for college. If you don’t fill out the form, you can miss out on student loans and scholarships, which you may have been eligible to receive.

Understanding the 5Cs of Credit

Getting a loan approval can be dependent on your credit score but the credit score is only a portion of the decision on whether or not you are rejected or approved. Anything that can show the lenders whether you can repay will have an impact. A single item doesn’t determine your credit. Instead, it’s an equation with multiple factors that speak to the possibility and ability to repay the loan. These factors can be referred to as the five C’s of credit.

Character

A person’s character can lead to decisions one makes, such as loaning money. Character is based on credit history. Your character is determined by your known financial actions. There is no way to see into the future about how your character can be so creditors go on past action.

Capacity

A character can be judged more subjectively but capacity is straightforward. It’s the ability to repay. Lenders will look at income capacity to see whether or not you can repay the loan. If the outgoing money is more than your current income then you don’t have the capacity to pay the loan.

Capital

When you apply for a mortgage, a lender will want you to pay for a portion upfront. This can be low or it can be as high as the lender wants. This is also true with car loans. When you make a down payment, this is considered capital and it shows that you are serious about the purchase. You have some skin in the game and are invested in so you are more likely to pay off the loan and not lose your investment.

Collateral

Collateral is slightly different than capital. In the loan world, this can be a check, piece of land, car title, or something else the lender sees as valuable enough to regain the money. Collateral can improve your chances of getting approved. Collateral is less of a financial risk for the lender.

Conditions

Conditions are the conditions surrounding the loan. This can seem straightforward but there are conditions that can affect approval. A lender has to consider all conditions. Things like the interest rate and terms of the loan will also need to be factored in.

Establishing a Credit History

A student loan can have an impact on credit score, but what do you do if you are trying to establish a credit history? Students and young adults often have this problem and it seems unfair that you have to have a good credit rating in order to pay for something as important as education. Credit isn’t just about credit cards anymore and there are ways to establish a credit history even if you don’t already have one.

Get a Credit Builder Loan

This is one of the easiest and painless ways so establish a credit history. This type of loan is one where you borrow a specific amount of money. The bank or credit union holds the money in an account you don’t have access to and you make monthly payments. When the amount is paid off you get the money minus any interest you needed to pay.

Many credit builder loans will be between $300 and $1000. It’s not about how much you can borrow but instead how much you can repay every month. You will need to be sure you can afford monthly payments before you begin the process. Otherwise, you can do damage to your credit score.

Build Credit with Parents' Help

Your parents will likely have a credit card. You can ask to be an authorized user of your parent’s credit card. This means you won’t have a card of your own but can use theirs. You do need to check with the credit card company to see if they report any authorized users’ payments to them. If they don’t then this won’t work.

Make payments on time each month. If you don’t, not only are you hurting your credit history but also your parents’. The biggest advantage of being an authorized user is that their credit history will also make yours look good. You don’t even really need to use the card.

Paying Your Bills

Some think that utilities, insurance, and rent are reported to credit bureaus. This is only true if you don’t pay. However, it’s still important to pay your bills in a timely manner. If you want credit bureaus to be notified of on-time payments then a third party reporting agency can be an option. You may have to pay for this service. But it can be worth it if you are trying to build up a credit history and do make all your payments on time.

Build Credit with a Co-Signer

If you have someone in your life with good credit you can ask them to co-sign a personal loan in order to build credit history. The payments you make on the loan will then be reported to the credit bureau so you can establish credit. It’s important that you don’t default on the loan since your co-signer will then be responsible for paying it and both your credit scores will be negatively affected.

Secured Cards

No one will get a credit card before there is an established credit history but you may be able to get a secured card. This is when you put between $200 and $300 in the bank and let it sit there for about a year. The credit union or bank can see this as collateral for a secured credit card. You aren’t able to make large purchases with a secured card. But when you make the payments on time each month, the credit union or bank may give you an unsecured credit card in a couple of years.

Secured cards aren’t meant to be used long term and the purpose is to build or rebuild credit.

How to Increase Your Credit Score

Using student loans to your advantage and allowing the student loan impact on credit score to be positive can help you increase your credit score. There are also other ways to improve your credit score.
what makes up a credit score

As it has been said time and time again, it’s extremely important to avoid late payments since this makes up such a big chunk of the credit score. If you aren’t able to remember your payments then sign up for automatic payments. If you can’t afford your payments then there are options you can consider, including debt consolidation.

Start Paying Down Revolving Debt First

Revolving debt includes credit cards. You want to keep credit card balances as low as possible and ideally at zero. Not only does this help with your credit but it also helps you avoid hefty interest fees. Pay off your debts to keep your credit utilization in check.

Since items like paying rent and other bills don’t help your credit score unless you are late, ask your landlord if you are able to pay for your rent on a credit card. Use the money that you would typically spend on rent and pay down the balance every month.

Be sure to review your credit report and check for any errors. Every year, you are entitled to one free credit report. Don’t miss this opportunity to check your score. Errors can be common and can be costly to your credit score. Review reports every year and then dispute anything that isn’t right.

Final Thoughts

When asking what is the student loan impact on credit score on my student loan, it helps to remember your specific situation. If you can pay your monthly payment on time and establish a good payment history then you can have a positive student loan impact on credit score. However, it’s easy to start having a negative student loan impact on credit score if you aren’t careful about making payments. For those having trouble making payments, debt consolidation can provide some relief.

There are ways to establish your credit for those who are just starting out. And ways to improve your credit score in the future. For students who want to travel, instead of taking out more student loans consider a travel loan for students.

Loanry

Your A+ Guide to the Five C’s of Credit

Posted on | by Brandy Woodfolk | Leave a Comment on Your A+ Guide to the Five C’s of Credit

There have been a couple of times in my life that loan approvals and rejections have utterly shocked me. I have seen some people with really low credit scores get approved, and some with really high ones get rejected. It seemed so twisted, especially since I grew up hearing that your credit score was the “be all, end all” when it came to financial success. I realized very quickly that I had been given some bad information. Credit scores, it seems, are only a factor in the equation.

How Credit is Calculated

If your credit score is only a portion of the decision, what else is considered? Basically, anything that can show them whether you can repay. The bottom line with a consumer loan, or any other loan, is that the lender wants their money back, and they add certain things into the equation to determine if they will get it back or not. Your credit is not determined by a single item.

Instead, it is an equation of multiple factors- all of which speak to your ability and possibility of repaying the loan. These factors are lovingly referred to as the five C’s of Credit.

Understanding the Five C’s of Credit

Have you ever heard of the Five C’s of Credit? I like that name because it tends to lighten the seriousness- just a little bit. While credit is a serious thing, being way too serious and stressing out about it will only hurt you. Stress is a killer, so we are going to keep this on a less serious note as well. The five c’s of credit are going to help you understand credit terms and decisions a little better.

The 5 C’s of Credit

Imagine you are going on a trip to fabulous Honolulu, Hawaii. You want to take a friend along but cannot decide which friend to take. You want to be fair in your choice, so you decide to look at each friend objectively. Though you are paying for the trip up front, the friend you choose will have to pay you back and cover their own food. As there is money involved, you score each according to the following five categories:

The Five C’s of Credit: Character

Five Cs of Credit Character
The first of the five c’s of credit is character- the one I happen to think is the absolute most important. A person’s character can lead one in the decisions he or she needs to make- like relationships or loaning money. In very simple terms, when it comes to the five c’s of credit, the character is based on credit history.

As far as your credit goes, your character is determined by your known previous financial actions– just as you scored your friends according to their known actions. The decisions you have made in the past speak to your character, to whether or not you are likely to repay the loan. In fact, whey judge your character by how likely it is you will be 90 days late or later in a two year period.

You may be saying, “But I’m in better financial shape now. It’s not fair that they judge how I will do now by what I did in the past. I was a stupid kid, then.” I know- I have had those same thoughts run through my head before, but you have to be fair to financial lenders, as well. They have no way of seeing the future, so they have to go by your previous actions.

It has often been said that past behavior is a predictor of future actions. How else can a lender decide if it is safe to loan money to you? However, while your character is a part of your credit worthiness, there are four other parts that are looked at. So while there is no guarantee, you might still have a shot at borrowing if the other factors look pretty good.

The Five C’s of Credit: Capacity

The second of the five c’s of credit is capacity. While character can be judged more subjectively, capacity is pretty straightforward. It is simply the ability one has to repay.

Lenders look at income capacity to see whether or not you have the ability to repay the loan. If your outgoing money is more than your income, they will say you do not have the capacity to afford a loan. And, truthfully, how comfortable would you be loaning someone money that did not have a way to repay you?

It would be better to just give them the cash and not expect it back. Though some friends may do that, do not expect a financial institution to. They want you to have an income that outweighs your ongoing debt.

The Five C’s of Credit: Capital

CapitalIf one of the friends you are considering offers to put up half of the cost up front, you are probably most likely going to choose them- or at least move them to the top of the list. Why? Well, for one, they are easing your financial burden. If they put up half and you put up half, it is a lot less stress on you. Second, it shows that they really want to go and are serious about doing their part.

The same is true with lenders. When you apply for a mortgage loan, the lender usually wants you to pay a portion upfront. It could be as low as 2% and can go as high as the lender wants. The same is true with car loans- lenders want you to put up a down payment. And honestly, can you blame them? They are putting money towards something for you- something that may cost them a lot of money.

With you putting at least a portion of the cost down, it shows you are serious about this purchase. It means you have some skin in the game, so to speak. You have invested in it, so you are more likely to pay off the loan instead of losing your investment. It’s really that simple.

The Five C’s of Credit: Collateral

CollateralCapital is not the same as collateral, though they have been confused a bit. Remember that capital is your friend paying a portion of the cost up front. Collateral, on the other hand, is something your friend lets you hold until they repay you. It could be a piece of jewelry, a piece of stereo equipment, or something else that they find valuable. The agreement is that if they do not repay, you have the right to sell that collateral to make back your money.

In the loan world, collateral may be a car title, a check, a piece of land, or anything else the lender finds valuable enough to regain their money. While collateral does not necessarily guarantee approval, it does improve your chances because a secured loan- a loan attached to collateral- is less of a financial risk for the lender. If you are applying for a loan, it might be wise to have something in mind that you can use as collateral just in case.

The Five C’s of Credit: Conditions

ConditionsConditions are just what it says- conditions surrounding the loan. That may seem pretty straightforward but there are many conditions that might affect approval.

A lender has to consider all conditions. Of course. things such as the terms of the loan, i.e. principle and interest rates, need to be factored in. How else will you or the lender know if you can afford the loan? However, there are other factors that are beyond the borrowers’ control that still have to be considered- such as the housing market, in general. A borrower has no control over the condition of the housing market but it can prevent loan approval.

The Equation

While numbers themselves might be absolute, the ways they are calculated can change quickly. Those five c’s of credit we just discussed are all consistent factors of the equation, but the level of importance of each of them can change from lender to lender and loan to loan. Here is the thing many people I know do not pay attention to: your credit score is not all that lenders look at. And, for that matter, your credit score is not just figured according to how much you owe or how much you have paid off. It is based on a mixture of things.

When lenders check your credit report, they will be looking at all of the factors, but the weight of those factors will be different. While one lender may place more importance on character another may consider capacity more important. With secured loans, collateral is often the most important factor. With home and car loans, capital is probably going to rank higher. There are some lenders that only factor in your capacity and, possibly, your collateral.

Finding a Lender

The bottom line with this is that there is no concrete equation that you can plug everything into so you will know if you can get approved. Most lenders will have their own equation, so you will only know for sure when you apply. And since the equations differ among lenders, just because one says, “No”, does not mean they all will.

So if it is so different among lenders, how do you know where to get a loan? You will have to credit shop. This means searching for the type of loan, rates and terms you want among multiple lenders. Then, you apply at each of them because that increases your chances of finding a lender to approve you.

Yes, I know- it sounds time-consuming. It can be but it does not have to. That is why places like Loanry exist. We help you find a lender. You simply fill out your information, and we find a lender that may fit your situation. If a lender wants more information, they will ask you for it, but you are not wasting time applying for loans that are not even in reach. It simplifies the process completely.

What To Do If You Do Not Get A Loan

If you have exhausted your lending options, cannot find a loan that meets the terms you want, or you are through looking for some other reason, you have two options: give up completely or make yourself a more desirable borrower for the future. Though it can take time, persistence, and a strong will, you can improve your overall credit and increase your odds of approval by using the five c’s of credit to do so. Just follow these steps:

Build Your Credit Character

Remember, character is about your credit history, so to build your character you have to improve your credit history. How can you get credit to improve your credit if you cannot get credit? That’s a great question. Perhaps you could not get credit in the ways you were trying to, but there is something else you can do.

Go to your local bank or credit union and deposit some cash into an account- probably around $500. Don’t freak out yet by saying you do not have $500 to spare because you do not need it to spare. Go to the loan office of that credit union or bank and apply for a secured loan using the cash you put in the account as collateral.

Explain that you are looking to rebuild your credit and you would like to start with this secured loan. Most likely you will be approved because they will usually approve you for the same amount that you have deposited. Again, there are no guarantees, but it is very likely.

This type of loan is good for you because you get the same amount you deposited- meaning you are not losing money, and neither is the bank if you decide not to pay. If they did not approve you for some reason, you can just withdraw your money. Easy as pie.

If you are approved, though, you can begin to rebuild your credit. Make timely payments each time so good marks go on your credit report. For those that can spare any of the loan, put it away to use for payments. Make each payment to the best of your ability. Once it is paid off, do it again and again until you no longer need collateral.

Increase Your Capacity

Again, your capacity is determined by your income versus your consistent outgoing funds. The goal is for the incoming to exceed the outgoing. To do this, pay off any bills that you can, renegotiate things like your cable, and any other item you pay that could be gone or at least decreased. At the same time, increase your income. Ask for a raise, apply for a promotion or a new job altogether, or pick up a second job.

Add Some Capital

If you want to purchase a house, or other large purchase, you need some capital. The amount of capital lenders want fluctuates according to the market and other conditions, so it is hard to put a dollar amount on how much capital to have. However, determine a goal according to the current rates, and once you find or make that amount, apply for something that fits with that.

For instance, let’s say you are aiming for a $100,000 house and lenders are currently looking for 10% capital. This means you need $10,000. When you have that amount together, you find that they are now looking for 20% capital. You have three choices:

  • Wait to see if the amount goes back down
  • Find the other $10,000
  • Find a home for $50,000 so you already have the capital ready

Obviously, that choice is yours. If you are looking for the home you plan to stay in for the next 50 years, you probably do not want to compromise on the type of house you buy. On the other hand, if you are moving to a different state because of a new job that will only last a few years, you could be more flexible.

Decide on Collateral

Having some collateral to put up will generally increase your chances of approval, though it is not a decision to take lightly. Understand that collateral means the lender can take that property and sell it as a means to recoup their losses. While I sincerely hope that you have no intention of defaulting on a loan, life does happen, so you need to be mindful of the collateral you use. You should choose collateral that will not throw a huge wrench in your life if you lose it.

Let me put it like this: collateral needs to have some value or it is of no use as collateral. A car is valuable monetarily, but it is also valuable as your vehicle. It is most likely what gets you and your family back and forth to where you all need to go. So, before putting it up as collateral, really think about it.

Do you have another vehicle you can use? If not, can you easily walk back and forth to work or take public transportation? Basically, can you continue the things you need to do without that vehicle?

Lenders may require a certain type of collateral, so you may only have the choice between using your car title or not getting the loan. If that is the case, you must simply decide if it is worth the risk. Collateral may improve your odds of getting the loan, but you do not need it hurting you in other ways.

If you are unsure of why you are not getting approved, there are ways to find out. First, when you apply and are denied, the lender is supposed to send you a letter in the mail explaining why. It might say things like, “Too many delinquent accounts”, “Judgment including bankruptcies”, “Not enough open accounts”, or something totally different. You can use these notes as a starting point.

Additionally, you can obtain your credit report for free. Once a year, you can get a free copy through each credit bureau: TransUnion, Experian, and Equifax. You want to get a copy from all three because there tends to be different things on each. To get a comprehensive view of which of the five c’s of credit need the most work, you need to see what all you are fighting against.

Also, when you get denied for credit, you have a certain amount of time to request a free copy of your report. The letter that you received from the lender will give you the information to do that. These are just two ways to keep an eye on your credit.

There are a few things that I do to keep a constant eye on mine. I am signed up with Credit Karma and CreditWise through Capital One. I love both because they alert me when something changes for better or worse on my credit. This is great because if something is not right, like a charge I did not make, I know pretty quickly and can take care of it. I also love them because they break down my credit and give me suggestions for improvement.

How to Evaluate Your Credit

No matter how you do it, it is important to keep an eye on your credit, and to consistently evaluate it against the five c’s of credit. The quicker you know these things, the better. To lighten the burden, though, when I say consistently check your credit and evaluate it, I do not mean daily- or even weekly. The first time you look at it, it will take a little bit. Be prepared to spend some time really working through your credit reports. After that first time, though, once a month or so should be enough.

What makes up a credit score.

Pick the first three debts you wish to pay off. I know a lot of people say to list them all at once, but I tend to find myself irritated when I do this. For one thing, the list looks like a mountain I cannot climb. Second, credit changes consistently. If I go through the trouble of listing them in order just to have to change it next month, I am probably not going to continue. Building credit is tiring enough without adding extra work. So pick three and start working. Pluck at it as much as you can- even if it’s $5 a month. It will add up.

Lastly, look at your credit report with fresh eyes. Pretend you are the lender. Would you loan to this person? If not, why not? Which of the five c’s of credit need to be worked on the most? What could the borrower do to change your mind over time? Make a list of those things and turn all of this information into a strategy that you can follow.

Conclusion

Whether you are looking for a loan or building your credit, you just might need to be a bulldog. Have your goal in mind and push toward it until you reach it. For assistance shopping for cash loans, Loanry is standing by to help you find a lender that may suit your need. For assistance building your credit, enlist a trusted friend to push you when you feel like giving up. No matter your goal, you can reach it if you are ready to fight for it.

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How to Establish Credit History When You Have No Credit History?

Posted on | by Myra H | Leave a Comment on How to Establish Credit History When You Have No Credit History?

Young adults and students are often frustrated by the problem of having no credit. It seems unfair, but almost every business or service requires a good credit rating before you can purchase their goods or services. Up to a few years ago, the young and students had no recourse but to use Mom’s and Dad’s credit card to establish credit history of their own. This did nothing for their own credit, though.

Fortunately, there are over half a dozen ways to establish credit history if you have no credit. Credit is no longer strictly about credit cards. Paying your rent on time (and that’s if you can find an apartment with no credit history,) paying your bills on time, and other solutions we’ll discuss here all add up to a credit history. First, though, those with no credit should understand how and why it works.

Understanding The Basics Of Credit

If you’ve never paid on a car loan, a mortgage, or had a credit card, then the Big Three (Experian, TransUnion, and Equifax) don’t know you’re there. They call this being “credit invisible.” If you’ve paid off a loan or used a credit card maybe once or twice, the Big Three call this “credit unscorable.” There simply isn’t enough information with which to give you a credit score, good or bad.

Experian logo.
TransUnion logo
Equifax logo.

You’d be surprised how many people – 26 million to be exact – deal in cash. They buy large ticket items like cars from Craigslist, rent an apartment or room detailed by friends or family, and make monthly payments on other things outside the credit arena. Some don’t even have bank accounts; they pay their bills with Post Office money orders. Thus, they have no way to establish credit history.

The Way Lenders See it

You have bad credit due to the fact you haven’t shown a responsible repayment history. To the credit bureaus, they know nothing about you because you’re “invisible”. It’s easy to see how credit is a necessity, because cash and checks are usually not accepted in many places. How many times do you stand behind someone at a restaurant while they write a check for their meal? You can’t order pizza without a credit card, pay for something on Amazon or even get groceries without a credit card.

That’s not all. Anything in life requires a credit check. Applying for a job often calls for a credit check. The employer needs to see that you are a responsible person which means paying your bills on time. If you need health, auto, or home insurance, expect a credit check. These people need to know that you’ll pay them. Even the power company checks your credit. If you don’t have any or bad credit, expect to pay a hefty down payment as security in case you don’t pay your bills.

Establish Credit History with No Credit History

There are ways to establish credit history if you’re beginning from scratch. The gold standard of creditworthiness is FICO scores. Each little thing you pay for shows up there. Hold your chin up, you got this. Here’s how.

FICO credit score.

☛ Get A Credit Builder Loan

This is one of the most painless ways to establish a credit history. Go to a bank or credit union with which you have a relationship. A credit builder loan is one in which you borrow a specific amount of money. They will hold the money in an account to which you won’t have access.

You will make monthly payments. When the amount is paid off, you will receive your money minus the interest you paid. They will report to all three credit bureaus your timely monthly payments which will establish credit history for you.

Most credit builder loans offer a range between $300 and $1,000. The point is not how much you borrow, but being able to repay the loan on time each month. Borrowing more than you can repay might mean late payments or no payments at all. Be very sure you can afford the monthly payments before you begin the process.

You’ll be paying interest on the loan. Some lenders don’t return the interest when the loan is paid off. Some return a portion of the interest which they call “dividends.” Read the contract carefully, and make sure you understand the interest, fees, and whether or not the lender will return none, all, or a portion of the interest at the end of the loan.

Since you’re doing this to build credit, some lenders won’t do a credit check on you. Instead, they’ll check your banking records. Here they will find if you have any bounced checks, and if you pay your bills. These things might affect your approval for a loan. You’ll need to bring with you:

  • Name, address, and phone number of your employer
  • Paycheck stubs
  • If you’re self-employed, you’ll need tax returns to prove income
  • Housing payments
  • Checking and savings balances
  • References
Important pros of Credit Builder Loan

Two of the most important pros of obtaining a credit builder loan are that you’re basically paying monthly into a savings account. This teaches you discipline. The other pro is that when you go for other loans, you’ll have the experience and knowledge of taking out just the right amount and the ability to pay it on time every month.

☛Build Credit With Your Parents’ Help

Mom and Dad usually have at least one credit card. You can ask to be an authorized user of their cards. You won’t have to have a card of your own; just use theirs. Ask your parents to contact the credit card company to see if they report the authorized user’s payments to them. You need to be sure of this. Otherwise, your efforts will be for naught.

Be prepared to make your payments on time each month. If you don’t, you’re messing over the beginning moves of establishing credit history as well as causing your parents’ payments to be late or non-existent. They could end up with bad credit which serves no purpose for either of you.

The biggest pro of being an authorized user on someone else’s credit card is that their credit history makes yours look good. You don’t even have to use the card. The primary card holder’s credit is reported on your credit report. How cool is that?

☛Build Credit With A Co-signer

If you have a parent, another family member, or a friend with good credit, you could ask them to co-sign a small personal loan in order to build or establish credit history. The payments you make will be reported to the credit bureaus, and you will establish credit history.

The only downside to co-signing a loan is that if you default on the loan or your payments are late, then the co-signer is responsible for paying the loan. Both your credit will be adversely affected. There might possibly be ill will between the two of you. Make very sure you make your payments on time for both your sakes.

☛Build Credit By Paying Your Bills

A great number of people assume that their rent, utilities, phone bill, cable, and insurance among others are reported to the credit bureaus. The fact is that the credit bureaus only see this information if you’ve failed to pay and the debt goes to collections. The only credit entity that does get these reports is FICO. So it does pay to pay your bills in a timely manner.

If you want the credit bureaus to be notified of your timely payments on bills, then contacting a third-party reporting agency is your best bet. Two such agencies are Credit Karma and RentTrack. Be aware you might have to pay a yearly premium for this service. It’s worth it, though, to be able to build your credit from nothing.

Young man using credit card for paying bills on laptop.

☛Build Your Credit By Buying A Car

The first credit most young people have is buying a car. Once you’re out of school or college, you have to get around to find a job. Buying a car is a sensible way to accomplish this. Make each month’s payments on time, and you will establish credit history.

☛Build Your Credit With Student Loans

Nine out of every ten students get their education with student loans. You may have a grace period before the student loan organization begins reporting your payments. In any case, pay them on time every single month for a good credit rating.

Applying online to a college usually means Sallie Mae. However, if you’re wondering where to get a loan, most lending institutions offer student loans. The rates and fees will vary, but they are another method of getting student loans.

What Credit Bureaus Look For?
Credit bureaus look for five things when they check your credit. The first is a history of payments, how much you use your credit, how long you've had credit, hard hits on your credit, and your credit mix. When you use both revolving and installment credit and pay them off on time, your credit gets a boost.

☛Build Your Credit With Store Cards

Sears, JCPenney, Kohl’s, Exxon, Mobile and dozens of other companies offer their customers brand credit cards. If you spend lots and lots of money with these and other stores, chances are pretty good you’ll pay your monthly credit card bill.

The best way to handle store credit cards is to buy with it only what you would have bought with cash. Pay the entire balance each month on time. Ask the credit department if they report to the three credit bureaus.

Let’s Talk About Credit Cards

No one gets a credit card before they establish credit history. Credit cards are how the Big Three credit bureaus recognize people. With a credit card, you are no longer “invisible” or “unscorable.” Here are ways to get one.

Secured Cards

This is when you put $200 or $300 in the bank and let it sit there for a year or so. Don’t touch it. The bank or credit union will see this as collateral for a secured credit card. The amount in the bank or credit union is usually the credit limit on the card. You won’t be able to make large purchases, but when you make the monthly payments on time, the bank or credit union might give you an unsecured credit card a couple years down the road. In both cases, they will report your timely payments to the credit bureaus.

Secured cards were never meant to be used forever. The purpose of such a card is to build or rebuild credit. When you qualify for an unsecured card, then you can close out the secured card account. Make sure the secured card has low annual fees.

Store Cards

If you work for a major department store, a place like BF Goodrich, or you manage a Mobile gas station, chances are good that you could get a store credit card. If you’ve little to no credit, then your credit limit won’t be very high. Pay it off on time every month for at least a year, and the company usually raises your credit limit. It all goes on your credit report which gives you a track record.

Starter Credit Cards

These were devised for young people with no credit history. Adults with bad credit can start all over again with a starter credit card. Some are secured by amounts as small as $49, while others are regular credit cards. Some carry annual fees while others don’t. The credit limit is usually $300, but you’ll run into some pretty high interest rates to the tune of 20 percent.

The goal is to pay as little as possible when it comes to fees and interest. Make sure to pay the balance on time and in full if possible. In time, you’ll be able to qualify for a regular credit card with better fees and interest. Capital One offers a starter card with no annual fee just to give you an example.

Student Credit Cards

To qualify for this card, young people must be registered at an accredited four-year college. This is an easier card to qualify for, and some even offer perks like cash back. Pay the balance on time and in full, and you’ll be on your way to a good credit score.

Subprime Credit Cards

This is absolutely the last resort for anyone trying to establish credit history. These cards are usually sought by those who have tried other avenues and failed. Those with no credit at all and those with bad credit are not turned away.

The trouble with subprime credit cards is that they hit you with astronomical fees and interest. The government has tried to regulate them, but they find ways to get around it. This is a do it at your own risk thing, but we’d be doing you a serious disservice if we didn’t at least let you know that it’s there and to beware of it’s bad points.

Let’s Talk About Loans To Establish Credit

We’ve talked about car loans to establish credit history, credit builder loans, and student loans. For every thing you need to pay for, there seems to be a loan for it. Sometimes they’re called personal loans, sometimes payday loans.

There are two types of credit: installment credit and revolving credit. Installment credit is when you pay back money loaned on a car or a mortgage. Revolving credit is when you pay monthly charges against a credit card. The card revolves because the credit is available once again. Credit bureaus want to see a variety of credit on your credit report, so a good mix of both gives them a reason to approve your credit.

Let’s talk about personal loans first.

Personal Loans

Personal loans are installment loans that require a certain credit score to get favorable rates. You apply for a certain amount of money, sign the paperwork, and receive your funds. You will repay the money each month with interest and fees. Now you can borrow any amount, but it’s best to keep the amount low enough that you won’t have trouble repaying it. The loan terms are usually one or two up to six years to repay the loan. Make sure you pay it on time each and every month. Ask the loan officer to report your monthly payments to the Big Three credit bureaus.

Payday Loans

Payday loans are given to people in sudden emergencies that need to be paid for right now. They are based on repayment from your next paycheck. Those just beginning to build a credit history should stay away from payday loans. They charge an insane amount of interest and fees. This often makes it hard for people to repay. They take out another payday loan to pay off the first one. You can see the trap people fall into. These aren’t reported to the credit bureaus.

Conclusion

Know that we all understand your frustration at being too young for a lot of things. You’re old enough to vote and drive a car, but you can’t have credit. We understand how it feels to wonder what to do and where to go for answers. We hope this conversation helps you at least get an idea what to look for when you do begin your credit journey.

You should know that before you look online for personal loans, there are companies that don’t lend-they direct. You explain your needs, your time frame, the amount of money you need to borrow, and they can help you find a company that might fit your needs. They don’t lend. They know bunches of lenders, though, so their website is an interactive framework in which you find a lender for you. Without these free services, you’d have to do all the footwork yourself. We’d like to help, so let us know how your credit journey is going.

Loanry

How Does A Personal Loan Effect Your Credit?

Posted on | by Blaine Koehn | Leave a Comment on How Does A Personal Loan Effect Your Credit?
How Does A Personal Loan Effect Your Credit?

There are several things you need to consider before you get any type of loan and this includes the impact the loan will have on your credit. However, the primary determinant for this aspect is your credit profile. Sometimes a personal loan can help improve your credit scores and credit, especially if your primary purpose of taking a personal loan is to help pay your existing higher-interest rate debts. Before we can dive deeper into this issue, it is important to know what the definition of a personal loan.

Understanding the link between your credit score and personal loans requires you to know what a personal loan is first.

How a Personal Loan Affects Your Credit

A personal loan is a type of credit issued by credit unions, banks, or digital lenders. This type of credit makes it easy for people to make big purchases, bundle high-interest debt into an easy to manage low-interest debt, or start a business. A personal loan usually has a lower interest rate compared to credit cards. These types of loans can also be used to combine several credit card debts into monthly lower-cost payments.

While your credit profile can be a robust tool, signing off on any loan especially a personal loan can certainly be a serious obligation. Thus, it is important to weigh both the pros and cons of a personal loan and how it will affect your credit score.

Let’s see when a personal loan can affect your credit history and score.

You Apply for a Personal Loan

A formal application of a personal loan triggers a thorough credit check that enables the loan checker to perform an evaluation of your credit history. This type of inquiry usually takes away at least five points from your credit score. However, the new application accounts for at least 10% of your total credit scores. A thorough credit inquiry basically stays on your report for at least two years, but it can only affect your credit score during the first year.

You Shop Using a Personal Loan

A majority of online lenders allow borrowers to pre-qualify for a consumer loan using a soft credit check. This type of check is routine, as it allows them to establish your creditworthiness. A soft credit check will not affect your credit history and score, but it does allow you to shop around different online lenders for the best terms and rates. Loanry helps borrowers find a lender online.

You can do so, by simply visiting their website, as Loanry makes some of the information you require for registered online lenders available. Make sure you are not only comparing multiple lenders, but you are also considering whether the lender offers its consumers the soft check.

You Repay Your Personal Loan Regularly

Both VantageScore and FICO, which are the different credit scoring methods available, consider your payment, as the most critical factor when calculating your credit score. Your ability to repay your loan makes up 35% of your total credit score. Having a consistent record for on-time debt payments helps build your credit score in the long-term.

Most online lenders report their borrowers’ repayment activity to at least one or all the three national credit bureaus. These bureaus are TransUnion, Equifax, and Experian. Working with an online lender that reports your repayment progress to one or all three bureaus means that you have to be consistent with your payments, as this will help build your credit score and reports.

You Consolidate Your Debt

Consolidating your debt into a consumer loan can help improve your credit score, as it lowers your credit utilization. This means a personal loan affects your credit score in a positive manner. To determine your credit utilization, lenders simply calculate how much available credit you utilize. Personal loans help add installment credit to your reports, and this further helps to improve your credit score

Credit utilization formula.

You Miss a Payment

Another way a personal loan affects your credit is when you lack to make regular payments. However, it is important to note that missing a payment due date even by a few days cannot affect your credit score. But, when you make a payment towards your personal loan that is 30 days late, online lenders may report you to credit bureaus and this can damage your credit score.

For instance, if you have a FICO credit score total of 780, a 30-day delay in paying your personal loan can lower your score by at least 90 to 110 points. This means you will have moved from an excellent score to a fair credit score. Having a suitable budget that takes into account all of your required repayments including a personal loan, can help you avoid missing payments.

So, what happens when a personal loan effect your credit? Are there any ramifications that follow? The next section will focus on how your credit score affects your life.

How Your Credit Score Affects Your Life

Just like a personal loan affects your credit; your credit score can also affect your life. Even if you have a credit score that is as low as 500, you can still get credit, however, this comes with a rather high-interest rate or specific conditions like getting a secured credit card or depositing money. But as your credit score increase, you start to have even more access to available credit products that have lower interest rates and pay less.

For instance, if you have a credit score of 620, you would pay a range of $65,000 to $200,000 for a 30-year mortgage. While a person with a score of above 760 will pay less than that for a shorter period. In the long run, borrowers with a credit score of above 760 have plenty of options including 0% interest credit cards and they qualify for 0% financing on vehicles, as well.

How do You Improve Your Credit Score?

After discovering how a personal loan affects your credit, what next? Well, if the impact is a bad credit score then their several ways you can try to improve your credit score. But, if it had a positive impact on your credit score, there is no harm done, by having a higher score. So, here are some of the ways you can improve your credit score.

Check Your Credit Reports to Make Sure They are Accurate

Sometimes, credit history reports can be notoriously inaccurate. But, it is important to note that this might not be the fault of any of the credit bureaus. Credit bureaus maintain accurate credit records and they report the information they acquire from different lenders. But, the trouble is that, they can sometimes get information from lenders that is not right. This reason may arise if files get mixed up and this eventually causes mistakes during the data entry process.

Checking your credit score by reviewing reports from credit bureaus enables you to check for inaccuracies. Once you have established a mistake has been made, you can then file a dispute. Disputes to credit bureaus are made online and it follows dispute procedures for each bureau. Fixing these mistakes is an excellent way of improving your credit score.

Fix Your Late Payments

Like discussed earlier, one of the ways a personal loan affects your credit is when you miss your payments. To help fix your credit score, you can try disputing all your late loan payments even if they may be accurate. When lenders report late payments, the credit bureaus require them to verify the information they present, and this can sometimes take time.

If the lender fails to respond within the given time, the bureaus will then remove the negative information from your report. But, if this does not help you get rid of your late payments, you can try negotiating with your lender to put your late payment information on your history rather than credit score. If your online lender agrees, they can easily change your payment information with the help of credit bureaus.

To avoid late payments make sure you try paying off all your debts, making big payments if possible, or bringing the account current. Doing this in exchange for the removal and correction of all your late payment information, is an incentive no lender can refuse. Alternatively, you can try to get your lender to accept a particular amount of money and this will have your account show, closed and paid as agreed on your credit history.

Come Up With a Plan to Help Improve Your Score

Nobody constructs a house unless they have a plan. To improve your credit, you also require a plan that will show you just how to improve your score. The first step of your plan should be signing up for a credit tracking system. This will help you know your score. The next step should be cleaning up your credit report. Cleaning up your report requires you to make sure that all the information in your report is accurate.

Once that is done, the next step is reducing spending, coming up with a budget, and dealing with your older debts. For instance, if you are using a credit card to buy things, then you are spending too much. Try using cash only instead, or try carrying one credit card. This will keep you from overspending. Also, when you run out of cash, try to stop spending. This will make it easy for you not to spend money, you do not have.

Also, avoid taking personal loans if you are not sure you have the finances to pay back the loan. If you cannot handle paying back your loan you already have, make sure you do not add even more debt by taking a personal loan.

Types of Personal Loans

There are primarily two main types of personal loans and they are:

Unsecured Loans

These are personal loans that do not require any collateral. The lender makes a decision as to whether you qualify for a loan based on your credit and financial history. If you do not qualify for this type of loan or one with lower interest rates, the next option is applying for the second type of loan.

Secured Loans

These are personal loans that require collateral like a savings account. In the event that you are unable to pay back the loan, your lender has the right to acquire your assets, as a form of payment for your loan.

However, most of the personal loans available are unsecured and since the lender cannot possess your assets, this why the loan interest rates of personal loans tend to be higher compared to loans that require security.

How to Apply for a Personal Loan?

Applying for a consumer loan is a fairly simple process, especially when working with online lenders. Online lenders make it their priority to speed up your application process and avail the money to you within a short time. However, before settling for a particular lender, it is important that you check their terms, as this will make it easier for you to determine their charges and interest rates.

The fact that every online lender has its own loan structures and customized rates means that you have to first shop around for a rate and loan that is convenient before settling for one. Once you are ready to apply, your chosen lender will want to understand your financial situation first. This will help them determine whether to grant you the loan or not.

For this, the online lender will ask you to provide different types of information about your financial state and yourself. Some of the factors they require include:

Your Credit Score and History

When you make an official application— as opposed to a qualification request, the online lender will have to perform a background check and

learn more about your credit history and score. Most online lenders have a specific credit score they require from their applicants in order for them to lend you the money you require.

People with high credit scores are always eligible for higher loan limits with a better rate. Individuals with longer credit history also fare well when it comes to getting the best loan limits.

Income and Employment

Your online lender may ask for employment and income information in the form of pay stubs, tax returns, or W-2s. For specific reasons, lenders tend to feel confident lending to people with a steady and solid income.

Your Debt-to-Income Ratio

To determine this ratio, online lenders tend to use a key metric, which helps them predict a person’s ability to pay a loan back. The ratio indicates your debt amount compared to your income. If your ratio is at 50% or lower than that, then you are in a good position to not only acquire a loan but to pay it back, as well.

To ensure that the entire process is thorough, some online lenders may also ask for phone consultation after your first application. Speaking to an applicant is useful; as it helps, you understand the technicalities of your application and repayment process. You also get to have your questions answered.

But, it is important to note that, the amount of time you take to finally get a personal loan varies across institutions. For instance, banks take longer compared to online lenders. Online lenders can sometimes give you an offer within a few days of your application and provide funds, as well.

After learning, everything about personal loans, the next section is discussing how a personal loan affects your credit.

Conclusion

It does not matter how a personal loan affects your credit score, the important thing is that you still have the ability to improve your credit score. And all it takes is:

  • Correcting all the errors that appear on your credit report
  • Fixing all the delinquent accounts you have by trying to pay them off, as this will help the lender get rid of any negative information on your credit file.
  • Pay down all your debts, as this will help improve your payment ratio.

Do not let a personal loan affect your credit in a negative way, you have the power to improve your score.

Loanry

Personal Loans No Credit (Score Starter?)

Posted on | by Brandy Woodfolk | Leave a Comment on Personal Loans No Credit (Score Starter?)
Personal Loans No Credit

When I turned 18, I moved out on my own. I was always told that I needed good credit just in case I ever needed to use credit. I took that advice and tried to open a personal loan near my home. My thought was that to build credit, I had to get credit, so I applied for a small loan. And I was turned down for having nothing on my credit report.

I was so confused. I asked the lady how I could get something on my credit report if I could not get credit. It seemed crazy to me, and after talks with many people, I learned that most finance companies would rather loan to those with a history of not paying their debts than to those with no credit history. I stewed for days over what I thought was a twisted policy.

After work one night, I decided to stroll through the local mall and ran across a beautiful necklace that I wanted. I asked if there was a layaway plan. The saleswoman told me that they had layaway but suggested I sign up for store credit instead. I applied, got approved, purchased the necklace, and made the monthly payments until I paid it off. It was a small credit and not the type of debt I had planned to take on, but I was able to build my financial future on that $100 store credit.

How to Take a Personal Loan With No Credit at All

Do you know what is worse than trying to get a loan when you have bad credit? Trying to get a loan when you have no credit at all. The credit bureaus like to call this a thin file. Keep reading to find out what types of personal loans requires no credit at all and where to find them.

Personal Loans No Credit Check Types

Personal loans no credit will often fall into the following two categories:

Secured Personal Loans

A secured loan is a loan in which the lender is covered regardless of your actions. The borrower puts up some type of collateral, and the lender sells it if you do not repay the loan. One way to do this is by depositing money into a savings account at a bank and putting that money up as collateral. For instance, if you have $500, you put it into a savings account, then apply at that same bank for a $500 secured loan. Secured loans often have lower interest rates.

Unsecured Personal Loans

An unsecured personal loan does not require collateral. The lender is financing the money in good faith that you will pay it back. Generally, interest rates on unsecured loans are higher.

Where Can I Find Personal Loans No Credit Check?

If you have a bank account already, you should consider applying for a secured personal loan from them. Credit unions usually have a higher approval rating, so they may be a good option as well. Most secured personal loans will not require a credit history since there is not a lot of risks. However, always call ahead to find out about each specific location. Those personal loans with no credit might, therefore, be interesting.

A very simple way to find a personal loan with no credit, bad credit, or good credit is with an Internet search. Search for “personal loans no credit”, “get personal loan online with no credit”, or “quick cash loans no credit”. If you need cash fast, do a more specific search with phrases such as “emergency cash loans no credit”. You should get a long list of results that include local and online lenders. With a website like Loanry, you can get help finding a lender who may be able to help. You can also read more about them. They are not a lender but rather the go-to company to help find a reputable lender.

Are Personal Loans a Good Credit Score Starter?

Personally, I believe that they are, especially when you consider the alternatives. You are looking to build credit, not put yourself in a massive amount of debt such as with payday loans and auto title loans. Those are expensive cycles that you should try to steer clear of. If you can instead take out a personal loan, not only can you build your credit, but you can do it with reasonable monthly payments.

What makes up a credit score.

How to Use Personal Loans No Credit Check to Build Credit

When my parents divorced, my father’s credit took a nosedive. From the bottom of the barrel and with no escape in sight, he went on a mission to rebuild his credit and gain financial security. He started with a small personal loan for no credit, put the money to the side, and made the monthly payments on the loan from the loan. This way the only thing he had to come up with was the interest. When he would pay off that loan, he would repeat the cycle. He eventually took out a couple more loans to make the process work faster. This continued for about two years.

Credit Score Rise

Once his credit score had risen enough, he applied for a Walmart credit card. Instead of being irresponsible with it, he would go into Walmart and spend only how much cash he had available to him right at that moment. As soon as he arrived home from Walmart, he would jump online and pay the bill. Within five years, his credit was better than it had ever been and he was able to purchase a nice house.

Building Credit from Small Loans & Credit Lines

Both my father and I, along with many other people, have been able to build credit from taking small loans and credit lines. They are an excellent way to get credit started or to improve your current credit score as long as you do not take money out that you cannot payback. Before taking out a loan, you need to look at your budget and make sure you can fit in an extra payment. If you cannot stretch your budget any further, it would be better to wait on the loan until you can as opposed to putting yourself in debt.

What If You Actually do not Need the Loan

If you do not actually need the loan, put it away in a savings account and only use it for payments or emergencies. This way, you will not have to worry about how to pay the payments because the money is already available to you. The bottom line is to not put yourself into a financial situation you cannot handle.

Conclusion

Do not let a lack of credit history slow you down. It may take some patience and some searching, but you can find a lender that will give you a chance. When you do, be responsible with the money and make sure that you pay your payments on time. Otherwise, it can have adverse effects on your credit report.

Loanry

Does a Credit Builder Loan Really Work? Loan Up!

Posted on | by Jonathan H | Leave a Comment on Does a Credit Builder Loan Really Work? Loan Up!
Credit Builder Loan

In case you weren’t aware, building your credit score is a necessary part of life in modern society. If you want to buy a car, a house, or some other significant purchase, then your credit must be in good shape. There are many ways to build credit and credit builder loan is on of those options.

Unfortunately, most people don’t have the best credit, which can severely limit the options available. Thankfully, however, improving your credit score can be as simple as getting a credit builder loan.

Today we’re going to dive into the world of credit builder loans – what they are, how they work, and whether they’re a good option for you.

How Does a Credit Builder Loan Boost Your Credit?

If we want to understand how these loans can help your credit score, it’s best to know what the three credit bureaus pay attention to when assigning a score to you. Knowing what factors lenders look at on your credit report is an important personal finance lesson. There are a handful of different factors at play, so let’s look at them one by one.

First, let’s find out what is a credit builder.

What is a Credit Builder Loan?

Technically speaking, this isn’t a loan in the traditional sense. With most loans, you’re borrowing money from a lender, which you have to pay back within a specific time frame. However, in this case, what you’re doing is paying into a savings account. The terms and conditions of the “loan” are similar to any other that you would do, except for one critical difference – in the end, you get to keep the money.

Working with your financial institution, you can set a predetermined amount of money to pay for the loan (i.e., $5000), and a minimum monthly amount. The funds go into your savings account, meaning that you get to keep all of the money you’ve paid. It’s like a contract forcing you to save money.

There are two types of credit builder loans you can get: pure credit builder loans and share secured loans.

Pure Credit Builder Loans

The way this option works is that the lender will put the total amount of a loan into your savings account. You make monthly payments until you’ve paid the whole amount, after which all of the money is yours to keep.

In many cases, you can then use this total as a deposit on a secured credit card, or as a down payment for something else (i.e., a car). What’s nice about this loan as well is that there is no minimum deposit to get started.

Share Secured Loans

In this case, rather than having the lender provide all of the funds into your saving account initially, you are the one making a deposit. For example, if you have $2000 available, you can put it into a shared secured loan savings account, where the money will be frozen.

Unlike a pure credit builder loan, payments you make will unfreeze an equal portion of the “loan”. So, if you’re making $200 payments each month, both the payment and $200 of the balance will be available to you immediately.

Typically speaking, these are short-term loans, assuming that you don’t have a ton of money to put into a savings account. However, they can still boost your credit by several points, which can make a substantial difference if you’re on the edge of going from “fair” to “good” on your credit score.

The List of the Most Important Factors Which Lenders Look at

Payment History

One of the most significant loan factors that can impact your credit is making payments on-time. Late payments can penalize you and lower your score, particularly if you make a habit of doing it. Overall, if you can prove that you’re always on time with repayment plans, your credit will be relatively stable.

As you can imagine, this is one of the primary reasons why a credit builder loan helps boost your rating. By making payments on these loans regularly and on time, the bureaus will see that you are more reliable.

Available Credit vs. Debt

Let’s say that you have $10,000 available in various credit cards or lines of credit. If you’ve used up 90% of that money, then you will be seen as high risk. On the other hand, if you’ve only used 10% of your available credit, your rating will be better because it shows that you can manage your credit more efficiently.

Number of Accounts

Every time you open a new credit card, get a car loan or borrow money from a lender, that’s a new account on your credit history. The bureaus don’t like it when you open a bunch of new accounts in a short period, as it can signify that you’re not able to manage credit well.

Overall, you want to minimize the number of new accounts, as well as the total amount. So, if you have five credit cards, closing one of them can help improve your score slightly.

The other thing that the bureaus pay attention to is the duration of an account. The longer an account is active without any problems (such as late payments), the stronger it will appear on your credit.

As you can see, getting a credit builder loan can help in a variety of ways. However, the most significant method is that it will showcase a history of making payments on time. The best way to ensure that you get the most out of your credit builder loan is to set up automatic minimum payments so that you never miss one. Then, if you can add more during the month, you can pay it down faster.

Pros of Credit Builder Loans

In case you still needed a reason to get one of these loans, let’s outline the various benefits that they offer.

  • Saving Money – since you get to keep the money once you’re finished paying the “loan,” it enables you to build a savings account. Having extra money saved is always a good thing, whether it’s $100 or $1000.
  • Build Credit History – as we mentioned, the longer you establish on-time payments, the better your credit score will be. Having one of these loans can create this history, or help you undo any missteps you’ve made in the past.
  • Earn Interest – in some cases, lenders will add interest to the loan, which is free money for you. You’ll want to compare plans to see which options have the best returns.
  • Develop Good Habits – if you’re still new to the world of credit, getting one of these loans will help prepare you. Getting into the habit of making payments on time is going to serve you well in the long run.

As you can see, there are many different advantages to getting a credit builder loan. You’ll want to talk to your lender to find the right option for your situation. Overall, you want to maximize the potential return on your investment.

Cons of Credit Builder Loans

Although these loans are beneficial for most people, there can be some downsides. Before applying for a credit builder loan, you should be aware of these potential pitfalls.

  • Fees – in some instances, lenders may charge a fee to get the loan. Also, if you miss payments, that can incur additional expenses. Sometimes, these costs are repaid once you finish the loan, but be sure that you read the fine print before signing.
  • Late Payments – if you do wind up making late payments, those will be reported to the credit bureaus. If you’re worried about this, you may want to hold off or borrow less so that your minimum payments are lower.
  • Added Debt – if you already have a lot of debt, then adding more to the total can be detrimental to your financial health. Not only that but if you have several monthly payments for other accounts, another one may be too much to handle.

Overall, as long as you’re aware of these setbacks and you go into the loan process with both eyes open, you should be able to avoid these problems. As with anything research will help you understand all of the details so that you’re fully prepared to face any challenges.

Who Should Use a Credit Builder Loan?

For the most part, getting one of these loans is designed to help you establish a positive credit history. So, there are two kinds of people who can benefit the most from getting a credit builder loan.

New Borrowers

If you haven’t opened a credit card or borrowed money for a loan yet, then you don’t have any credit history that lenders can draw from when assessing risk. Unfortunately, no history is not great, as the potential for good or bad behavior is relatively equal.

High school and college graduates are a perfect example of people who will benefit from a credit builder loan. Since grads haven’t started a credit history, this kind of loan will help establish good behavior and allow them to get loans for a variety of things, like a new car.

Recovering From Financial Hardship

Perhaps you just finished getting through a bitter divorce. Maybe you need a loan after bankruptcy because your debt became unmanageable or want to establish good credit again. Regardless of your situation, your credit is in bad shape, and you need to do something to get it back on track.

If that sounds like you, then a credit builder loan may be just the thing to help build a positive credit history. If you tried to get a different kind of loan (i.e., home or auto), you would likely be turned down because of your low credit score.

However, because of the way these loans work, many lenders are more willing to offer them, since they aren’t providing money up front. Instead, you have to earn your funds through good habits.

Where to Get a Credit Builder Loan?

Fortunately, most financial institutions offer these kinds of loans, particularly credit unions. However, regardless of the lender you choose, you will want to compare loan options before signing up for anything.

Thankfully, we make it easy to shop personal loans with no credit. You can compare things like fees, interest rates, and other loan elements side by side. Because these loans can have such a significant impact on your credit score, you want to take the time to choose the best one for your needs.

You can always count on Loanry to connect you with reputable lenders and may even make the entire process a bit easier for you.

The crucial components to pay attention to the most are:

  • Loan Amount – how much you will be earning by the end of the loan. Most lenders will have strict minimums or maximums.
  • Monthly Payment – make sure that you can pay on time each month. Also, remember that you can usually pay more than the minimum without incurring a penalty.
  • Interest Rates – although you won’t be earning a ton of free money, getting a little extra back is always nice.
  • Fees – read the fine print to see how much this loan will cost you.

Alternative Loans for Building Credit

Just because a credit builder loan works in most cases doesn’t mean that it’s necessarily the best option for you. Let’s outline a few other ways that you can build credit without one of these loans.

Secured Credit Card

Unlike standard credit cards, you have to make a deposit to get one of these. Typically, your credit limit matches the deposit, so if you put in $500, that’s what you can spend. If you carry a balance on the card, then be sure to pay attention to the interest rates, as they can be higher than most other loans. Also, the funds are available immediately, unlike a credit builder loan.

Authorized Credit User

Perhaps a family member has good credit and wants to make you an authorized user on his or her credit card. The benefit of this option is that you get to share the person’s credit history. For the most part, this method is ideal for new borrowers (like high school grads) since they don’t have any history of their own.

Co-Signing

If you don’t have a decent credit score, then you can usually obtain a personal loan when you have a co-signer who does. Both of you are responsible for the debt, but that also means that both of you can benefit from on-time payments. Before co-signing with someone, however, be sure that you are both clear on what’s expected of the other. For example, if the co-signer isn’t planning on making any payments, you need to establish that beforehand.

Business woman contract. agreement was signed co-investment business.

Other Ways to Build Credit without a Credit Builder Loans

So, keeping these factors in mind, here are the best ways to build credit, with or without a credit builder loan.

  • Close Accounts – if you have five credit cards, for example, then consolidating yourself to three can help improve your score.
  • Manage Your Budget – make sure that you’re not spending more than you’re earning so that you can pay off debt, rather than add to it.
  • Avoid Late Payments – it’s much better to make a minimum payment on time than it is to pay more after the due date. Late payments can hurt your score a lot.
  • Consolidate Debt – if possible, try to put all of your debt into one place so that you can manage a single monthly payment. Typically, it will be more cost-effective than paying each account individually.
  • Avoid New Credit – wait until you’ve paid off the loans or credit cards you have before attempting to get a new one.

Bottom Line

Building credit is one of the most valuable things you can do. Whether you’re still new to the world of borrowing or you’re trying to improve a bad credit score, a credit builder loan may be the best option.

We enable you to find lenders to get cash loans online with no credit (or bad credit) so that you can improve your rating. We make it easy to compare loans, rates, and payment schedules. Find the best one for your needs and start growing your credit score today.

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What is the Difference Between Hard and Soft Credit Inquiry?

Posted on | by Blaine Koehn | Leave a Comment on What is the Difference Between Hard and Soft Credit Inquiry?

Having good credit opens many doors of opportunity. Having less than perfect credit can cause you to do things the hard way, such as paying cash for your necessities or having to jump through hoops to get things done. It helps to understand how credit works. When it comes to credit, you need to understand terms, such as hard inquiry and a soft inquiry. What does that mean? What is the difference between hard and soft credit inquiry? How do these inquiries affect your credit? Is one inquiry worse than the other? Here’s what you need to know.

What Is a Hard Inquiry?

Hard Credit InquiryA hard inquiry occurs when a lender checks your credit. When you apply for a loan, the lender will check your credit, a hard inquiry, to determine your credit worthiness and financial responsibility before approving or denying your loan application. You need to use hard inquiries sparingly. A hard inquiry can remain on your credit for at least two years and can lower your credit score. Common loan applications that count as hard inquiries include

  • Mortgages
  • Auto loans
  • Credit cards
  • Student loans
  • Personal loans

How Many Points Does a “Hard Pull“ Affect My Credit Score?

The effect a hard inquiry or a hard pull has on your credit score depends on your unique credit history. For many people, a hard credit inquiry affects your credit score by 5 points or less. Here’s what matters. If you have little to no credit or few accounts on your credit report, hard inquiries will have a much greater impact than someone who has an established credit history.

24 months

is the period that hard inquiries remain on your credit.

Having multiple hard inquiries on your credit makes you risk for lenders. That means lenders are less likely to approve you for a loan. If you have 6 or more hard inquiries on your credit, you could be at high risk for filing for bankruptcy. Hard credit inquiries are what lenders use to assess your financial risk before giving you a loan, but it does not play as much as a major role in defining your credit score as late payments and overall debt does.

What Is a Soft Inquiry?

Soft Credit InquiryA soft credit inquiry occurs when you or a company is checking your credit, often in the form of a background check. A soft inquiry could also be a mortgage lender pre-approving you for a loan. Did you know soft credit inquiries on your credit can occur without your knowledge and permission? Unlike hard inquiries on your credit, soft inquiries do not affect your credit score in any way. Common soft inquiries include

  • Viewing your credit on Creditry.com
  • “Pre-qualified“ credit card offers
  • Certain kinds of payday loans
  • Employment verification/background check

Loans Without a Credit Check

If you’re getting a loan without a credit check, you still need to know the difference between hard and soft credit inquiry. Having little to no credit can be an issue in different situations, but getting a loan is not one of them. Yes! You can get a loan with no credit check.

Getting approved for a loan without a credit check is no walk in the park, but it is not impossible. Since getting approved for a conventional loan is out of the question right now, a personal loan is there to help. A personal loan gets you the money you need when you need it. While a personal loan may have higher interest rates accompanied by strict terms, getting a personal loan helps you cover unexpected expenses, such as emergencies. When emergencies occur, you don’t have time to wait on anyone or anything, and a personal loan gives you everything you need, so it’s worth taking a closer look.

Get Familiar With Your Credit Score

Although your goal is to get approved for a loan without lenders checking your credit, it’s always good to know where you stand. Some people check their credit and find their credit score qualifies them for a traditional loan.

Whether your credit score is fabulous or could use a little work, the bottom line is you need to know where you rank on the FICO chart with your credit score. Being knowledgeable of your credit helps when you need to approach a lender or bank directly. Now that you have an understanding, it’s time to approach the lenders directly.

Credit score scale

Approaching Lenders Directly

Got jitters about approaching lenders? Approaching lenders could be in your best interest. Having a poor credit score or no credit at all limits your options for getting the cash you need. Dealing with lenders directly, even though you have less than perfect credit gives you other options to get approved, such as proof of employment and or income, which is used to determine your creditworthiness, since your credit score is not used as a determining factor.

The good news is more lenders are jumping on the bandwagon of using alternative data to determine a person’s financial worthiness. Alternative data lenders are using include personal information that is not found in your credit report, which is good. Why? Using alternative information improves your chances of being approved for a loan. When lenders look at your employment history or income instead of your credit score, more doors of opportunity open.

Hard versus Soft Inquiry

Getting Prepared

Having a solid work history and steady income is great, but you need to make sure you’re prepared. Creditworthiness is different when you’re trying to get approved for a loan without a credit check. Your creditworthiness in this situation is based on your education, income, employment history, credit card debt, bank statements, and more. The determining factor for getting approved for a loan without the hassle of a credit check is how well you can prove you are financially stable.

Stability can be proven by showing at least two years worth of tax returns or pay stubs for the last three or four months. If you currently have loans, such as student loans, auto loan or home mortgage, you can show that your payments are current and that you’ve made progress paying down the balance.

How Can You Find a Loan?

Are you interested in getting a loan? You can get a personal loan online, at credit unions, and at a bank. If you’re looking for a way to search and compare loans, getting a loan online is your best option. Getting a loan from your local credit union is a good option if you’re interested in having flexible loan terms.

If you’re feeling lucky, you can try to get a loan from the bank, but it’s important to check all of your available options before making your final decision and understand what happens before you get a personal loan.

Getting a Loan Online

Getting a loan online offers benefits such as convenience, easy access, saving time, and low rates. Before you apply, you need to become familiar with the difference between hard and soft credit inquiry. When you’re applying for a loan online, you have the opportunity to apply from the comfort of your home, and you don’t have to schedule an appointment or wait in line. As long as you have the information you need including,

  • First and last name
  • Home address
  • Social security number
  • Income/Proof of employment

Other information may be required, but that depends on the lender and their standards. When you’re filling out the form, it’s easy to miss a box that you need to fill. Make sure you fill each box because missing one can delay the receipt of your loan.

Quick and Easy Access

When you apply for a traditional loan, there are a lot of hoops you have to jump through and requirements that have to be met. A personal installment loan online requires less information to get approved and often has more flexible terms. Aside from these perks, the approval time is quick. It could take a few days, even weeks to get approved for a traditional loan, but when you apply for a loan online, you could get instant loan approval.

The longest time you would have to receive your funds when getting a loan could be three days, which is still less time than traditional loan offers. Along with quick and easy access, you can get a personal loan online even though you have less than perfect credit. Some of these online lenders can get you a personal loan as soon as tomorrow.

Saving Time

If you’re in a hurry and need money in a short amount of time, it’s in your best interest to apply for a personal loan. Traditional loans have to go through a lot of different paces before the loan is approved. If you’re pressed for time, a personal loan is your best option. In addition to quick approval time, there is not a lot of paperwork for you to fill out, which saves time.

Low Rates

You need to find a lender with the lowest rates, which means less money out-of-pocket for you. One of the greatest perks of getting a loan online is that you can compare rates and benefits of different lenders and choose which one suits your needs the best.

Getting a Loan from a Credit Union

Have you ever considered getting a loan from a credit union? A credit union is a non-profit cooperative, which is good news for you. Since credit unions are not-for-profit organizations, they’re more focused on helping you get what you need rather than their sole focus being maximizing profits, much like a bank. Even if you decide to get a loan from a credit union, you need to know the difference between hard and soft credit inquiry.

Credit Unions and the Community

Credit unions are focused on the community, which often means they are local to a specific region or state. Speaking of community, credit unions work with each other. What does this mean for you? When credit unions work together, they are able to serve you better, which means you get what you need when you need it. Many of the services a credit union offers are more convenient than those of a bank.

Better Rates and Lower Fees

Getting a loan from a credit union means you’re a member and not just your average customer. By becoming a member, you have access to better rates and lower fees. Due to the lower rates, you can earn a lot more money on deposits, and since credit unions give savings to their members, you have lower fees to pay. You can save money two ways with credit unions thanks to better rates and lower fees.

Getting a Loan from a Bank

Getting a personal loan from a bank comes with one or two perks and a lot of downfalls depending on the type of loan you choose. In this situation, you need to know the difference between hard and soft credit inquiry. There are two types of personal loans:

  • secured loans and
  • unsecured loans

Secured loans are ones that are made with collateral in place. If you don’t pay off your loan or miss payments, the bank can take your property as repayment for the loan.

If you decide to get a loan from a bank, your best bet is to get an unsecured loan. With an unsecured loan, you don’t have to worry about losing your assets, including your home. Being laid off or experiencing another financial hardship makes repaying your loan difficult or almost impossible to repay on time. If you get an unsecured loan, this means that even if you miss a payment or are late making a payment, you’re not at risk of losing everything you’ve worked hard to maintain.

In Conclusion

There is more than one way to get a loan. However, you have to decide which type of loan is best for your current situation. Having a less than perfect credit score makes getting a loan difficult, but not impossible. Weigh the pros and cons of each loan option before making your final decision. Make sure you understand the difference between hard and soft credit inquiry.

Finding a loan can be difficult and frustrating because there are many options. That’s where we come in and save the day. We will help you find and lender to get a loan that may suit your needs. Contact us today to see how we can help.

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