Tag: Credit shop

7 Best Personal Finance Books for Beginners: Read On

Posted on | by Grace Douglas | Leave a Comment on 7 Best Personal Finance Books for Beginners: Read On

Budgeting can be hard, no matter how much experience you have. You may have done well in your math courses in school, but personal finance is more complex. It requires you to keep a variety of financial activities in mind. Whether you are a teenager who is just beginning school or your career or someone who has been handling your personal finances for years, you probably still have more to learn about personal finance. Regardless of whether you want to learn about business finance or personal finance, it is important to start with the basics. If you keep reading, you will get information about the best resources for learning about finance for beginners, including best personal finance books for beginners.

Personal Finance Books for Beginners

Apps and websites are great for learning about the basics of personal finance, as well as helping you manage your personal finances, but nothing compares to good, old-fashioned books. Personal finance books for beginners are a great way to find all of the information you might need for handling your own personal finances. Personal finance books for beginners can help you manage your money better, explain how to make a budget, assist you in creating a debt payoff plan, and teach you how to stop living from paycheck to paycheck.

Most importantly though, personal finance books for beginners can give you the motivation and inspiration you need to take action towards managing and improving your personal finances. Our top seven best personal finance books for beginners are below.

You can get the following books on Amazon, at your local library, or possibly on Audible. No matter what your financial situation is, these books are available for you.

1. Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence

Your Money or Your Life book cover.

This is one of the best personal finance books for beginners. This highly-recommended book by Vicki Robin and Joe Dominguez helps you transform your relationship with money in order to achieve financial independence. With a simple framework comprised of only nine steps, Robin and Dominguez make it easy to achieve your personal finance goals.

They provide some exercises that “completely changes the way you view your money” and allows you to “take control of your financial situation and lead a more fulfilling life.” If you already have a budget in place and are working towards your financial goals, then this book can help you take the next step. The framework in this book focuses on not just decreasing your expenses and sticking to a budget, but also on actually building up your wealth.

2. All Your Worth: The Ultimate Lifetime Money Plan

The Ultimate Lifetime Money Plan book cover.

All Your Worth, which was co-written by Senator Elizabeth Warren and her daughter Amelia Warren Tyagi, is also among the top of the list of personal finance books for beginners. This book came up with the popular 50/20/30 rule of thumb. This guiding principle explains how to best spend your money. 50% should be spent on Must-Haves — such as bills, 30% should be used on the Wants — or fun things, and the final 20% should be put into your Savings.

Rather than focusing on strict budgeting, this book instead gives you a new mindset on money and how to get your personal finances on track. According to Elizabeth Warren and Amelia Warren Tyagi, balance is key. If your goal is financial freedom, then this is the book for you. This book can help you take control of your money and personal finances.

3. How to Manage Your Money When You Don’t Have Any

The Ultimate Lifetime Money Plan book cover.

It is hard to manage your money when you don’t have any. When you are just living paycheck to paycheck, savings and investment are probably not your first priority. Sometimes it is hard enough just to get by. Eric Wecks wrote this book specifically for Americans who struggle to survive financially on a month by month basis. If you are in debt or do not have any background of financial education, then personal finance books for beginners like this can help you.

Weck uses tips and everyday examples and references in order to share his wisdom on “[doing] the best [you] can with [your] income no matter its size.” It’s not how much you have, it’s what you do with what you have. If you need help managing the money that you do have, then this is the book for you.

4. Why Didn’t They Teach Me This in School?: 99 Personal Money Management Principles to Live By

The Ultimate Lifetime Money Plan book cover.

Not all personal finance books for beginners were written by people trying to pass on their financial wisdom to their own children, but this one was. When Cary Siegel was writing down these personal money management principles to live by for his children, he realized that many of this “basic” information isn’t taught in school. This quick, easy read is divided into eight important lessons, which focus on important lessons Siegel learned from personal life experience. Some of his principles are unorthodox, which creates for an interesting read and memorable lessons.

Whether you are in high school, college, or a working adult who feels like they didn’t get taught about personal finance and money management in school, then this book can help you with some of the basics.

5. Smart Couples Finish Rich, Revised and Updated: 9 Steps to Creating a Rich Future for You and Your Partner

Smart Couples Finish Rich, Revised and Updated book cover.

It is important to be on the same page as your partner, especially when it comes to your shared personal finance. Not many personal finance books for beginners focus on the importance of shared decisions and a shared vision for personal finance for couples, but it is important to be able to align your values, especially your financial values, with your partner.

If a couple does not work as a team, then there is no way that they will achieve their (hopefully shared) goals. No matter what stage your relationship is at — engaged, newlyweds, or a couple who has been married for twenty years — this book can help you achieve your shared personal finance dreams. “Couples who plan their finances together, stay together!”

6. The One-Page Financial Plan: A Simple Way To Be Smart About Your Money

Smart Couples Finish Rich, Revised and Updated book cover.

Making an in-depth financial plan can be difficult and time-consuming. But is such a long financial plan really necessary? Not according to Carl Richards. And as the author of multiple personal finance books for beginners, including The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money, he may have a point. According to Richards, “anyone can write a one-page financial plan”. He believes that you can prioritize what you really want in life by writing it on a single page. Those are the things that make a difference to your financial plan.

What you need in order to be successful in your financial goals is to have a view of the big picture of what those goals are. In this book, Richards provides you with multiple strategies to help you write your own one-page financial plan.

7. Your Mortgage and How to Pay it Off in 5 Years

Smart Couples Finish Rich, Revised and Updated book cover.

This book stands apart from the other personal finance books for beginners because of its focus on mortgage information. This book combines the basics of budgeting and money management in order to help you pay off your mortgage faster. It may seem impossible to imagine paying off your mortgage in only five years, but the author Anita Bell, and her husband Jim, did just that…only faster. With a combined income of less than $30,000, they paid off their mortgage in just three short years. In Bell’s book, she explains just how they did it — and how you can do it too — in simple steps.

Personal Finance for Beginners: Apps

One of the most challenging parts of personal finance is organization. In order to be successful in your personal finance goals, it is essential to be able to keep track of everything. Unless you are naturally a very organized person, this can be easier said than done. This is why you should consider downloading a finance app. With all of this financial information in one place, it will be easier than ever to keep track of your personal finance. You will be able to instantly access your financial information, pay bills, and even save money in the process.

For instance, with GasBuddy, you can find the best gas price nearby, no matter where you are. Dosh can also make it easier for you to find great deals, whether you are shopping or dining out. If you are looking for something to just help you keep track of your bills and expenses, while also giving advice on how to cut expenses, then Trim could also be a good option for you.

Debt Statistics

When dealing with your own personal finances, you have to look at the big picture in order to truly understand what your own personal situation is. In this case, the big picture refers to the United States debt statistics. In order to understand your own debt, it is easier to picture what the average household is going through. This is one reason the Federal Reserve issues a report about the nation’s economy four times a year.

These United States debt statistics refer to consumer debt. This means they look at money that is owed by people — everyday citizens like you — rather than business debt, which would refer to the money owed by institutions. Unfortunately, the most recent report says that total personal debt in the United States is on the rise. In fact, the total personal debt has increased “every quarter for the past five years.”

Details

According to these debt statistics, by far the largest portion of total household debt is due to mortgage loans. In fact, mortgage loans make up more than two-thirds of the total household debt balance. Though the rate of delinquencies on mortgage balances has recently decreased, there is still nothing else that compares to mortgage loans when it comes to “total dollars owed, but as of yet unpaid.” Other major causes of total household debt in the United States are attributed to student loans, auto loans, and credit card debt.

Though it is important to make informed decisions about your own personal finances, the collective choices of others in society will have an impact on you. It is important to understand where your debt comes from, but also where the debt from everyone else comes from.

Budgeting Basics

Budgeting may seem like an overwhelming task at first glance, but it gets easier over time. It can be time-consuming, but once you have an idea of what your budgeting goals are, then the process will go faster. The first step of budgeting basics is to gather all the information. This includes information about your total income each month and total expenses each month. It is important to know where you are currently at, so that you can make realistic decisions on how to change your spending habits.

When making your budget, make reasonable goals for yourself. Then track your expenses over time — generally month by month — and make changes to your budget as needed.

Before making your first budget, determine why you are doing so. Are you over-spending every month, making it hard to get by each month? Does your credit card debt make it hard to live paycheck to paycheck? If you are currently financially stable, are you looking to improve your credit or your living conditions? Even if you already live in a nice apartment, it is always okay to improve. If you are looking into buying a house or renting an even better, more expensive apartment, then you may have to reprioritize your current expenses. This is where budgeting can help you.

For me, it is easiest to divide my expenses into five main categories: 

Fixed Expenses

Fixed expenses include things that I have to pay every single month and are the same (or relatively the same) price each month. This includes things like rent, Internet, utilities bills (such as gas, water, and electric), Netflix account, gym membership, health insurance, and student loans. Try to record everything that you have to pay regularly every month, even if it seems as small as a Hulu or Amazon account monthly payment.

It can also be beneficial to make a small note next to each fixed expense about when it is due. This way, you have another reminder to help you pay off your monthly expenses on time. This can also help ensure that you don’t have any issues with overdrafting your account.

Groceries

I make a differentiation between groceries and eating out, so that I can still have allocated funds for fun things like ordering pizza, while not going way over budget. It helps to keep track of your groceries expense month to month, so that you can see if there are any fluctuations. Whether you are trying to eat more healthy or have some change in diet, it is important to keep track of how much you spend on groceries, since it is one of your biggest regular expenses.

Cutting back on your groceries expense is hard, since you need food to live and it is cheaper to get groceries than eat out, but if you feel like you are spending too much on groceries, there are ways you can cut back. If you want to decrease your groceries expense, then consider buying generic versus name brand products, use more grocery store coupons, and plan your meals in advance.

Eating Out

It is extremely important to keep track of how often you eat out and how much you generally spend when you do so. You may use something as an excuse (such as going to the gym) to treat yourself with a meal or ice cream out, but this can quickly add up.

It is generally more expensive to eat out than it is to cook at home. Free time, or lack thereof, can be a big factor in one’s decision to eat out, but it should be recorded separately from groceries, so that you have a chance to compare how much you spend eating out versus at home. Then you can determine if eating out is eating up too much of your budget. Don’t forget to record your morning coffee, since this is something that is easy to forget but also adds up over time.

Going Out

It is also important for me to go out regularly, if not often, so I keep a section of my budget for going out. This section can include things like going to the movies or going on a date with your significant other. It doesn’t matter what you enjoy doing, you should not give it up (completely) just for budgeting purposes. Cutting back is often the best way to go.

If you enjoy going out with friends for food or drinks, then keeping a budget should not stop you. Your expense-tracking from budgeting may show that you spend too much while going out with your friends, but this does not mean stop doing what you enjoy. It means maybe you only go out with your friends once a week and only have one instead of three drinks. Don’t lose who you are for your budget.

Miscellaneous

For me, my miscellaneous section is for anything that is unexpected and/or does not necessarily belong in one of the other sections. This could mean anything for your household, such as emergency BandAids or Tylenol, to a new frame for an important or sentimental picture.

Miscellaneous can also refer to unexpected large payments, such as for a vacation or emergency medical care. A vacation or emergency medical visit aren’t regular monthly occurrences, so they should not be tracked as such. It is important to me to have this miscellaneous section so that I can keep track of even small expenses made during the month.

It is important to remember to make realistic goals when budgeting. For instance, you may want to decrease your food expenses. It would be reasonable to make a plan where you allocate less money for eating out, if you want to decrease your food expenses. It would not be reasonable, however, to just allocate $50 for your monthly food expenses. You know you will need more money for food than just $50, but you can fairly say that, if you are single and live alone, you will not need a whopping $300 for food expenses. Always keep your goals tailored to your own personal situation, and make sure they are reasonable.

Conclusion

Personal finance can seem confusing before you have the chance to learn more about it, but today there are so many opportunities to educate yourself. Whether you decide to use websites, apps, or personal finance books for beginners, gaining the knowledge you need to achieve your personal finance goals is not out of reach. Whether you are looking for help creating and managing your budget or organizing and managing your debt, there are an abundance of resources available for you.

Education is key, especially when it comes to your finances. If you need a mortgage, a personal loan or a credit card, you need to know what you’re getting into. So make sure you keep reading and getting to know the world of finances. Another useful thing you can do is join the Loanry family. We are here to share our extensive knowledge, but also to help you find potential lenders and best credit cards , if you need them.

Loanry

Do Personal Loans Affect Your Tax Return?

Posted on | by Nwayita Perry | Leave a Comment on Do Personal Loans Affect Your Tax Return?

Many people use personal loans to suit a wide variety of different needs. Some people use them to pay off debt, fund a vacation, or even pay for car repairs. There are many uses of personal loans, which you can easily see if you ever try to get one. This is why the right question to ask is whether personal loans affect your tax return.

Personal loans are designed for general use and don’t have to be used for specific things, unlike a house loan or car loan. Although personal loan functions as added funds, in addition to your income, it’s not considered income. However, there are circumstances when a personal loan is considered income. In these situations, personal loans affect your tax return.

How Do Personal Loans Affect Taxes?

As discussed earlier, personal loans affect your taxes when they’re forgiven. A personal loan becomes taxable in this instance. Plus, you may have to report your interest payments on a loan if they are tax-deductible. Personal loans affect your tax return if your lender sends you a tax form called a 1099 C. You’ll have to report the loan’s principal or interest to the IRS as taxable income. Personal loans that are used for investments, business expenses, and qualified education expenses are tax-deductible.

Exceptions in Cancellation of Debt

Generally speaking, cancelled debt or personal loan is considered taxable income. Here are some cases when this is not the case:

  • ☛If a loan is forgiven as a gift from a private lender, it’s not considered income. The exceptions don’t end there.
  • ☛If a lender forgives a loan of thirteen thousand dollars or less as a gift, it’s protected under the million-dollar lifetime exemption gift tax. It’s not taxable as income.
  • ☛If a lender dies and cancels a debt in the will it’s not counted as income either.
  • ☛Other circumstances that may exclude a loan from taxation include a Chapter 7 or Chapter 13 bankruptcy. In addition, if your loan was discharged as a result of a Chapter 11 bankruptcy, you won’t owe taxes.

What is a Personal Loan?

Personal loans are for general use and can be used for anything. Generally speaking, personal loans aren’t considered income. They must be repaid and aren’t considered income because of this. These loans can be obtained through banks, peer to peer lending systems or an employer, as well as from many other sources. These loans differ from other loans, like car and house loans, because they are unsecured and don’t usually require collateral. A house or car loan that goes unpaid can result in the loss of a house or repossession of a car. This is an important thing to consider when thinking about whether personal loans affect your tax return.

The ABC’s of Personal Income Tax

Taxes are taken out of our paychecks before we ever see the dollars we work so hard for. When you buy items at the store, sales tax is charged in addition to the cost of the item. Savings accounts are interest-bearing and the interest is taxable. In addition, if you own a home you will more than likely pay property tax. Even when you buy a car, you pay special taxes upfront as well as in your car note.

You can’t escape taxes. They are everywhere. But it’s important to be educated enough to understand personal income taxes. The tax dud date is the 15th of April everywhere. Once you file your taxes, you will get a refund if you’ve paid more income tax than you owe. If you owe more than you’ve paid, you’ll have to pay the difference. If you don’t receive a refund and owe nothing, you’ve had enough withholdings and deductions to pay all of your tax liabilities. Understanding how your income tax works is part of tax management.

Why Isn't a Personal Loan Considered Income?

Although a personal loan increases the amount of money you have, it's not considered income. The primary reason why a personal loan isn't considered income is that it's money you have to pay it back. This is also the reason why a personal loan isn't considered taxable income.

Main Points to Remember About How Personal Loans Affect Your Tax Return

Conversely, there are scenarios when personal loans affect your tax return. If your loan is forgiven by the lender, the money you received will be considered income because you don’t have to pay it back. Other situations include scenarios when the lenders forgive the loan and consider it a gift. Once the loan is forgiven, it is considered a COD or cancellation of debt and you no longer have to pay it back.

These are examples of how a personal loan can be considered taxable income. In certain situations, personal loans affect your tax return. A loan can be looked at as income if it has has been forgiven. In addition, if the interest on your loan is taxable, you will have to report that as well. The circumstances under which Personal Loans affect your Tax Return is very specific. If your loan is forgiven and you are required to report the interest on your loan, are both situations where your personal loans affect your tax return. However, it should be noted that a loan of $13,000 or less, that a lender decides to gift to you, is not considered income and is not taxable. However, there are some situations when personal loans affect your tax return.

If You Owe Income Tax From a Personal Loan

If you’re lucky enough to get your loan forgiven, you’ll need to prepare yourself to pay the income tax on your loan. It is now considered a cancellation of debt which means that its no longer a loan. It’s income because you don’t have to pay it back. It may be scary to find yourself responsible for paying the income tax on a forgiven loan. However, you’ll need to act quick. If you don’t have funds available to pay your income tax debt you may need to set up a payment plan.

Beware, however, because the payment plans often include higher interest and penalties. You may be better off taking out another loan if you’re left with a costly payment plan. Just keep in mind that you do have options. Don’t panic. Use all the tools available to find the best method to eliminate this tax debt. You may find yourself taking out another loan to cover your tax debt.

What is a W-2 and a W-4

When you’re hired as an employee you’re required to fill out a form called a W-4. This form allows you to choose how much federal income tax is withheld from your paycheck. There are many tax tips you can employ when it comes to filling out your W-4. Your W-4 will tell your employee how much to withhold from each of your paychecks. A W-2 is the form that employers send you at the beginning of each year which indicates how much you made during the prior year as well as how much was withheld. You will need to use the information on your W-2 to fill out your tax return.

W-2 form
W-4 form

Should You Take Out a Personal Loan to Pay Off Income Tax?

If you file your income tax and owe money you will need to pay the money owed by April 15th. If you don’t have the money, the IRS does offer payment options. However, these options include penalties and interest. As a result, many people consider taking out a personal loan to pay off the debt.

A personal loan has advantages over many other payment options. Personal loans can have lower interest rates than credit cards. Both options usually have higher interest rates and penalties than the IRS plan depending on your credit and other factors. More often than not, a personal loan allows you to pay the IRS what you owe, but you need to make sure you’re not paying more than what’s offered by an IRS payment plan. A consumer loan is often a wise choice when it comes to paying off debts if you can save on interest or you need lower payments with a longer-term loan.

Conclusion

It’s obvious that education is a big part of the solution when it comes to understanding personal loans and income tax and how the two work together. It’s also a good idea to know what it takes to qualify for a personal loan and what to do if you don’t qualify. There are usually alternative options that you can try if you can’t get a conventional loan. However, regardless of what you do take your time and read the fine print. Pay attention to the interest rate, terms, and the amount of the loan. Don’t take the first offer you get. If you’re uncomfortable with any part of the loan, don’t take it. Use the online tools and a finder to help you decide on the best loan for your particular situation. You won’t be sorry that you took your time and found what was best for you.

Remember, an ounce of prevention is always worth a ton of cure, even in situations that are rare and unlikely. Personal loans are rarely considered income. However, do your homework to ensure that you’re not missing any important details, and to be aware whether personal loans affect your tax return in your specific situation.

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.

Loanry

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