good-credit-bad-credit

Americans with the Lowest Credit Scores

Americans with the Lowest Credit Scores

Role models are a thing, but so is the opposite: what can we learn from Americans with the lowest credit scores?Credit scores are the backbone of financial solvency. Without a decent credit score, Americans will find it harder to get approved for home loans, car finance loans, business and personal loans. Or, to get these at an attractive interest rate, at the very least.

The average credit score is as high as it has ever been at 695. However, there exist Americans, whose credit scores dip well under 620. Who are these people, and what can we learn from them?

Are Millennials Blame-Worthy for Low Credit Scores?

At first sight, people tend to target the younger millennials, 18 to 30. These millennials are viewed as fiscally irresponsible because their credit scores are in the bad credit range. But it’s possible to give them a pass on this one, due to the 2009 CARD Act. The CARD Act has made it nearly impossible for the 18 to 21 demographic to apply for new credit cards. The outcome is young millennials struggle to build a credit track record.

The way the FICO scoring, and other similar scoring systems, work is by assessing a number of factors. These include:

  • the number of tradelines (sources of credit) a person has
  • the payment history of each (do they pay consistently and on time?)
  • their debt-to-limit ratio (over 30% of one’s credit limit will lower the score)

When young millennials cannot open enough credit, it will take years upon years to raise their credit scores to an acceptable level.

The Largest Debt Burden Falls to Growing Families

With all this being said, let’s turn our attention to the 30- to 39-year olds. This is the highest percentage demographic that has the lowest credit scores. Why do 30-somethings possess the lowest credit scores? It’s not they haven’t had enough time to build a healthy credit payment history. They’ve had a decade or more.

Evidence suggests people in this age range are debt-burdened up to their ears in student loans, lavish weddings, house payments, and starting families. We’re not including all the expenses it takes to furnish an upper-middle-class lifestyle. These include cars, vacations, school tuition, healthcare, pre-school, etc.

What compounds the settling-down-and-starting-a-family-meet-mate-and-propagate chain of events is the glaring statistic. Just 41% of adults in the U.S. put together a budget and stick to it. Is it any surprise then 30-somethings are challenged with keeping their credit scores healthy?

The Devil is in the High Interest Rates

The bug-a-boo to possessing a low credit score is the higher interest rates you must pay to get approved (provided you do) for new lines of credit. If you’re trying to manage multiple credit cards with higher interest rates, you’re going to be in debt. We dramatize the swelling of debt exponentially for a reason: to get you to take steps to rein in your lines of credit, do some repair work on them, and get with the program of learning how to manage your debt load and improve your credit score.

The 30% Solution

We repeat: never exceed 30% of your credit limits. If you’ve got a $1,000 limit on one credit card, you’re wise to stop your spending at $300. Otherwise, the big three credit bureaus will ding your credit score. Multiply this by the other credit cards you may also be carrying. If you’re exceeding 30 % of your credit limit on those too, you’re going to end up with more damaged credit. The more hits to your credit scores, the lower your credit score.

Lenders look at the aggregate of your credit accounts. This is to judge whether you’re a good credit risk for future lines of credit. If they see you’re doing a shoddy job of managing your credit cards, approval is either off the table, or excessively high interest rates will be charged if you’re approved.

Let’s Get Real

To get concrete about how bad credit can set you back financially here’s an example: If you’ve got a pretty respectable credit score of 700 (average / fair), and you sign on to a 30-year house mortgage of $300,000; at today’s interest rates you’d qualify for a 4.101% interest rate. That would come out to $1,450 for monthly house payments.

However, if your credit score is an abysmal 620 (bad), the interest rate would shoot up 1.367% to 5.468%, and now your monthly house payment would be $1,697. That $247 difference each month could add up to approximately $3,000 on just the interest each year. You can run the figures yourself, but over 30 years (interest and monthly payments combined) it would top out at nearly $2 million more you’d be paying for your home!

Takeaways

We paint a drastic scenario of what a low credit score can do to your finances and the future health and well-being of your family. All in order to get your attention on how to improve your credit score:

  • Go to the big three and pull your credit report to find errors. You may be one of the 20%, whose credit report does contain errors. Disputing those errors and resolving them could bump up your credit rating immediately.
  • Start paying down credit cards with high interest as much as you can afford. Tighten your belt and / or take a side job for the time being to help get those high interest debts as low as you can or paid in full.
  • Once again, we re-emphasize not to use more than 30% of your credit limit. Lenders look favorably upon credit card holders, who can control their spending.
  • One final word of advice: you’d be prudent to sign up for autopay email reminders. A safer route (because autopay has been known to screw up) is to set up monthly bank transfers to pay your expenses.

For more information on average credit scores in America according to age, income, state, and home buyers, including tables and charts go to https://www.valuepenguin.com/average-credit-score.

phone bill to build credit

Using Your Cell Phone Bill to Build Credit

Using Your Cell Phone Bill to Build Credit

Cell phones have become so much a part of the American culture; one could say they are indispensable tools of a daily life. But did you know that you can also use your cell phone bill to build credit?

The credit industry’s changing attitudes towards cell phones is an alternative path to creditworthiness. However, there are obstacles to making cell phones an acceptable way to build credit. Here’s what you can do to build credit using your cell phone via text and email alerts.

The Irony and the Agony

When you purchase a cell or smart phone the cell phone company typically checks your credit report to see what the status of your credit is. If your credit score is acceptable you’re good-to-go. But the irony is having a perfect record of cell phone payments will not improve your credit score.

Conversely, if you don’t make timely payments on your cell phone bill your credit score will be damaged. The reason is this: cell phone providers are not extending you a line of credit, which is why cell phone payments made on time don’t end up on their radar. But if you don’t pay on time the cell phone company will report your arrearage to the credit bureaus.

But the major credit bureaus: Experian, Transunion, and Equifax are starting to reconsider cell phones as a viable way to build credit.

Consumer Advocacy Turns the Tide

The Consumer Financial Protection Bureau (CFPB) conducted a study, which revealed about 26 million U.S. citizens are lacking credit histories. Another 19 million have credit histories but they have aged out, or little credit information is available to formulate a credit score.

The CFPB is on a mission to aid lower-income and underserved communities to be able to get credit. They have concluded, based on their research, making cell phones an alternative source of credit building is dubious, complicated, and a challenge to be overcome.

But it only takes a few hardy pioneers to get the ball rolling in the right direction until such time a critical mass is reached, and a new business model adopted. One such pioneer is the alt-credit reporting agency, Pay Rent, Build Credit (PRBC). PRBC offers a service by which consumers can self-report cell phone payments. In 2010, 800 lenders had already signed on to accept as creditworthy cell phone payments.

Joining in the effort to make cell phone payments part of a credit report is FICO, the standard consumer credit rating scorer. FICO began its FICO Expansion Scoring System in 2007, but the jury is still out on whether the FICO Expansion Score is a dependable risk analysis paradigm.

But that hasn’t stopped Experian from trending toward making cell phone payments an alt-method of building a credit record. Experian bought RentBureau in 2010. RentBureau keeps records on tenants’ rental payment history, and now includes this information in its credit reports.

The credit industry is waking up to the fact they can profit enormously on consumers, who possess no credit history, but are making cell phone payments promptly and consistently.

With all the change in the air about legitimizing the alt-method of building creditworthiness, using a cell phone, we give you a few pointers below to get you on track towards building a credit history.

Fraud Alerts

  • Your credit card issuer’s mobile alerts, concerning fraudulent activity appearing on your credit report, are useful information. It helps you keep tabs on suspicious charges cropping up on your statements, so you can report them to the credit card issuer immediately.
  • In tandem with reporting to the credit card company, you can also ask the credit reporting bureaus to place a fraud alert on your credit report, so creditors will see fraudulent activity when it occurs, keeping your credit record clean.

Automation and Monitoring

  • To ensure you never make a late payment, set up an automated payment option. But don’t do it if you’re uncertain the funds are in your checking account to make good on payments.
  • When you get your statement, double-check no unrecognizable purchases have shown up, possible evidence of fraud. Or have you just forgotten about a particular purchase? Busy lives can distract from remembering if we made that questionable purchase. Also, a credit card statement’s itemized purchases sometimes provide unclear descriptions, and you’re scratching your head trying to figure out what the purchase was. This is why it’s a good idea to keep your receipts until you’ve verified all your purchases are legit.
  • Another handy tool for monitoring your credit spending is to sign up for mobile alerts. You can choose at what amount you want to be notified your spending limit has been reached. If you’ve set a low spending limit, you can opt to pay the entire balance. Paying off your balances always impresses lenders.

Tending to Your Credit Score

  • One proactive step you can take to keep your credit score steady is to sign up for credit alerts. The emails or texts you get any time a “card not present”, an out-of-country charge, or a charge that exceeds your normal spending pattern appears, will enable you to contact the credit card issuer to dispute the item.
  • Finally, frequently check on your credit score to keep your spending habits under control. You will see some minor risings and fallings, which shouldn’t alarm you. But watch out for any negative trends in your spending.
Credit repair and build credit as an immigrant

How to Build Credit as an Immigrant

How to Build Credit as an Immigrant

Like for anyone, it’s important to build credit as an immigrant. As an immigrant to the United States, one of the biggest barriers to achieving success in the land of opportunity is the establishment of credit. New immigrants will learn very quickly that renting an apartment, getting a credit card, or even buying a car in the United States can be next to impossible without any credit history.

The reason for this is that a credit report is specific to the national boundaries in which you reside. So if you move or emigrate somewhere else, you cannot bring with you your credit score how matter how great it was. Differences in national laws and how information is collected or stored dictate that credit is only applicable for people in that country who have achieved credit in that country. Therefore there’s no way for you to transfer credit information from your home country.

What does this mean?

Simply put, this means that you have to start from scratch to build your credit history if you are an immigrant. Without any credit history, you are not necessarily starting off on the wrong foot. You just have many strides to take. Having no credit history is certainly better than having a bad credit history. So, any immigrants who might have had a bad credit history back home benefit from the chance to start over. In any case, it can be challenging to simply get started. Much like getting your first job, without work experience people are not going to hire you. Without any credit history, most people are not going to give you a credit card. This is especially after 2008 when credit card and lending requirements were altered.

Getting the Social Security number

One of the most important things to have is a Social Security number. A social security number is not required to have a credit history but it is the only unique identifier to you as an individual, the only thing that will help you to identify your credit file.

Getting a Credit Card

Once you have an SSN, it’s important to seek out any type of credit card that you could use regularly. A credit card given to you without any credit history will more than likely have an unforgivingly high interest rate. For this reason, if you’re able to obtain a credit card from a generic company like this, you have to work incredibly hard to make sure that no payment is ever late. Buy your regular groceries with your credit card and then pay it off at the end of the month before any interest is accrued.

If you shop regularly, consider applying for a credit card from that store. Many clothing stores, for example, offer store based credit cards which you can use to build up your credit. However, be careful that you don’t simply go out and start applying to a dozen different stores at once. Each time a company runs a background check for your credit score, that counts against you. It is a marginal amount compared to many other facets of the credit score. Nonetheless, be cognizant of it especially when you’re working so hard to build up your credit from nothing.

In many cases, you are going to get incredibly low credit if you are approved for anything like a bank card or a store credit card. Chances are you will get limits such as $300 or $500 with which you can do very little but at least it can help you get started.

Credit 101

This process is one where slow and steady really does win the race. In United States, anyone who is considering giving you credit will check your credit history. When you are brand-new, you will simply have no credit information on file. Only after you apply for and get credit can lenders start reporting information about you and your account. Once this happens then you start getting credit on file. This indicates how many accounts you have, how much you owe, and whether you pay your bills on time.

Being from another country has absolutely no bearing on the way that your credit is reported. You will not have any reference in your credit file to the fact that you are under immigration status or that you have a different nationality. All they will see is your credit score and your credit history.

So, small amounts of money lent to you even if they come from a store credit card will start this process rolling. In California, for example, there is the Mission Asset Fund, an organization which lends small amount of money to members in the organization with no fee and no interest. This nonprofit service helps immigrants to borrow money on the books and start getting credit.

 Tips

  • Again, start off with one account and slowly work your way to multiple accounts with time. Don’t apply for all of them at once.
  • Set up automatic payments for your bank if you can so that every single thing you pay for is paid for on time, without fail. You can even set this up for the credit cards that you receive.
  • If you can, find a place to rent where your rental payments are reported to your credit company. If your landlord doesn’t already report payment history, you and your landlord can sign up for electronic rent payments. These are automatically generated and reported to your credit score.
  • As always, check on your credit score as regularly as possible. There are free sites that help you to do this. This will help you to make sure that no one else uses your personal information to hurt your credit score.
road-to-good-credit

How To Build Credit

How to Build Credit

It can be very unclear how to start to build credit, even though having a credit score is extremely important. In the event that you don’t have a record as a consumer, it’s difficult to get any type of money advance. This includes getting a credit card, loans, or even renting out an apartment.

Yet, how are you expected to demonstrate a past filled with responsible credit handling if nobody will give you credit in the beginning, when you have no credit history?

A few devices can help you set up a record as a consumer: secured credit cards, a credit-manufacturer advance, a co-marked credit card or advance, or approved client status on someone else’s credit card.

Whichever you pick, you can successfully begin to start building credit. Here are 5 ways to get started.

1. Apply for a secured credit card

If you don’t have any credit history, you’ll likely need to start with a secured credit card. For a secured card, you’ll need to make an advanced cash payment as a security deposit. In the event you can’t pay off any credit in the future, this advanced cash payment will be used to pay off your bills. The store sum you add to the secured card is normally the same as your credit limit.

You’ll then use the secured card as you would any other credit card. You’ll make purchases on the card and then need to pay off your credit card bills prior to the due date. Ideally, you should pay off your card in full every month, as opposed to leaving balances month-to-month. To learn why that is, check out our article on How to Get Rid of Credit Card Debt. Your money store is utilized as security on the off chance that you neglect to make installments.

You’ll get your initial money store back when you close your secured card account, assuming it hasn’t been used to pay for missed installments.

Secured credit cards aren’t intended to be utilized until the end of time. The reason for a secured card is to create a credit history and increase your credit score to meet all requirements for an unsecured card (the most common type of credit card) — a card without a store and with better advantages.

Pick a secured card with a low yearly charge and ensure it reports to every one of the three credit agencies, Equifax, Experian and TransUnion. You can view our list of The Best Secured Cards of 2017.

2. Get a credit builder loan

A credit-manufacturer advance is precisely what it sounds like: its sole objective is to help you start building credit.

Commonly, the cash you obtain is held by the bank in a record and not discharged to you until the advance is reimbursed. It’s a constrained investment funds program of sorts, and your installments are accounted for to credit authorities. These advances are regularly offered by credit unions or group banks.

3. Use a co-signer

It’s also possible to get an advance or an unsecured charge card by using a co-signer. The co-signer would be someone you know well who has good credit. The co-signer also must be willing to put their credit score on the line or else help you make your credit payments. Make sure that both you and the co-signer understand that the co-signer is responsible for everything owed on the off chance that you don’t pay. That’s why it’s important to have someone you know well be your co-signer, and then make sure that your credit is only ever your problem, never theirs.

4. Become an authorized user on someone else’s credit card

You can also become an authorized user on someone else’s credit card. It would need to be someone that you are very close with, such as a close relative or spouse. This means that you would be able to make purchases on his or her card. As an approved client, you’ll appreciate access to a credit card and will be able to construct a credit history, without being lawfully committed to pay for your charges.

First, make sure that you or the cardholder asks the credit card company if it’s possible to report information back to the credit bureaus on your behalf. If this isn’t possible, you won’t be able to build credit as an authorized user. So, make sure you do this important step first.

Then, make sure you and the cardholder are on the same page about how you’ll use the card. Ultimately, although you’re not lawfully committed to pay for your purchases, it will be a short-lived relationship with the cardholder if you spend with their credit card and don’t pay those purchases off.

5. Get credit for the rent you pay

Lease reporting administrations, such as Rental Kharma and RentTrack, help you put your rent history into your credit report. This creates a positive history of on-time installments. Not each credit bureau considers these installments as part of your credit history. Some do, which might be sufficient to get an advance or credit card that would help you continue building credit.

Additional tips and resources for building credit

Building a decent financial assessment requires some serious energy; it unquestionably does not occur incidentally. When you have fabricated your credit, you’ll have numerous open doors that were already inaccessible to you.

  • Building a decent FICO rating requires some investment, most likely no less than six months of on-time installments.
  • Make 100% of your installments on time, not only for credit card bills but for all bills e.g. service bills. Charges that go unpaid might be reported back to the credit bureaus, which would hurt your credit.
  • Keep your credit utilization low (generally below 25% if possible).
  • Don’t open an excessive number of new records on the double; new records bring down your normal record age, which makes up some portion of your FICO assessment.
  • Keep accounts open for as long as possible. Unless one of your unused cards has a yearly charge, you ought to keep them all open and dynamic for your length of installment history and credit usage.
  • Check each of your credit reports every year for mistakes and inconsistencies.
  • Figure out how to check your financial assessments and reports
creditcards-2

The Best Secured Cards of 2017 For Credit Repair And Credit Building

The Best Secured Cards of 2017 For Credit Repair And Credit Building

If you’re having trouble getting a credit card due to bad history or no history, getting a secured card may be the solution for you. The “secure” in a secured card means that you have to put down a deposit which the bank will use as security just in case you can’t make the payments. But alas, not all cards the same. Here are some of the best secured cards for getting started building credit or for credit repair.

1. Capital One® Secured MasterCard®

cap1card

Pros

  • No annual fee
  • No foreign transaction fee
  • Reports to the three major credit bureaus
  • Get a $200 limit that’s higher than your deposit of $49, $99, $200 depending on your credit
  • 80 days to make partial payments to your deposit. Your account, however, will not be activated until the deposit is fully paid
  • Get access to a higher credit line without an additional deposit after you make your first 5 monthly payments
  • Manage your account 24/7 by phone, online access or through their app

Cons

  • High 24.99% Variable APR
  • You need a checking or savings account
  • You cannot have a discharged bankruptcy and your rent cannot be almost high as your income (this is generally the case with all credit cards)
  • No rewards

Verdict

This is definitely a great card if you don’t want to spend a lot of money upfront on your deposit.

Online Customer Reviews

The card seems to really work for first-time credit builders and those who are trying to fix their credit. Many customers praise the Capital One® Secured MasterCard® for giving you the ability to easily check your balance. There’s also a credit tracker option which helps you easily monitor and improve your credit score. Most people use it for emergencies and very low purchases. People do complain about the high APR. Vigilance and steadfastness is required in paying on time. Great card to get for those who have been rejected by other companies.

2. OpenSky® Secured Visa® Credit Card

open-sky

Pros

  • Qualify with bad or no credit
  • Qualify within minutes
  • No checking account or credit check required
  • The card reports to the three major credit bureaus

Cons

  • Has an annual fee of $35
  • No rewards
  • You generally can’t upgrade to a unsecured card

Verdict

This is the best secured card for someone who has bad credit or no checking account.

Online Customer Reviews

Many customers complain that they can’t upgrade to an unsecured card. As a result, they use it mainly to build credit and then end up getting an unsecured card with a different card company. Customer service also seems to be a problem. Customers complain that payments take a while to post, so they need to pay well in advance of the due date. Overall, it’s still a great option for people who have been rejected by other card companies. It’s still one of the best secured cards because even for customers who have complaints, they were able to actually fix their credit score or start building credit.

3. Discover it® Secured Card

discover-it

Pros

  • No annual fees
  • Cash back on every purchase. Rewards never expire. Earn 2% on all gas and restaurant purchases up to $1,000 per quarter. Earn 1% cash back on all other purchases.
  • Get your FICO score for free with your monthly statements and online
  • Qualify even if you’ve filed for Chapter 7 bankruptcy
  • After 7 months, Discover will do reviews of your account, and you have the chance to upgrade to an unsecured, standard credit card. You can have your deposit refunded and even get a higher credit limit
  • No penalty APR for paying late, and no late fee for missing for your first due date

Cons

  • 23.49% variable APR
  • Deposit equal to the credit limit. A security deposit of $200 or more is required

Verdict

It has great rewards for an unsecured card. Just make sure to pay off your bills in full to avoid the steep APR interest.

Online Customer Reviews

Many customers actually get upgraded to an unsecured card in addition to getting their deposit back. And many seem to do so quicker than they expected. Just make sure to never make a late payment. Users like the ability to quickly increase their credit scores. It takes about two weeks to receive your card. You can also get a Discover iPhone App for easy access.

A Comparison of Benefits

Which of the best secured cards is best for me?

Which one is the easiest to apply to?

The OpenSky® Secured Visa® does not apply a hard credit check, so you won’t lost points on your record. On top of that, you’re able to qualify in a manner of minutes. 

Which one has the cheapest deposit?

This may be a stickler for many people because chances are if you’re struggling with building or fixing your credit, you may be low on cash. On secure credit cards, many have a deposit requirement of $200 which may be too much for some people. So, if you’re looking for a low deposit, Capital One® Secured MasterCard® may be a good choice for you.

Which card offers a rewards program?

Because most secured cards focus on getting customers to build up their credit, rewards usually aren’t offered. This is what makes the Discover it® Secured Card one of the best secured cards. Its ability to earn you 2% cash back on all gas and restaurant purchases and 1% cash back on all other purchases may very well make it one of a kind.

Which card allows you to upgrade to an unsecured card?

Due to the no-frills, low credit limit nature of secured cards, many users eventually wander to other cards which offer better options. However, instead of applying for another card with a different company, the Discover it® Secured Card allows you to upgrade to a unsecured card with a returned deposit and a higher credit limit.

Which card allows you to not have a checking account?

Having a checking account may not be an option for some people. For this reason, the OpenSky® Secured Visa® Credit Card may work well for you. Although you may not need a checking account for opening an account, you probably need one to make payments.

Which card has the lowest annual fees?

Many users don’t like the annual fee because if you add up the interest rate and paying down the balance, the money really adds up. Plus, if you’re not really using your card, you may forget that you even have one. Both the Discover it® Secured Card and Capital One® Secured MasterCard® have no annual fees.

Which card has the lowest interest rates?

Among the three secured credit cards, the OpenSky® Secured Visa® has the lowest purchase APR of 17.64% Variable. However, they do have a penalty APR of up to 21.75% variable and a cash advance of 17.64% APR variable.