Tag: Credit Cards

 

What’s A Good Credit Score in Your 30s?

You likely spent your 20s growing a lot, making mistakes, and discovering yourself. Your 30s, however, are a time for refinement and fine-tuning.

While in your 20s, you were just starting your financial life. Yet, hitting the big 3-0 signaled that it was time to level up your finances. One way you can do this is by improving your credit score.

In this guide, we break down what a good credit score looks like your in 30s, and why this is important.

A good credit score in your 30s

When you’re in your 30s, you’ve had a decade to establish and build your credit. You might still have student loans, as well as several credit cards. You may even have a car loan or a mortgage.

If you played your cards right, your credit score may be in good shape. But if you spent your 20s racking up credit card bills and in denial about your student loan debt, your credit score might not be so hot. According to data from Credit Karma, the average credit score for 25-34 year olds is 628. The most popular credit scoring model, FICO, defines a “good” credit score as 670 to 739.

If you take the average credit score of 628 and add the other two data points that FICO describes as “good” – 670 and 739 – and divide by three, you get 679. And, while a credit score of 679 is a good benchmark in your 30s, having a score in the low to mid 700s is even better.

Let’s back up a bit. In your 30s, a good credit score in the 700s should be attainable. Why? Take a look at these factors to understand what contributes to your credit score and why a good score can be achievable in your 30s.

What factors make up your credit?

The length of your credit history is one of the factors that make up your credit score. By your 30s, you should have a solid credit history with years of data.

On top of that, your credit mix is another factor that contributes to your score. This refers to the different types of credit you have, like an auto loan and a credit card. By your 30s, it’s likely that your credit mix is more diverse, which can boost your score. For example, you might have an auto loan, student loans, credit cards and a mortgage. If you make your payments on time and keep your balances low, this can reflect well on your credit score.

The two main factors that contribute to your credit score are your payment history and your credit utilization. If you have years of positive repayment history and never missed a single payment, then time is on your side! This can show lenders that you’re a responsible borrower.

Additionally, keeping your balance below 30 percent of your available credit, also called your credit utilization, is important. If you have high balances, whether you pay them off in full each month or not, this can be a red flag to lenders who might think you’re a risk.

Given all of these factors, you should aim for a “good credit score” in the 700s. If you’re not quite there, don’t fret. Pay off your debt, keep your balances low, minimize the number of accounts you open, and pay your bills on time. This will help boost your credit score.

Why is having a good credit score in your 30s important?

So, why is having a good credit score in your 30s important anyway?

Your credit score can seem like just a number. But in your 30s, when you’re ready to level up your finances and life, a credit score can make or break your options.

For example, you may be ready to start a family and buy a house. Your credit score, in turn,  can influence whether you get approved for a mortgage and what interest rate you get.

Or, perhaps you want to refinance your student loans to try to save money. Good credit can help make this achievable. Plus, if you have kids and want to get a minivan, you’ll want to snag a great rate on an auto loan. And, you guessed it, a good credit score will help you get a lower interest rate.

Bottom line

Your 30s are all about coming into your own and refining everything you learned in your 20s. This is true of your credit too! This is the time to look at your mistakes, reflect and revamp. If your credit isn’t great, you still have time to improve and all is not lost.

Just think: Once you have a good credit score in your 30s, you can get the best interest rates and start reaching your life milestones without all the extra costs.

 

Credit 101: The Basics You Need to Know

You’ve probably heard the term credit. You may already know that this is an important part of building a solid financial future. But no one ever seems to talk about the specifics. For starters, what exactly is credit and why is it so important?

In a nutshell, building a healthy and solid credit history is an important part of your financial health. Just like it’s important to save a portion of your income, improving your credit can help you rent an apartment and get approved for a loan.

Are you ready to learn more about credit? We’ve got you covered. Here’s everything you need to know to begin understanding credit.

What exactly is credit?

When you buy something with credit, this essentially means you’re purchasing it now with the promise to pay for it later. Two common types of credit include installment loans and revolving credit. Take a look at what these credit types mean here:

Installment loans

This is when you borrow a set amount of money and use it for a specific purpose, like a car loan, a student loan, or a mortgage. When you pay for something with installment credit, you’ll make equal monthly payments that include interest.

Revolving credit

This is when a lender gives you a line of credit – up to a certain limit – and you then borrow from that amount and pay it off over time or even in one lump sum if you can. A common type of credit line comes in the form of money you spend on your credit card. In this instance, a credit company will extend to you a certain amount of credit and you can spend up to that amount. Your payments each month will fluctuate based on how much you’ve borrowed.

How does a lender decide whether to loan you money?

Let’s say you decide that it’s time to buy a car. You don’t have the cash to pay for it, so you apply for a loan. Easy peasy, right?

Not so fast. Before you can typically borrow that money, a lender needs to feel comfortable that you’re actually going to repay the money. To do this, the lender will look at a number of factors. The most important criteria is your credit history.

Credit history, credit report, credit score. What do these all mean?

Your credit history reflects how you’ve spent money over a length of time.

This may include how many credit cards and loans you have and whether you’ve paid your bills on time. If you’ve been paying for almost everything in cash and you’ve never borrowed any money, you probably won’t have much of a credit history. If you do, it will be summarized on a credit report.

There are three credit reporting companies that keep tabs on your credit history: Equifax, TransUnion, and Experian.

Lastly, a credit score is a number that is calculated based on your credit history. This three-digit figure indicates to a lender how likely you are to repay your debts. A higher credit score means you have a better credit history. A lower credit score means you have a bad credit history. Most of the time a lender will use your FICO credit score when deciding whether to lend to you. These scores range from 300-850.

If you don’t plan on borrowing money, should you really care about credit?

If you ever want to rent an apartment, get a cell phone plan, or buy a car, you’ll likely need good credit. Your landlord, utility company, or mobile phone carrier might check your credit. Your future employer might even check your credit.

Even if you don’t plan on borrowing money anytime soon, it’s still a good idea to build up your credit. You never know when you’re going to need it. For example, you might decide someday that you’d like to buy a house. If you have a solid credit history already in place, you’ll have a much easier time qualifying for a mortgage or any other type of loan.

Your credit history doesn’t only impact whether a lender will loan you money. It also impacts how much you pay in interest. Borrowers with a good credit history are considered less risky so lenders will usually offer them lower interest rates. And, lower rates can potentially save you thousands of dollars over time.

How does someone get a good credit score?

At a basic level, good credit comes from paying your bills and making your loan payments on time. But there are a few more things that go into it:

  • Don’t max out your credit. Lenders will want to see that you haven’t borrowed too much money. For example, if you have a credit card with a $10,000 credit limit, it’s a good idea to keep that balance as close to zero as possible. Experts advise keeping your balance below 30% of your credit limit. In this case, that would be $3,000.
  • Apply for credit only when you need it. Applying for multiple loans at once can signal to lenders that you’re having trouble with your money. So, try not to rush out and get a lot of credit cards at the same time.
  • Work on improving your credit history. The longer you’ve been building your credit, the better your score will be. Years of making on-time payments will show that you’re a trustworthy borrower.

How can I start building credit?

There’s a famous quote that says the best time to plant a tree was 20 years ago. The second best time is now. If you haven’t started building your credit history yet, now’s the time to begin.

Start by getting a free copy of your credit report from each of the three credit reporting agencies. You can also request a free credit report each year by going to AnnualCreditReport.com. Once you have the report, start by checking the information and making sure it’s all correct. The report will also include recommendations on how to begin improving your credit.

If you don’t have any credit history and you need to begin building it, there are a few easy ways to get started:

  • Get a secured credit card: With a secured credit card, you make an upfront deposit, which is usually your credit limit. If you make a deposit of $1,000, for example, you’ll have a credit limit of $1,000. After that, it works like a regular credit card. You use it to make purchases and then make on-time payments to build your credit score.
  • Become an authorized user. Do you have a friend or family member that has good credit? He can add you to his credit card as an authorized user. The catch is that your friend will be on the hook to pay for anything you charge and if his credit declines, this can also negatively affect your credit score.
  •  Apply for a store card. It might be easier for you to qualify for a store credit card, one that you are only able to use while shopping at that particular company. Just be aware: Store credit cards often come with higher interest rates, so be sure to pay off your balance each month.

Understand Your Credit and Improve Your Financial Future

As you can see, building good credit is a long game. Yet, if you play the game right, you’ll be on your way to a healthy financial future.

 

What’s a Good Credit Score in Your 20s?

When you’re in your 20s, you’re just beginning your financial life.

This may mean getting your first big paycheck, applying for a new credit card, and managing your checking and savings accounts. Yet, another important aspect of your financial life in your 20s is building your credit and establishing a good credit score.

Your question now may be: What is a good credit score and why is this important? Read on to learn how a good credit score can help you when you’re in your 20s.

What is a credit score?

A credit score is a three-digit number that represents how creditworthy you are. In other words, this number tells lenders how likely you are to repay your loans and if you’re a responsible borrower.

There are many different types of credit scores but the most popular is the FICO credit score. The FICO credit score range is from 300-850. The lower the score, the worse your credit is. If your credit score is high, your credit is in good shape.

What is a good credit score?

Now that we’ve reviewed credit score basics, your next question may be: What constitutes a good credit score? According to credit bureau Experian, a good credit score is 700 or above.

But if you’re in your 20s and just starting out, a score of 700 or higher may be tough as you’re just establishing your credit history. In fact, according to Credit Karma, the average credit score for 18-24 year-olds is 630 and the average credit score for 25-30 year-olds is 628.

FICO has different categorizations for credit scores and a 630 is deemed as “fair”. A “good” credit score based on FICO’s criteria is 670-739, a “very good” score is 740-799 and an “exceptional” score is 800-850.

So, given the fact that the average credit score for people in their 20s is 630 and a “good” credit score is typically around 700, it’s safe to say a good credit score in your 20s is in the high 600s or low 700s.

Keep in mind that when you’re in your 20s, you’re still establishing your credit history and your credit score takes into account the length of your credit history. Only time can help that part, so if you maintain good financial habits, the hope is that your score will elevate as you get older.

Why is a good credit score important?

Let’s be real, your credit score can seem pretty arbitrary. But it’s nonetheless important when it comes to getting your first apartment or applying for your first credit card.

Why is this? Because your credit score can make or break whether you get approved for an apartment. It can also determine whether you get approved or denied for a credit card. It can even affect the interest rate you get. This is crucial to understand because, if you take out a loan, interest can cost you a lot of money over time. Even the difference between a few percentage points can potentially cost you hundreds or thousands of dollars in interest.

So, having a good credit score can help you save money, and help you get better interest rates.

How can you improve your credit score?

What if you don’t have a good credit score quite yet? Or, perhaps you want to maintain your good credit and keep it in good standing?

There are a few simple rules to live by to boost your credit. Take a look:

  • The most important rule is to make all your payments on time. Your payment history determines 35 percent of your credit score, so it has the biggest impact.
  • The second rule of thumb is to make sure your credit utilization makes up 30 percent of your score – or less. Your credit utilization is how much of your total credit you use. Maxing out your cards each month can signal the alarms for lenders and make you look like a risk.
  • Lastly, try not to open too many new lines of credit. Opening too many lines of credit in a short period of time can look risky to lenders and lower your credit score.

Take responsibility for your credit score

As you can see, taking action and being responsible in your 20s can help you build your credit over time. So, refer back to this guide and start improving your credit score now. And, just think: This will help you land that apartment, buy a new car or get your first rewards credit card.

Are you ready to improve your credit score in your 20s and start adulting?

 

Chime’s Ultimate Guide to Building Credit

Your financial health is like a puzzle, with different pieces that fit together to create a complete picture.

One of the most important pieces is your credit history and of course, your credit score. (That’s the three-digit number lenders use to determine how likely you are to repay your debts.) FICO scores, the most widely used credit scoring model in the U.S., range from 300 to 850. The average FICO score recently hit an all-time high of 704.

This in-depth guide breaks down everything you need to know about engineering a better credit rating.

Where credit scores come from

Before you can have a credit score, you first need to have a credit report. This is a collection of information about your credit accounts, including who you owe money to, how much you owe, your minimum payments and how long you’ve been using credit.

FICO scores focus on five specific factors to calculate your credit score:

  • 35% of your score is based on payment history
  • 30% is based on your amounts owed
  • 15% is based on the length of your credit history
  • 10% is based on inquiries for new credit
  • 10% is based on the types of credit you’re using (i.e. loans and credit cards)

Knowing what affects your score can help you adopt the habits that you’ll need to build good credit. But what if you’re one of the 62 million Americans with a thin credit file?

“A thin credit file just means that you don’t have an established credit history,” says personal finance expert and Money Crashers contributor David Bakke.

“Maybe you’re younger and just have never had a need for credit, or possibly in general you’ve never signed up for credit cards or taken out a car loan or a home mortgage,” says Bakke.

With a thin credit file, you may not have enough credit history to generate a credit score. Fortunately, that’s a situation you can remedy. Opening a bank account is a good first step. You can use your account to get a handle on your spending, keep track of bills and start growing your savings. Once you begin using credit, you’ll already be in the habit of keeping your spending in check and paying your bills on time. Both of these positive habits can help your score.

How to build credit from scratch

If you’re starting from square one with building credit, there are a few different routes you can take. Here’s a look at some of the most common ways you can build credit as a beginner:

Secured credit cards

Opening a secured credit card can be a great option to build credit for someone who’s new to credit or has a thin credit file, says Steven Millstein, a certified credit counselor and editor of CreditRepairExpert.

“Unlike other credit cards, a secured credit card requires that you make a cash deposit upfront. This deposit will usually be your credit card limit, which serves as collateral if you fail to make payments,” Millstein says.

The major pro of a secured credit card is that your payment history and spending can help to establish your credit history. That’s because many secured card issuers report your activity to the credit reporting bureaus. With a card limit of only a few hundred dollars, this can keep you from racking up debt.

Credit builder and savings secured loans

Credit builder and savings secured loans offer a slightly different take on building credit.

“These are basically small installment loans where the loan is secured by a certificate of deposit or a savings account,” says Jeff Smith, vice president of marketing for Self Lender, which offers credit builder loans.

“As the person repays the loan, the payments are reported to the credit bureaus so they can impact the credit history. At the end of the term, the CD or savings are unlocked and returned to the account-holder.”

Essentially, you’re repaying a loan to build credit, but you don’t get the proceeds of the loan until it’s paid in full. That’s a reversal from how loans usually work, where you get the money upfront.

There are also other drawbacks to credit builder loans. For example, you may not get immediate funds to make a purchase. On the other hand, this may not matter if your main objective is to build credit.

Become an authorized user

Instead of getting a credit card in your name, you can ask a friend or family member to add you to one of their cards as an authorized user.

“The implication is that their (the main card holders) good credit practices will start to build your credit,” Millstein says.

According to Equifax, being an authorized user allows you to make purchases with the card and have the account’s activity show up on your credit report. Yet, you’re not the one liable for the card’s balance. If the primary card holder practices good credit habits, those habits would be reflected in your credit report and score.

There’s a catch, however. If the primary card holder falls behind on payments or maxes the card out, this can hurt your credit.

Ask someone to co-sign a loan with you

Co-signing on a personal, student or auto loan is another way to build credit. Unlike being an authorized user, however, you share responsibility for the debt with your co-signer.

Asking someone to co-sign can help you qualify for a loan that you may not be able to obtain on your own. Once you’re approved, you can work on repaying the loan and building credit history.

But there is some risk involved. If you default on the loan, both your credit history and that of your co-signer can be damaged. And, this can potentially ruin your relationship, Millstein says.

How long will does it take to build credit?

“Building good credit is probably not going to happen overnight and getting a solid credit score as well isn’t going to happen immediately,” Bakke says.

So, just how soon can you expect to see results?

According to Experian, it can take between three and six months of activity to get enough history on your credit report to calculate a credit score. Millstein says it can take about 12 months to grow a fair credit score, which is in the 580 to 669 range for FICO scores. He says working towards a perfect 850 score, on the other hand, can take several years.

Bottom line? You’ll need to be patient and give your good credit habits time to pay off.

Check in with your credit regularly

If you’re hard at work on building credit, don’t forget to track your progress. You can get your credit report three times a year for free through AnnualCreditReport.com. Free credit monitoring services help you track your score month to month.

In the meantime, set up alerts for your bills and schedule automatic payments through your mobile banking app so you never miss a due date. When you make payments on time and keep your balances low, your credit will eventually improve!

 

Good Credit Scores vs. Bad Credit Scores

Your credit score is a huge indication of your financial health. In fact, your credit is so important that lenders refer to it when you apply for a line of credit, a home mortgage, a car loan or even a new credit card.

But, in order to be approved for loans and credit cards you often need a “good” credit score. That begs the next question: What makes a good score vs. a bad score? Before we jump in, let’s go over the basics.

What is Credit and How is Your Score Calculated

Your credit score is a three digit number that helps lenders determine how credit worthy you really are. In other words, it’s a tool lenders use to determine if you are a good borrower and thus most likely to pay off your loans.

The three major credit bureaus – Equifax, Experian and TransUnion – collect information on you to help determine your credit score. For instance, whenever you open a new account via a loan or line of credit, this information gets reported to the three bureaus.

The bureaus then use a credit scoring model to determine what your score is. The two most popular credit scoring models are FICO and Vantage. FICO is used widely by lenders, but you’ll want to aim for a high credit score no matter which scoring model is being used.

What Makes a Good Credit Score?

There are a few important factors that help contribute to your credit score. These factors include your payment history, amounts owed, length of credit history, credit mix (how many different types of account you have,) and new credit.

Credit scores range from 300 to 850. Good credit scores fall in the 670 to 850 range. Anything below 670 is either considered a fair or bad credit score, according to FICO.

If you want to raise your credit score, it’s important to prove that you’re a responsible borrower and not a risk to the lender. Why? Lenders don’t want to give money to people who won’t pay them back. This is why the most crucial things you can to do improve your credit are:

 

  • Pay your bills on time
  • Keep credit card balances low

To help you do this, you can create a detailed budget and set up reminders or automatic withdrawals to ensure you pay bills on time. The longer you keep up with this habit, the better your score will get. For example, say you have a student loan with a 10-year term. You’ve made on time payments for about eight years so far. Good for you! This will improve your credit and show lenders that you can be trusted to pay back a sum of money over time.

Here’s another pro tip: When it comes to credit cards, never spend more than 30% of your credit limit. Remember, credit is a tool, and it will not help your score if you max out your credit cards. So, if your limit is $2,000, only spend 30% of that limit, or $600. Then, pay the bill on time. If you continue this habit, your credit score should improve.

What Makes a Bad Credit Score

There are a few things you can do that will result in a bad credit score. They include:

  • Not paying your bills and loan payments on time
  • Not paying your loans at all
  • Keeping a high balance on your credit card
  • Applying for multiple credit accounts regularly

For example, let’s take a look at your bills. If you don’t pay your bills on time, companies can report you to the major credit bureaus and this will result in a negative mark on your credit report. Keep in mind that this can happen for medical bills, utility bills, and even your phone bill. If you just stop paying altogether, this is even worse. Your account will become delinquent and it will reflect poorly on your credit reports.

Keeping a high balance on your credit cards is another common mistake that indicates you may not be able to pay back what you borrowed. The takeaway: Borrow only what you can afford to repay in a timely manner.

Ways to Improve Your Credit

If you want to improve your credit, focus on improving your standing with each of the five factors that impact your credit score. Here’s a breakdown of those factors and how much each one contributes to your score:

Payment history: 35%

Amounts owed: 30%

Length of credit history: 15%

New credit: 10%

Credit mix: 10%

Ideally, you’ll want to focus on improving your finances in the two areas that hold the most weight. This means you should pay bills on time and keep your balances around 30% (or lower) of your overall limit.

You should also avoid applying for new credit too often. Each time you apply for credit, it adds an inquiry to your report. Too many inquiries can hurt your score.

Over time, your credit history length will increase as long as you keep accounts open. If you close an account, your credit history will die with it. This is why it’s better to keep credit card accounts open even if you aren’t using them regularly.

Here are some other tips: If you have existing debt, you can boost your credit by paying it off. You can also establish positive borrowing history by getting a secured credit card and paying off the balance in full each month. With this type of credit card, you have to put money down first to establish your credit limit. Then, you borrow against it and repay it responsibly.

Lastly, consider establishing a no-fee bank account and emergency fund so you won’t be tempted to use credit to help you cover unexpected expenses that you can’t afford.

Know the Difference and Protect Your Score

In order to improve your credit history, you’ve got to start somewhere. A good place to begin is to know what makes a good credit score and a bad credit score. Ultimately, improving your credit score boils down to your spending and money management habits.

Are you ready to develop better money habits? Follow this guide and over time you will watch your credit score move into the “good” range.

 

What is a Good Credit Score to Buy a House?

So, you want to own a home and need to borrow money to buy it?

There are many factors that contribute to getting a home mortgage. For starters, you have to determine how much house you can afford given your current income and expenses. You then have to prove your income is reliable and that have enough money saved in your bank account to cover the down payment and closing costs.

You’ll also need a solid credit score to get approved for the loan. In fact, your credit score is the biggest factor when determining whether you’ll be approved or rejected for financing.

If you’re in the market for a house and are wondering if your credit is good enough to qualify for a mortgage, here’s what you need to know.

A Higher Credit Score Will Save You Money on Your Mortgage

There are quite a few perks that come with having a high credit score. One of those include qualifying for low interest rates.

Because home mortgages tend to be quite large – often in the six figure range – the slightest variance in your rate can make a huge difference when it comes to your monthly payments and the amount of interest you’ll pay over the life of the loan.

If you have a low credit score, lenders typically scrutinize your application more closely since they will have to rely on other aspects of your profile to qualify you for the loan. And, if you’re lucky enough to qualify for a mortgage with a low credit score, you’ll likely receive a higher interest rate to make up for the level of risk you potentially pose to the lender.

In short, if you have a great credit score, you can save big bucks over the life of your loan.

What Type of Credit Will Get You a Mortgage?

You now know that lenders are more apt to grant loans to borrowers with excellent credit.

Credit scores range from 300 to 850. Generally, these are the categories you can fall into as a borrower, depending on your credit score:

Excellent – 750 and up

Good – 700 – 749

Fair – 650 – 699

Poor – 550 – 649

Bad – 550 and below

Can you still get a mortgage if your credit score is “bad”? This depends on the lender and the type of mortgage you’re applying for.

A conventional mortgage is one of the most common mortgage types and the minimum credit score you’d need to qualify is typically 620. An FHA loan has more lenient requirements as it’s backed by the Federal Housing Administration, so you may be able to get this type of loan with a lower score.

Here are a few other types of mortgages and the minimum credit score you’ll need to qualify.

  • USDA Loans – 640 Credit Score
  • 203k Loans – 620 Credit Score
  • Jumbo Loans – 700 Credit Score FHA
  • Streamline Refinance – No Credit Check
  • VA Streamline Refinance – 640 Credit Score
  • HARP – 620 Credit Score
  • Home Equity Loan or Line of Credit HELOC – 680 Credit Score

Can You Get a Mortgage if You’ve Filed for Bankruptcy?

If you’ve filed for bankruptcy or had some serious negative marks on your credit, you may be wondering if you can still buy a home. The answer is yes – with some work on your end.

While filing for bankruptcy will damage your score, you can rebuild your credit and still become a homeowner. But, you may need to wait for a period of time depending on the mortgage you’re applying for.

For example, with a conventional Fannie Mae loan, you’d need to wait at least two to four years after you receive a bankruptcy discharge. The waiting period can be increased by another year if you’ve had a bankruptcy foreclosure.

How Lenders Check Credit for Co-Borrowers

Will you be applying for a mortgage with a co-borrower, like a partner or a spouse? If so, both of your credit scores will be considered in your loan application.

For a joint mortgage, the lender will pull each person’s credit scores from the three major bureaus: Experian, TransUnion, and Equifax. Then, the lender will take the middle score and choose the person with the lowest middle score to use for the mortgage application.

For example, let’s say borrower #1 on the joint application has these three credit scores: 730, 720 and 695. Borrower #2 has these three credit scores: 690, 655 and 640. The middle scores are 720 and 655, respectively. The lowest score out of the two is 655, and that’s what the lender will go with.

Keep in mind that the 720 credit score may have resulted in a lower interest rate. This is why it’s important to review your co-borrower’s credit score ahead of time. From there, you can work to improve both of your scores before applying for a mortgage.

Aim Higher Than the Minimum

When it comes to getting your credit ready to buy a house, try to aim higher than the minimum credit score accepted. This may mean putting your goal of homeownership on hold while you work on improving your credit. But, in the end, it will be worth it.

Owning a home is probably the biggest purchase you’ll ever make. In turn, saving money on a mortgage by having excellent credit can make a huge difference in your financial life.

 

What is A Good Credit Score To Buy A Car?

Ready to buy a car?

A car may be one of the most expensive purchases you’ll ever make – second only to a home. The average car price is $36,000, according to Kelley Blue Book. That’s a whole lotta dough.

While you can certainly save money by buying a used car, you will still need to come up with enough cash to drive away in your new wheels. If you don’t have the money on hand, your other option is to get a car loan.

Car loans can certainly help you buy a car, but in order to get approved for a loan, you’ll generally need a good credit score and money in the bank for a downpayment. Read on to learn more about car loans and how your credit score can help you buy a car.

How Do Car Loans Work?

Car loans are similar to other types of loans. You usually have to come up with a down payment and you can then apply to borrow the rest. You can get a car loan at an auto dealership, or at a bank or credit union. There are also some online lenders that specialize in car loans.

Some car dealerships will allow you to trade in your current car and use the value as a down payment for the new car. They will then run your credit and shop around for the best lender for your loan. This can take some time which is why it’s not uncommon to spend several hours at the car lot as you wait for a financing decision.

Once you have been approved for a car loan – either at a dealership or through another lender – you can review loan terms and sign paperwork. You’ll be given an interest rate based on your credit score, income, and debt-to-income ratio (how much you already pay toward your debt each month compared to how much income you bring in.)

Generally, you’ll be asked what your budget is for a monthly car payment. Lenders can shorten or lengthen your loan repayment term based on this preference. For example, you can get a 36-month car loan or even a loan that will take you seven years to pay off. The longer the loan, the more interest you’ll typically pay over time.

What Type of Credit Do You Need?

Your credit score is the number one factor that will determine whether you get approved for a car loan or not.

Of course, if your credit score is excellent or above average, you can rest assured that you’ll likely get a loan with the best terms. If you have no credit whatsoever, you probably won’t be approved for a car loan and it’s time for you to build your credit.

Each quarter, Experian publishes a report detailing the state of the automotive finance market. This is how Experian, as well as most lenders, rank borrowers’ credit scores:

Super Prime: 781 – 850

Prime: 661 – 780

Nonprime: 601 – 660

Subprime: 501 – 600

Deep Subprime: 300 – 500

If you have super prime credit, meaning your score is excellent, you can expect a low interest rate around 2.6% for a new car and 3.4% for a used car. With nonprime credit or an average score, you can expect a rate around 6.39% for a new car and 9.47% for a used car.

With deep subprime credit, which are the lowest scores, you may not get approved for a loan at all. If you do, your interest rate will be the highest, averaging around 13.3% for a new car and 18.9% for a used car, according to Bankrate.

Clearly, having a higher credit score will get you the best terms and the lowest interest rates. And this can save you a ton of money as you repay your loan. If your credit score is subprime or worse, it’s probably a better idea to work on building your credit before applying for a car loan.

Getting Your Credit Ready For a Car Loan

If you want to build your credit score or improve it, you first need to understand how credit works. Lenders look at your FICO score when considering whether to approve your car loan application. FICO is a specific credit scoring model, but it helps to understand how it works so you’ll know which areas of your credit report to focus on.

According to MyFico, credit scores are calculated by using these five main factors:

Payment History – 35%

Amounts Owed (overall utilization of your credit limits) – 30%

Length of Credit History – 15%

Credit Mix – 10%

New Credit – 10%

As you can see, your payment history and amounts owed hold significant weight in terms of determining your score. If your score is low, odds are your payment history is not good.

So, how long does it take to improve your credit? Depending on how much work you need to do, some experts state that you can improve your credit in as little as a few weeks on up to 18 months. To start making improvements, you can do the following:

  • Try monitoring your credit and tracking your improvement by using free sites like CreditKarma and CreditSesame.
  • Use your credit cards wisely, which includes paying off some debt to lower your balances.
  • If you see missed payments or defaults on your credit report, contact the lenders to find out if you can settle the balance.
  • If you have no payment history whatsoever, consider getting a secured credit card and putting a small monthly charge on it. Then, pay it off in full each month to build some positive payment history.
  • Keep your credit utilization under 30%. This means that if you have a credit card with a $2,000 limit, for example, you shouldn’t carry a balance of more than $600. Going above and beyond that amount tells lenders that you can’t control your spending and rely on credit too much. If you aren’t making consistent payments on your balance on top of that, this makes you look like a risky borrower.

Temporary Alternatives to Financing a Car

If you have bad credit or no credit at all, now is a good time to try transportation alternatives to buying a car. For example, while working on building your credit, you can give public transportation or carpooling a whirl.

Or, you can try buying an older used car with cash just to get you from one place to another. You can use windfalls like a tax refund or bonus payments from your job to help you round up the money to buy a cheap car. This might hold you over until you can beef up your credit score and apply for a car loan for a new car.

Working for a Better Credit Score is Worth It

Don’t lose hope or patience if your credit score needs to be improved before you finance a car. The benefits of working your way up to an excellent credit score will be well worth it when you get a car loan with the better terms and a lower interest rate.

Remember: A lower interest rate for your car loan will potentially save you thousands of dollars. Are you ready to start building your credit?

 

Are There Any Prepaid Cards With No Fees? A Closer Look at Chime Debit Cards vs. Prepaid Cards

By now you may have heard of Chime, a no-fee bank account that helps you manage your money on the go and save automatically. Pretty awesome, right?

But did you know that Chime members also get a Chime Visa Debit Card, designed to help you save more money?

Right about now you may be wondering how a debit card can help you save money. Plus, you might be thinking you don’t need another debit card as you already have a prepaid card or two in your wallet. You may also be wondering if there are any reloadable prepaid cards with no fees. But, once you learn more about the benefits of Chime, we think you’ll be trading in those prepaid cards for a brand new Chime debit card.  

What’s the difference between a debit card and prepaid card?

Before we go any further, it’s important that you understand the main difference between these two types of cards. It boils down to this: A Chime debit card is linked to your bank account and a prepaid card is not.

So, if you use your Chime debit card, your purchases are deducted from your Spending account. A prepaid card, on the other hand, is not connected to any bank account and it’s up to you to load money onto it in advance, according to the Consumer Financial Protection Bureau (CFPB). Typically, you can use your prepaid card until your loaded up funds run dry.

Let’s Compare Some Popular Prepaid Cards to the Chime Debit Card

To make it easier for you to understand other differences between Chime debit cards and prepaid cards, we took a closer look at four of the most popular prepaid cards: Netspend, RushCard, Brink’s and Bluebird by American Express. We then compared the Chime debit card to these prepaid cards in terms of five key categories: fees, mobile apps, ATMs, early direct deposit and security. Here’s what we found.

1. Fees

Chime: Chime is a no fee debit card Plain and simple. This is important as the average U.S. household pays more than $329 in bank fees every year. Chime, however, is on a mission to change this with no overdraft fees, no monthly maintenance fees, no monthly service fees, no minimum balance fees, and no foreign transaction fees.  In short, a Chime bank account is virtually free to use.  

Prepaid cards: Are there any reloadable prepaid cards with no fees? All of these four prepaid cards charge fees for certain services, including monthly fees, ATM withdrawals and transferring funds. To learn more about prepaid card fees – which can add up quickly – check out fee charts at Netspend, RushCard, Brink’s and Bluebird.

2. Mobile App

Chime: The Chime app has 15,000 plus 5-star reviews. Whoa. Offering the best mobile banking experience, Chime’s award-winning mobile app helps you track your spending and savings, pay friends and relatives, transfer money, send and deposit checks, and pay bills. You can accomplish all of this from any smartphone.

Prepaid cards: These cards all offer mobile apps that allow you to manage many financial tasks, like depositing checks, paying bills and viewing your transaction history. But, none of them offer extensive features like Automatic Savings or Pay Friends. Why? Prepaid cards are not bank accounts, which ultimately limits your overall banking experience.

3. ATMs

Chime: How does easy access to money sound? With a Chime account, you can use your debit card to get cash at more than 38,000 ATMs – for no fees. Period.

Prepaid cards: With all four prepaid cards on our list, you can withdraw money from ATMs. However, there are fees involved. Here are the ATM fees using each of these cards: Netspend – $2.50 per domestic withdrawal; RushCard – $2.50 per out of network withdrawal; Brink’s – $2.50 per domestic withdrawal; Bluebird – no fees for MoneyPass withdrawals and $2.50 per non MoneyPass withdrawal.

4. Early Direct Deposit

Chime: Chime members can get paid up to two days early with direct deposit, as well as automatically save 10% of every paycheck. That’s right. No more waiting for your money or worrying about lost paper checks. Chime gets you paid faster and helps you save money.

Prepaid cards:  All four of the prepaid cards also offer an early direct deposit option, allowing you to get your funds two days early. But unlike Chime, these cards are not tied into your savings account because, well, they aren’t bank accounts.

5. Security

Chime: Security is a priority at Chime, and this includes keeping your information and money safe. Deposits of up to $250,000 are insured through Chime’s partner, The Bancorp Bank, Member FDIC. Chime also uses 128-bit AES encryption to make sure your cash is parked safely. Here are some of the other security features you’ll get with a Chime account:

  • You can instantly block your Chime debit card. This means that if your debit card is missing or stolen, you can block all transactions right from the app.
  • Chime sends you real-time, instant transaction alerts. This way you can stay informed about your money at all times.
  • You can shop worry-free at millions (yes, millions) of merchants. That’s because the Chime debit card is protected by the Visa Zero Liability Policy, which ensures that you won’t be responsible for unauthorized charges.
  • Your privacy is important. And for this reason Chime requires two-factor authentication.

Prepaid cards: These cards do offer some security features. For example, Brink’s allows you to add your picture to your card (but you’d expect this from Brink’s – brought to you by The Brink’s Company, a global leader in secure transportation and cash management). RushCard, in turn, offers One Touch Access, allowing you to use your fingerprint to access your account. And, because Bluebird is part of the Amex family, you’ll get purchase and fraud protection.

But at the end of the day, none of these four prepaid cards are bank accounts and therefore do not offer the full scope of security features found at Chime.

In the Battle of the Cards, Chime Wins

There are many differences between prepaid cards, and Chime. As you can see, Chime is not a prepaid card – far from it. Plus, the Chime debit card offers a lot more perks and benefits than prepaid cards.

If you’re looking for a singular card that wins across all categories, Chime takes home the trophy. What are you waiting for? Sign up for a Chime account today and start saving money now. 

Sign up for a Chime Debit Card Today!

 

How to Rebuild a Damaged Credit Score

There are many avenues that lead to damaged credit. You might have missed a few payments on an important loan. You might have opened too many credit cards. You might have even defaulted on a mortgage or car loan.

However you got here, your personal credit score is damaged, and it’s likely affecting your life in several negative ways; you might find yourself turned down for loans, getting worse rates for mortgages, and/or being rejected for apartment applications. Fortunately, you don’t have to stay in this situation forever. With the right techniques and the proper commitment, you can rebuild your credit score from the ground up.

How to Rebuild a Damaged Credit Score

Step One: Understand Your Score and Look for Errors

First, you need to understand what affects your credit score, and how those factors manifest in your final number. There are actually a few different types of credit scores, but your FICO score is by far the most common. Your FICO score is affected by the following factors, in order of most important to least important:

  • Payment history. The biggest percentage of your FICO score depends on your payment history—in other words, do you have a long history of making your payments on time? Late and missed payments can accrue quickly, devastating your credit score, while consistent, on-time, in-full payments can strengthen it.
  • Amounts owed. Your credit score will also consider how much money you owe, across all your accounts, including your mortgage, car loan, student loans, credit cards, and other sources of debt. The more you owe at any given point, the lower your credit score will be, especially if you have a high debt-to-income ratio.
  • Length of credit history. Though less important, credit reporting companies still want to know how long you’ve held your various sources of credit. The longer you’ve had your accounts active, the better, because it sets a precedent for your patterns of behavior.
  • Credit mix. Your credit mix is also important. In other words, what types of credit do you have open, and how many accounts do you have open? Having 12 credit cards doesn’t look too good while having two credit cards, a mortgage, and a student loan looks much better balanced.
  • New credit. What percentage of your credit is “new” (i.e., opened within the past several months)? The newer your credit mix is, the more inherently risky or volatile it will be considered.

You can check your credit score once a year from each of the three major credit reporting companies (TransUnion, Equifax, and Experian) at AnnualCreditReport.com and see a breakdown of how you’ve performed in each of these categories. With that information, you’ll know which areas you need to improve on most.

While you’re doing this, be sure to check for any errors that may be negatively and unfairly affecting your score, such as lines of credit you don’t remember opening up, or missed payments that were erroneously recorded.

Step Two: Commit to Avoiding New Credit (and New Debt)

Your first real step in making a better credit score is stopping the bleeding—in other words, not making your credit score any worse than it already is. Try to keep most of your current accounts open (especially the oldest ones), since account history plays a role in shaping your credit score, but make it a point not to open any new accounts unless absolutely necessary. This will help you keep your ratio of new credit low, and decrease your temptation of tapping into those new loans or credit cards.

While you’re at it, avoid taking on new debt, if possible. Don’t buy a new house or a new car, and don’t rack up new debt on your credit cards. This is a relatively easy step to take, so long as you can make ends meet, and it will set you up for success when you start rebuilding your credit score.

Step Three: Set Up Reminders for Payments

The most important factor for your credit score, unfortunately, takes the longest time to build or repair—your payment history. If you want your credit score to increase, you’ll need to make all your due payments on time, and preferably, in full, for several months to a few years. The best way to do this is to set up automated reminders, to let you know when a payment is coming up, and when that payment is officially due. That way, you won’t have to worry about remembering to make those payments—you’ll get a handy prompt to do so.

Step Four: Start Reducing Your Debts

So far, you’re not opening new credit or taking on new debt, and you’ve got your payments covered. Now, your job is to start reducing your current debts:

  • Consolidate what you can. Debt consolidation isn’t always a good idea in pursuit of a better credit score, but it could be valuable in reducing your monthly payments. For example, if you have one credit card with an interest rate of 30 percent and another with a rate of 20 percent, transferring to the 20 percent card can save you a ton of money, especially over the long term. It can also make your payments much simpler and easier to remember.
  • Negotiate your rates. Take the time to renegotiate some of your interest rates, especially on credit cards. If you’re trying to take a proactive role in eliminating your debts, you’ll be surprised to learn how much you can reduce your interest rates and monthly payments just by asking. The worst they can say is “no.”
  • Restrict your budget. Start a budget if you haven’t already, and take a good, long look at it. Chances are, there are several items you don’t truly “need,” such as trips to restaurants and bars, entertainment purchases, and ongoing subscriptions. If you want to get serious about paying off your debts, you’ll need to treat these with a scrutinizing, minimalistic eye. Cut everything you don’t need, and find lower-cost alternatives for what you do need.
  • Focus on high-interest debts first. Interest rates compound over time, forcing you to pay far more money than you need to when paying off a debt. That’s why it’s important to focus on your highest-interest debt first, paying that down before moving to your lower-interest debts. This won’t improve your credit score faster, but will reduce the total amount of money you spend to eliminate your debts.
  • Acquire new sources of income. If you still need help paying off your debts, your best option is to acquire a new source of income (or two). Depending on your skill set and current sources of income, that could mean anything from taking on a new part-time job to starting a side gig selling crafts on the internet.

Step Five: Establish Better Long-Term Habits

After you’ve eliminated or reduced the majority of your debts, you can start building better long-term habits, to keep your credit score inching higher and prevent another disaster:

  • Pay everything you can on time. Never take on more credit card debt than you can feasibly handle, and pay all of your bills on time. If you set up automated reminders when establishing better payment habits, keep them on, and do your best to never miss a payment.
  • Keep a good mix of credit. You might be tempted to close out your credit cards if you’ve been frustrated by credit card debt in the past. However, it’s better to keep those accounts open. Keep a good mix of credit, and use those lines of credit on an occasional basis so the activity can contribute to your new credit score. Good sources of debt, like student loans and mortgages, can get you something truly valuable and give you payments you can use to build your score at the same time.
  • Establish an emergency fund. Many people end up in debt because they can’t afford to pay for an emergency, such as a car repair or a medical bill. Proactively prevent this by creating an emergency fund of several thousand dollars, or a few months of expenses, and only tap into it when you really need it (replacing it as soon as the emergency is over). That way, you can avoid going into more debt, and make your finances more consistent.
  • Check your credit score periodically. You can check your credit score for free once a year, but you can also get your credit score for a low rate from other providers. Checking your credit score won’t affect your credit much, but it’s still not something you should do weekly, or even monthly (especially considering your score won’t change that fast). That said, it’s good to keep an eye on your score to check for inaccuracies and see how it’s progressing—so consider checking in once or twice a year to monitor your progress.

Damaged credit doesn’t mean you have to give up a reasonable lifestyle, and it doesn’t mean there’s no hope for your financial future. It may take months, or in some cases years, to get your credit score back in good order, but your efforts will be worth it whenever you apply for a loan, make a major purchase, or attempt to make a major life change.


This article originally appeared on Due.com.

 

Why You Should Spend With Your Debit Card vs. Credit Card This Holiday Season

The holiday season is approaching and you know what that means — spending money. Whether it’s buying gifts for loved ones or booking flights to travel home, the holiday season typically means a spike in spending for many of us.

And, because you may spend more than at other times of the year, you’re probably going to use credit cards. But, did you know that while credit cards offer some cool rewards like cash back, using your debit card is often a wiser choice? Read on to learn why.

1. You spend only what you have

Everyone wants to think they’re responsible with credit and only buy what they can afford. Well, a lot of people are wrong. According to a 2017 study by Magnify Money, 68 percent of consumers attributed their holiday debt to credit cards.

Of the consumers surveyed, 44 percent racked up more than $1,000 and five percent accumulated more than $5,000 in credit card balances. More disturbing is the fact that half of those consumers noted that it will take more than three months to pay off the debt they accrued during the holidays. That’s more than a quarter of the entire year!

When you use a debit card, however, you spend only what you have in your bank account. And, this helps you become more mindful and realistic about your budget. Using a debit card during the holiday season can also help you avoid fees and that dreaded holiday credit card debt.

2. You don’t have to worry about making another payment

The holiday season can make the most organized person run around like a headless chicken. Everyone’s schedule seems packed to the brim and there’s always something else added to the to-do list (Think: “Buy white elephant gift for the company party.”)

When you’re so busy, some of your normal day-to-day duties can fall to the wayside. And, if you don’t have auto-pay set up, you can potentially miss a credit card payment. Another common problem during the busy holiday season: You say you’ll “do it later” and then when you remember to pay your bill, it’s late.

When you use a debit card, however, you don’t have to add anything else to your to-do list – including making yet another payment. The money comes straight from your bank account and you don’t have to do a thing.

3. A debit card is free to use

One of the biggest perks with using credit cards is the rewards, like cash-back and airline miles. But oftentime the best rewards cards come with an annual fee and the conversion on the rewards isn’t as great as you think. In many cases, miles are literally worth about a penny per mile or less.

So, you may actually be spending your money on an annual fee, high interest rates, late fees, and more – without getting much in return.

Here’s where debit cards take center stage. Debit cards are free and can help you avoid debt.

4. Your debit card can help you save

At Chime, we’re all about helping you save money when you spend money. It’s all about balance. Am I right?

With this in mind, check out Chime’s round-up savings program, where every time you use your debit card, we round-up the purchase to the nearest dollar and put it into your Savings Account. This way you can effortlessly save and know that you’re being financially responsible at the same time.

5. Stop fraud instantly

There are no two ways about it: Fraud can be rampant during the holiday season. A lot of credit card enthusiasts think this is a solid reason to use credit over debit.

But, your debit card can offer protections that are similar to your credit card. For example, if you suspect any fraudulent uses on your Chime card or your card goes missing, you can simply go into the app and immediately put a halt on purchases by disabling transactions. No need to stay on a long customer service line (who wants to talk on the phone?!) and no need for lengthy emails. Just put a stop to it, now.

Not only that, but Chime alerts you any time you use your debit card. So, if your debit card get into the wrong hands, you’ll know right away.

Bottom line

The holiday season should be a time of joy and fun, not stress and debt.

Using debit instead of credit can help you keep your spending in check, plus you’ll have one less thing to worry about. So, this holiday season: Try spending only what you have and enjoy the season with family and friends. It sure beats worrying about money!

Banking Services provided by The Bancorp Bank, Member FDIC. The Chime Visa® Debit Card is issued by The Bancorp Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. Chime and The Bancorp Bank, neither endorse nor guarantee any of the information, recommendations, optional programs, products, or services advertised, offered by, or made available through the external website ("Products and Services") and disclaim any liability for any failure of the Products and Services.

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