Tag: CREDIT SCORE

Building Credit, Featured

12 Million People Are About to Get a Credit Score Boost — Here’s Why

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12 Million People Are About to Get a Credit Score Boost

Some serious tax liens and civil judgments will soon disappear from millions of credit reports, the Consumer Data Industry Association announced this week. As a result, millions of consumers could see their FICO scores improve dramatically.

The CDIA, the trade organization that represents all three major credit bureaus — Equifax, Experian, and TransUnion — says they have agreed to remove from consumer credit reports any tax lien and civil judgment data that doesn’t include all of a consumer’s information. That information can include the consumer’s full name, address, Social Security number, or date of birth. The changes are set to take effect July 1.

Roughly 12 million U.S. consumers should expect to see their FICO scores rise as a result of the change says Ethan Dornhelm, vice president of scores and analytics at FICO. The vast majority will see a boost of 20 points or so, he added, while some 700,000 consumers will see a 40-point boost or higher.

Even a small 20-point increase could improve access to lower rates on financial products for these consumers.

“For consumers, the news is all good,” says credit expert John Ulzheimer. “Your score can’t go down because of the removal of a lien or a judgment.”

The change will apply to all new tax lien and civil-judgment information that’s added to consumers’ credit reports as well as data already on the reports. Ulzheimer says consumers who currently have tax liens or judgments on their credit reports that are weighing down their credit scores will be able to reap the rewards of removal almost immediately

“The minute the stuff is gone, your score will adjust and you’re going to find yourself in a better position to leverage that better score,” says Ulzheimer.

But, importantly, he notes that just because credit reporting bureaus will no longer count tax liens or civil judgments against you, it does not mean they no longer exist at all. Consumers could still be impacted by wage garnishment and other punishments associated with the liens and judgments.

“This is the equivalent of taking white-out and whiting it out on your credit report. You can’t see it any longer, but you still have a lien, you still a have a judgment,” Ulzheimer says.

Solution to a longstanding problem

Many tax liens and most civil judgments have incomplete consumer information.

The changes are part of the CDIA’s National Consumer Assistance program that has already removed non-loan-related items sent to collections firms, such as past-due accounts for gym memberships or libraries. The program also has set a 2018 goal to remove from credit reports medical debt that consumers have already paid off.

“Some creditors may have liked having inaccurate credit reports, as long as they were skewed in their favor. That’s not the way the system is supposed to work. This action is just one more proof that the CFPB [Consumer Financial Protection Bureau] works, and works well, and shouldn’t be weakened by special interest influence over Congress,” says Edmund Mierzwinski, consumer program director at the U.S. Public Interest Research Group.

The move is likely the result of several state settlements and pressure from the Consumer Financial Protection Bureau, the federal financial industry watchdog.  Beginning in 2015, the reporting agencies reached settlements with 32 different state Attorneys General over several practices, including how they handle errors. The CFPB also released a report earlier this month that examined credit bureaus and recommended they raise their standards for recording public record data.


Time to start shopping for better loan rates?

High credit scores can lead to long-term savings. Borrowers who expect their scores to improve as a result of these changes may find better deals if they can wait a few months to buy a new house, refinance a mortgage, or purchase a new car. Even a 10-point difference can lead to lower rates on loans.

If you expect the credit reporting changes might benefit you, Ulzheimer suggests holding off on taking out new loans or shopping for refi deals, such as student loan refinancing.
“Let it happen, pull your own credit reports to verify the information is gone, then take advantage of the higher scores,” Ulzheimer says.

Ulzheimer also says the changes may not be permanent. “There is a possibility that if the credit reporting bureau is able to find the missing information, the negative information could reappear on consumer credit reports,” he says.

There isn’t anything in the law that forbids the reporting of liens and judgments anymore, and lenders can still check public records on their own to find missing information.

Ulzheimer says if he were the CEO of a reporting agency, that’s exactly what he would do.

“I would embark on a project to get this information immediately back in the credit reporting system,” he says, then adds all he’d need to do is find an economic way to populate the missing data.

“From a business perspective, I would do it in a New York minute. Because I would immediately have a competitive advantage over my two competitors,” says Ulzheimer.

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Building Credit, Featured

Collection Accounts Don’t Always Hurt Your Credit for Seven Years

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Collection Accounts Don't Always Hurt Your Credit for Seven Years

When you fall behind on a bill, you might get charged a late fee and your late payments could be recorded in your credit reports. If a bill goes unpaid for long enough, your creditor may send or sell your account to a collection agency.

The collection agency will then attempt to collect the balance from you — sometimes aggressively — and often reports its possession of your account to the credit bureaus. A new account with the collection agency’s name will then appear on your credit reports, and this can have a significant negative impact on your credit scores.

You might think that paying off the debt clears everything up, but that isn’t necessarily the case.

Generally, if you pay the amount you owe or settle for a lower payment, the collection account on your reports will be updated and marked paid in full, settled, or something similar. The impact of a collection account on your credit scores diminishes over time, and a paid account could look better to creditors than an unpaid account. But like other derogatory marks, the account can remain on your reports for up to seven years and 180 days since the account first became delinquent (your first late payment with the original creditor).

After an account is removed from your credit report, collection agencies can still continue to attempt to collect payment as long as the account isn’t outside the governing statute of limitations (state laws determine how long a creditor can attempt to collect certain debts).

Even so, removing a collection account could improve your credit scores, making it easier and less expensive to open new loans or lines of credit. Here are a few exceptions to the standard timeline and instances when a collection account won’t affect your credit score.

You’re a New York state resident. For current New York state residents, satisfied judgments and paid collection accounts must be removed five years from the date filed or date of last activity, respectively.

The collection account was for a medical bill that your insurance paid. A settlement between New York Attorney General Eric Schneiderman and the three nationwide credit bureaus — Experian, Equifax, and TransUnion — in March 2015 resulted in new national credit-reporting policies. Now, medical debt can’t be reported to the credit bureaus for 180 days, and medical collection accounts that are being paid, or are paid in full, by an insurance company must be removed from your credit report.

You didn’t have a contractual agreement to pay the debt. Another result of the settlement in New York was that credit reporting agencies can no longer report debts that aren’t a result of a contract or agreement you signed. In other words, if your debt from a parking ticket or library fine gets sent to a collection agency, it won’t be added to your credit reports.

The collection agency agrees to a pay for delete. Also known as pay for removal, a pay-for-delete agreement with a collection agency is an arrangement in which you agree to pay some or all of the amount owed the collection agency and requests the credit bureaus delete the collection account from your reports.

You’ll want to get a written agreement from the collection agency before sending a payment, but this could be difficult because in general a pay-for-delete agreement is considered a little shady. “Right now, the credit reporting standards do not allow for deletion of accurate collections simply because they’re paid,” says credit expert John Ulzheimer, formerly of FICO and Equifax. “That doesn’t mean it doesn’t happen, simply that it’s counter to the standards that debt collectors have been given by the credit reporting industry players.”

It requires the collection agency to stop reporting an account that legitimately existed, which may violate the agreement the collection agency has with one or more of the credit reporting agencies.

Your debt collection agency has a special policy. In October 2016, Midland Credit Management, a subsidiary of Encore Capital Group, one of the largest debt collection agencies in the world, announced a new policy.

If MCM bought your debt and you begin payments within three months, and continue making payments until the account is paid off, the company won’t report the account to the credit bureaus (i.e., it won’t appear on your credit reports).

Additionally, if it’s been more than two years since the date of delinquency and you pay the account in full or settle the account, MCM will request the credit bureaus delete the collection account from your credit reports.

The account isn’t yours. If a collection account is on one of your credit reports and you don’t owe the debt, or it’s a type of collection account that meets one of the above criteria for removal, you may be able to dispute the account. The Fair Credit Reporting Act requires the credit bureaus and data furnishers (such as a collection agency) to correct inaccurate information.

Your lender uses one of the latest credit-score models. You might have paid or settled a collection account and still have to wait for the account to drop off your credit reports. However, if your lender is using the latest base FICO Score, FICO 9, or the VantageScore 3 scoring model, paid or settled collection accounts won’t affect your credit score. FICO Score 8 and 9 don’t consider collection accounts if your original balance was under $100.

However, lenders may use older credit-scoring models, which means a collection account could affect your score for as long as it’s on your credit reports and regardless of the original debt.

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Investing, Personal Loans

Earnest: Personal & Student Loans for Responsible Individuals with Limited Credit History

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Earnest - Personal & Student Loans for Responsible Individuals with Limited Credit History

Updated January 24, 2016

Earnest is anything but a traditional lender for unsecured personal loans and student loans. They offer merit-based loans instead of credit-based loans, which is good news for anyone just starting to establish credit. Their goal is to lend to borrowers who show signs of being financially responsible. Earnest is working to redefine credit-worthiness by taking into account much more than just your score.

They have a thorough application process, but it’s for good reason – they consider different variables and data points (such as employment history, education, and overall financial situation) that traditional lenders don’t.

Earnest*, unlike traditional lenders, says their underwriting team looks to the future to predict what your finances will look like, based upon the previously mentioned variables. They don’t place as much emphasis on your past, which is why a minimal credit history is okay.

Additionally, as their underwriting process is so thorough, Earnest doesn’t take on as much risk as traditional lenders do. With their focus on the financial responsibility level of the borrower, they have less defaults and fraud, which allows them to offer some of the lowest APRs on unsecured personal loans.

Personal Loan (Scroll Down for Student Loan Refinance)

Earnest offers up to $50,000 for as long as three years, and their APR starts at a fixed-rate of 5.25% and goes up to 12.00%. They claim that’s lower than any other lender of their type out there, and if you receive a better quote elsewhere; they encourage you to contact them.

Typical loan structure

How does this look on paper? If you needed to borrow $20,000, your estimated monthly payment would be $599-$638 on a three- year loan, $873-$911 on a two- year loan, and $1,705-$1,744 on a one-year loan. According to their website, the best available APR is on a one-year loan.

Not available everywhere

Earnest is available in the following 36 states (they are increasing the number of states regularly, and we keep this updated): Arkansas, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C., West Virginia, Wisconsin and Wyoming.

Get on LinkedIn

Earnest no longer requires that you have a LinkedIn profile. However, if you do have a LinkedIn profile, the application process becomes a lot faster. When you fill out the application, your education and employment history will automatically be filled in from your LinkedIn profile.

What Earnest Looks for in a Borrower

Earnest AppEarnest wants to lend to those who know how to manage and control their finances. They want borrowers to know the importance of saving, living below their means, using credit wisely, making timely payments, and avoiding fees.

They look at salary, savings, debt to income ratio, and cash flow. They want borrowers with low credit utilization – not those maxing out their credit cards and experiencing difficulty in paying.

Borrowers must be over 18 years old and have a solid education background. Ideally, they attended college or graduate school, have a degree, and have a history of consistent employment, or at least a job offer that gives them the opportunity to grow.

Overall, Earnest wants to make sure borrowers are taking their future as seriously as they are. After all, they’re investing in it! The team at Earnest knows that money often holds people back when it comes to being able to achieve their dreams and goals, and they’re all about helping borrowers get there.

For that reason, Earnest seeks to learn more about those that apply for loans with them. They review every line of your application, and they want to develop a lifelong relationship with their borrowers. They genuinely want to help and see their borrowers succeed.

The Fine Print – Are There Any Fees?

Earnest actually doesn’t charge any fees. There are no late fees, no origination fees, and no hidden fees.

There’s also no penalty for prepaying loans with Earnest – they encourage borrowers to prepay to reduce the amount of interest they’ll pay over the life of the loan.

Earnest states that one of its values is transparency (and of course, here at MagnifyMoney, that’s one of ours as well!), and they are willing to work with borrowers who are struggling to make payments.

Hala Baig, a member of Earnest’s Client Happiness team, says, “We would work with the client to make accommodations that are appropriate to help them through their situation.”

She also notes that if borrowers are late on payments, they do report the status of loans on a monthly basis.

What You Can Do With the Money

The $30,000 loan limit is enough to pay off debt such as an undergraduate student loan, medical debt, or consumer debt, relocate for a job, improve your home or rental property, help you fund a down payment, or further invest in your education.

Earnest’s APR is much, much better than you’ll receive on many credit cards, and it could be a viable way to decrease the burden of debt you’re currently experiencing.

Earnest logo 1

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The Personal Loan Application Process

Earnest does a hard inquiry upon completion of the application. They’re very open about this on their website, stating that hard inquiries remain on credit reports for two years, and may slightly lower your credit score for a short period of time.

Compared to Upstart, their application process is more involved, but that’s to the benefit of the borrower. They aim to underwrite files and make a decision within 7 business days – it’s not instantaneous.

However, once you accept a loan from Earnest and input your bank information, they’ll transfer the money the next day via ACH, so the money will be in your account within 3 days.

Student Loan Refinance

When refinancing with Earnest, you can refinance both private and federal student loans.

The minimum amount to refinance is $5,000 – there’s no specific cap on the maximum you can refinance.

We encourage you to shop around. Earnest is one of the best options, but there are others. You can see the best options to refinance your student loans here.

Earnest offers loans up to 20 years. Unlike other lenders, Earnest allows borrowers to create their own term based on the minimum monthly payment you’re comfortable making. Yes, you can actually choose your monthly payment, which means the loan can be customized to your needs. Loan terms start at 5 months, and you can change that term later if needed.

You can also switch between variable and fixed rates freely – there’s no charge. (Note that variable rates are not offered in IL, MI, MN, OR, and TN. Earnest isn’t in all 50 states yet, either.)

Fixed APRs range from 3.75% to 6.74%, and variable APRs range from 2.55% to 6.03% (this is with a .25% autopay discount).

If you refinance $25,000 on a 10 year term with an APR of 5.75%, your monthly payment will be $274.42.

The Pros and Cons of Earnest’s Student Loan Refinance Program

Similar to SoFi, Earnest offers unemployment protection should you lose your job. That means you can defer payments for three months at a time, up to a total of twelve months over the life of your loan. Interest still accrues, though.

The flexibility offered from being able to switch between fixed and variable rates is a great benefit to have should you experience a change in your financial situation.

As you can see from above, variable rates are much lower than fixed rates. Of course, the only problem is those rates change over time, and they can grow to become unmanageable if you take a while to pay off your loan.

Having the option to switch makes your student loan payments easier to manage. If you can afford to pay off your loans quickly, you’ll benefit from the low variable rate. If you have to take it slow and need stability because you lost a source of income, you can switch to a fixed rate. Note that switching can only take place once every 6 months.

Earnest also lets borrowers skip one payment every 12 months (after making on-time payments for 6 months). Just note this does raise your monthly payment to adjust for the skipped payment.

Beyond that, Earnest encourages borrowers to contact a representative if they’re experiencing financial hardship. Earnest is committed to working with borrowers to make their loans as manageable as possible, even if that means temporary forbearance or restructuring the loan.

Lastly, if you need to lower your monthly payment, you can apply to refinance again. This entails Earnest taking another look at your terms and seeing if it can give you a better quote.

Who Qualifies to Refinance Student Loans With Earnest?

Earnest doesn’t have a laundry list of eligibility requirements. Simply put, it’s looking to lend to financially responsible people that have a reasonable ability to pay their loans back.

Earnest describes its ideal candidate as someone who:

  • Is employed, or at least has a job offer
  • Is at least 18 years old
  • Has a positive bank balance consistently
  • Has enough in savings to cover a month or more of regular expenses
  • Lives in AR, AZ, CA, CO, CT, FL, GA, HI, IL, IN, KS, MA, MD, MI, MN, NC, NE, NH, NJ, NY, OH, OR, PA, TN, TX, UT, VA, WA, Washington D.C., and WI
  • Has a history of making timely payments on loans
  • Has an income that can support their debt and routine living expenses
  • Has graduated from a Title IV accredited school

If you think you need a little help to qualify, Earnest does accept co-signers – you just have to contact a representative via email first.

Application Process and Documents Needed to Refinance

Earnest has a straightforward application process. You can start by receiving the rates you’re eligible for in just 2 minutes. This won’t affect your credit, either. However, this initial soft pull is used to estimate your rates – if you choose to move forward with the terms offered to you, you’ll be subject to a hard credit inquiry, and your rates may change.

Filling out the entire application takes about 15 minutes. You’ll be asked to provide personal information, education history, employment history, and financial history. Earnest takes all of this into account when making the decision to lend to you.

The Fine Print for Student Loan Refinance

There aren’t any hidden fees – no origination, prepayment, or hidden fees exist. Earnest makes it clear its profits come from interest.

There are also no late fees, but if you get behind in payments, the status of your loan will be reported to the credit bureaus.

Earnest logo

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Who Benefits the Most from Earnest

Those in their 20s and 30s who have a good grip on their finances and are just getting started with their careers will make great borrowers. If you’re dedicated to experiencing financial success once you earn enough money to actually achieve it, you should look into a loan with Earnest.

If you have a history of late payments, being disorganized with your money, or letting things slip through the cracks, then you’re going to have a more difficult time getting a loan.

Amazing credit score not required

You don’t necessarily need to have the most amazing credit score, but your track record with money thus far will speak volumes about how you’re going to handle the money loaned from Earnest. That’s what they will be the most concerned about.

What makes you looks responsible?

Baig gives a better picture, stating, “We are focused on offering better loan alternatives to financially responsible people. We believe the vast majority of people are financially responsible and that reviewing applications based strictly on credit history never shows the full picture. One example would be saving money in a 401k or IRA. That would not appear on your credit history, but is a great signal to us that someone is financially responsible.”

Conclusion

Overall, it’s very clear that Earnest wants to help their borrowers as much as possible. Throughout their website, they take time to explain everything involved with the loan process. Their priority is educating their borrowers.

While Earnest does have a nice starting APR at 4.25%, remember to take advantage of the other lenders out there and shop around. You are never obligated to take a loan once you receive a quote, and it’s important to do your due diligence and make sure you’re getting the best rates out there. If you do find better rates, be sure to notify Earnest. Otherwise, compare rates with as many lenders as possible.

Shopping around within the span of 45 days isn’t going to make a huge dent in your credit; the bureaus understand you’re doing what you need to do to secure the best loan possible. Just make sure you’re not applying to different lenders once a month, and your credit will be okay.

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Building Credit

View Your Free FICO Score for all 3 Credit Bureaus

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View Your Free FICO Score for all 3 Credit Bureaus

There are lots of free credit scores floating around, but most of them are not the true FICO score that lenders subscribe to and use as part of their decision.

However FICO is working to change that by allowing banks and credit unions to give you free ongoing access to the real score they use to make lending decisions as long as you are an account holder.

The easiest place for anyone to get their free FICO is via the Discover Credit Scorecard. You do not need to be a customer of Discover – anyone can register and get their official FICO score for free. The data is from the Experian credit bureau.

To find out where to get your FICO score from the other credit bureaus, read on.

Every bank chooses at least one of three credit bureaus to calculate a FICO score: Equifax, Experian, and Transunion. The FICO score one bank uses can be different than another depending on which credit bureau they pulled a report from.

The good news is, you can now see your real, free FICO score from all three credit bureaus depending on which banks hold your accounts. FICO itself charges almost $60 for you to see those scores, though they also throw in full copies of your credit reports, which the free bank scores do not.

Here’s where to find your real, free FICO scores from banks or credit unions anyone can join:

Equifax Scores

Citibank

  • Available With: Any Citibank branded credit card. This does not include Citibank cards with other brands like the American AAdvantage or Hilton HHonors cards.
  • Where to Find It: On your online statement
  • Score updated: Monthly
  • Learn more

DCU Credit Union

  • Available With: Any credit card, or a checking account with direct deposit
  • Where to Find It: Look for an invitation in your online account
  • Score Updated: Monthly
  • Learn more

Huntington Bank

  • Available With: The Huntington Voice credit card – you will get a FICO Bankcard 02 Score from Equifax
  • Where to Find It: Log into your account and you’ll see a link

PenFed

  • Available With: PenFed members with active checking accounts, installment loans, and revolving lines of credit
  • Score Updated: When PenFed refreshes – no set schedule
  • Where to Find it: Login to your account and click ‘Your FICO Score is Ready’
  • Notes: PenFed uses a more advanced ‘Next Gen’ FICO score that has a different scale than traditional FICO scores, with 150 as the lowest score and 950 as the highest score. Most banks use a score with a scale of 300 to 850. Because of this the score you see on PenFed’s site may be higher or lower than what you see from others.
  • Learn more

Experian Scores

Capital One and American Express regularly use Experian’s FICO among others for credit decisions.

American Express

  • Available With: Any American Express credit card
  • Score Updated: Monthly
  • Where to Find It: On your online account

Chase

  • Available With: Chase Slate credit card accounts
  • Score Updated: Monthly
  • Learn more

Discover

  • If you have a Discover credit card already, you will see your FICO score on your statement and online. It is updated monthly.
  • If you are not a Discover customer, you can sign up to get your FICO score for free by visiting CreditScoreCard.com.

First National Bank of Omaha

  • Available With: Any credit card account
  • Score Updated: Monthly
  • Where to Find It: On your online account
  • Learn more

Please note: a previous version of this blog post noted that USAA provides a free FICO credit score. USAA actually provides a free VantageScore.

Transunion Scores

Bank of America

  • Available With: Select credit card accounts
  • Score Updated: Monthly, with history
  • Where to Find It: Link available on your account summary page under the ‘Tools and Investing’ section

Barclaycard

  • Available With: Any credit card account
  • Score Updated: Monthly
  • Where to Find It: Link available on your account summary page
  • Learn more

Walmart / Sam’s Club

  • Available With: A Walmart Credit Card, Walmart MasterCard, or Sam’s Club Credit Card
  • Score Updated: Monthly
  • Where to Find It: At Walmart.com/creditlogin, only if you enroll in online delivery of monthly statements
  • Learn more

Unknown Bureau

 State Employees Credit Union of North Carolina

  • Available to all credit card holders

Other, less open to the public free FICO providers include:

  • Ally, for auto loan holders
  • Hyundai and Kia Motor Finance, which offer a quarterly score, but only if you’re a new buyer, recent college grad and bring your diploma to the dealer at the time of purchase.
  • Sallie Mae, which offers a free, quarterly Transunion score if you receive a new Smart Option Student during the 2014-2015 academic year or later.
  • Merrick Bank doesn’t have open applications, but does offer free scores to its cardholders.
  • Some credit unions with limited membership also offer scores, so check yours to see if it provides them.

 

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Building Credit, Reviews

Self Lender Review: Building Credit History with an Installment Loan

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

self-lender_full

Taking the first step in your journey to building credit isn’t always easy. The dilemma is you need credit to build credit. But companies and financial institutions are hesitant to offer credit unless you’ve already proven yourself. Self Lender is a platform that seeks to solve this dilemma.

Self Lender provides resources you can use to monitor your credit history and score. Beyond monitoring, there’s a credit-building aspect of the platform as well. In partnership with Austin Capital Bank, Self Lender offers a credit-builder account to help you improve your credit history.

The credit-builder account is a CD-secured installment loan. This works similar to a secured credit card in the sense that your certificate of deposit (CD) is providing collateral against your loan. Since the loan is secured by a CD the qualifying criteria is less stringent than a typical personal loan. After getting approved, you’re given a small loan that’s held in the CD account until you repay it.

The purpose is to build credit history by making loan payments. In this post, we’ll discuss what the Self Lender service is and whether what it offers is a viable method for you to build credit. Read on for:

  • How Self Lender works
  • How much Self Lender costs and the terms
  • The pros and cons
  • Other methods of building credit

How Self Lender Works

Signing up on the Self Lender site gives you access to credit monitoring and credit score tracking resources via TransUnion for free. The credit-builder account is an optional service you can sign up for within the Self Lender platform.

The credit-builder account is a small loan with fixed payments. There are three loan amount options, and each loan term is 12 months. Austin Capital Bank will lend you $550, $1,100, or $2,200.

Interest on the loan is 10.57% or up to 14.77% APR. The fixed payment for each loan amount is:

  • $550 — $48.50 monthly payment
  • $1,100 — $97 monthly payment
  • $2,200 — $194 monthly payment

Once you pay off the loan, you get the original amount of the loan ($550, $1,100, or $2,200) plus interest earned. The APY (annual percentage yield) on the CD is 0.10%. Here’s how much each CD should earn in interest by the end of the loan term:

  • $550 — $0.55
  • $1,100 — $1.10
  • $2,200 — $2.20

Self Lender Costs and Account Terms

Self Lender allows you to have only one credit-building account open at a time. Starting a credit-builder account doesn’t require a hard inquiry on your credit report. You don’t get access to cash from the loan while it’s in the CD account, so this product won’t be useful if you need money right away. You can, however, pay the loan back early without penalty.

Now, let’s talk about costs. The basic Self Lender service, including credit monitoring and credit score tracking, is free. However, the credit-builder account has a $12 administrative fee on top of the installment loan interest.

If you make a payment over 15 days late, the late fee is 5% of the payment due. A payment over 30 days late will be reported to the credit bureaus. If this happens, it will defeat the purpose of opening an account to build your credit. Fortunately, there’s an automatic payment feature to help you avoid making late payments.

Pros and Cons

Pro: Self Lender can help your credit score. Making on-time loan payments will help you build a positive payment history, which is the most important component of your credit score. An installment loan also adds account diversity to your credit report and can have a positive impact on the credit mix aspect of your credit score. Applying for an account doesn’t require a hard pull, so as a bonus, Self Lender won’t hurt your score either.

Con: The cost. The cost of this service is a red flag. Let’s take the $550 credit-building account for example. You make 12 monthly payments of $48.50, which equals $582 and makes the total cost of the loan $32. Add the $12 administrative fee and you’re spending $44 for credit building.

Pro: The cash windfall at the end. You do get a lump sum of cash from the account when you complete the loan term. If you have trouble staying disciplined enough to save, the money you get back could be used to start an emergency fund or to meet other financial goals. (Although, on the flip side, you can make scheduled payments to yourself without this product or its fees by setting up automatic transfers into a savings account each month. You can compare savings accounts here.)

Con: It encourages you to take out a loan you may not need. Building credit isn’t a good enough reason to take out an unnecessary loan. This loan isn’t free, and there are other ways you can build credit without it costing you.

Pro: Credit monitoring. Besides the CD-secured installment loan for building credit, Self Lender offers basic credit monitoring through TransUnion. Credit monitoring and score tracking are always worthwhile to have for free.

Other Ways to Build Credit

Here are a few other methods you can use to build credit from scratch:

Secured credit cards are credit cards that require an initial deposit for your credit line. You can find secured credit cards that require a deposit as low as $50. This does mean you need to fork over cash upfront, but the benefit is you can find a secured card with no fees, and the deposit is refundable (if you pay the credit card bill).

You can also avoid interest altogether on a card by paying off your balance in full each statement period. The credit card issuer usually sends you the deposit back after a set amount of time. You may even get a credit line increase after you prove your creditworthiness. Compare secured cards here.
Finding a co-signer is another option that can help if you can’t qualify for a credit line on your own. Since the co-signer takes on some responsibility for the debt, a financial institution or company may be more willing to approve your application. Eventually, your co-signer may be able to apply for a co-signer release if the account is in good standing, and you can get approved for other credit on your own.
Credit piggybacking is a credit history building shortcut you may be able to use if you know someone who has credit cards in excellent standing. Credit piggybacking is when you become an authorized user on someone else’s account. As an authorized user, the account shows up on your credit report to improve and lengthen your history.

Who Will Benefit the Most from Self Lender

Self Lender shouldn’t be the very first tactic you use to build credit because it’s not free and it makes you take out a loan. There are other free methods, including the ones above, that can help you build credit instead.

The most important aspect of your credit history and score is paying your bills on time. Before taking on a new debt payment, you should focus on keeping up with current bills first (rent, cable, utilities, etc.) to establish a payment routine. Afterward, a secured credit card could be a more affordable and less cumbersome way to build credit on your own.

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Building Credit

Minimize Rejection: Check if You’re Pre-qualified for a Credit Card

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Check if You're Pre-qualified for a Credit Card

Updated September 28, 2016

Are you avoiding a credit card application  because you’re afraid of being rejected? Want to see if you can be approved for a credit card without having an inquiry hit your credit score?

We may be able to help. Some large banks give you the chance to see if you are pre-qualified for cards before you officially apply. You give a bit of personal information (name, address, last 4 digits of your social security), and they will tell you if you are pre-qualified. There is no harm to your credit score when using this service. This is the best way to see if you can get a credit card without hurting your score.

What does pre-qualified mean?

Pre-qualification typically utilizes a soft credit inquiry with a credit bureau (Experian, Equifax, TransUnion). A soft inquiry does not appear on your credit report, and will not harm your credit score.

Banks also create pre-qualified lists by buying marketing lists every month from a credit bureau. They buy the names of people who would meet their credit criteria and keep that list. When you see if you are pre-qualified, the bank is just checking to see if you are on their list.

A soft inquiry provides the bank with some basic credit information, including your score. Based upon the information in the credit bureau, the bank determines whether or not you have been pre-qualified for a credit card.

If you are not pre-qualified, that does not mean you will be rejected. When they pull a full credit report or get more information, you may still be approved. But, even if you are pre-qualified, you can still be rejected. In my experience, over 80% of pre-qualified applications are approved. So, why would you be rejected?

  • When you complete a formal credit card application, you provide additional personal information, including your employment and salary. If you are unemployed, or if your salary is too low relative to your debt – you could be rejected. There are other policy reasons that can be applied as well.
  • When a full credit bureau report is pulled, the bank gets more data. Some of that incremental data may result in a rejection.
  • Timing: your information may have changed. The bank may have pre-qualified you a week ago, but since then you have missed a payment. Final decisions are always made using the most up-to-date information.

Where can I see if I have been pre-qualified?

We have put together a list of the main banks. This list is kept updated regularly.

CreditCards – CardMatch is a very good tool developed by CreditCards.com that can match you to offers from multiple credit card companies without impacting your credit score. This is the best first stop.

Bank of America

Barclaycard – unfortunately Barclaycard has taken down their pre-qualification tool, but we will keep looking to see if it comes back.

Capital One (Click Credit Cards and then “See if you’re pre-qualified”)

Chase

Citibank

Credit One  – This company targets people with less than perfect credit.

Discover

U.S. Bank

American Express – this one is a little roundabout. After following the link, click ‘Your Pre-Qualified Card Offers’ on the left hand side of the page.

Consider A Personal Loan (No Hard Inquiry and Lower Rates)

If you need to borrow money, you may also want to consider a personal loan. A number of internet-only personal loan companies allow you to see if you are approved (including your interest rate and loan amount) without a hard inquiry on your credit report. Instead, they do a soft pull, which has no impact on your credit score. Personal loans also tend to have much lower interest rates than credit cards. If you need to borrow money, personal loans are usually a better option.

You can use our online tool to see if you can qualify for a loan. You only need to fill in one application, and MagnifyMoney will check your rate with multiple lenders (and without hurting your score). Check your rate without hurting your score here.

Not pre-qualified but still want to apply?

We still believe that people are too afraid of the impact of credit inquiries on their score. One inquiry will only take 5-10 points off your score.

If you pay your bills on time, do not have a ton of debt (less than $20,000) and want to apply for a new credit card, an inquiry should not scare you. The only way to know for certain if you can get approved is to do a full application.

How We Can Help

Don’t forget to follow us on Twitter @Magnify_Money and on Facebook.

*We’ll receive a referral fee if you click on the “Apply Now” buttons in this post. This does not impact our rankings or recommendations You can learn more about how our site is financed here.

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Building Credit, Credit Cards, Earning Cashback

The new Discover it Secured Credit Card wins: No fee, Free FICO and up to 2% cash back

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Discover it Secured Credit Card Review

Updated July 31, 2016

Discover has just launched a new product, the Discover it® Secured Credit Card – No Annual Fee . Secured credit cards are an excellent way to build or rebuild your credit history. With this product launch, Discover has created one of the best secured cards on the market. You do need to make a deposit of at least $200 to open the account. If you are unable to afford the $200 deposit, you should consider the Capital One Secured MasterCard, which only requires a $49 deposit. But if you can afford the $200 deposit, this new card is clearly one of the best no fee secured credit cards available.

Discover it

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Key Product Features

Here are the key product features:

No annual fee: There is no annual fee on this card. You do need to make a deposit of at least $200, and your credit limit will be based upon the amount of your deposit. If you want a bigger limit, you will have to make a bigger deposit.

NEW – Eligible for an upgrade in just 7 months: After just seven months, Discover will start monthly automatic reviews of your account. Once you qualify for a standard credit card, you will be upgraded. At the time of the upgrade to a standard card, you can expect to have your deposit refunded. Even better, you could be eligible for a bigger credit limit. When the product first launched, you had to wait a full year. With a 7-month review, Discover has one of the best upgrade policies in the market.

Earn cash back: Most secured credit cards do not offer any rewards. With Discover it, you have the opportunity to earn cash back while earning rewards. You can earn 2% at restaurants and gas stations (on up to $1,000 of spend each quarter) and unlimited 1% on everything else. Earning cash back is not the primary reason to select a secured credit card, but it is a nice option to have available.

Free FICO Credit Score: Discover will provide you with a copy of your official FICO credit score. If you use a secured credit card properly, you should expect to see your score increase over time. And by providing your FICO score for free, you will be able to watch your improvement.

You can learn more and apply by clicking on the link below:

LearnMore

How to Use a Secured Credit Card

A secured credit card is an excellent way to build or rebuild your credit history. In order to gain the most number of points in the shortest amount of time, you need to have a strategy. We recommend the following strategy (and describe how it helped someone build an excellent score in one year here):

  1. Avoid spending more than 10% – 15% of your available credit limit. Yes, that means if your credit limit is only $200, you should not spend more than $20 – $30 a month. Utilization is a very important part of your credit score. To calculate utilization, divide your statement balance by your available credit. People with the best credit scores have utilization well below 20%. Because you want to build an excellent credit score, you should keep your utilization low.
  2. Pay your statement balance on time and in full every month. To ensure your payments are made on time every month, you should consider automating the monthly payments. At the Discover website, you can sign up to have your monthly payment debited automatically from your checking account.
  3. Just continue to repeat Step #1 and Step #2. Your credit score should improve over time, which will help you qualify for a standard credit card.

If you have less than perfect credit and need to borrow money, you should consider shopping for a personal loan.

Who is Eligible to Apply?

According to disclosures on the Discover website, you are eligible to apply if:

  • You are at least 18 years old.
  • You have a Social Security Number.
  • You have an address in the United States.
  • You have a bank account in the United States. Note: You will need to provide your routing number and account number when you apply. If your account is overdrawn, it is highly unlikely that you will be approved.

Your credit history will be reviewed, and not all applications will be approved.

The Application Process

You can apply online and Discover usually provides a decision instantly. You will need to make your security deposit as part of the application, which is why Discover asks for the routing number and account number of your bank.

Please remember that when you apply for the secured credit card, you will have an inquiry on your credit report just like an application for a normal credit card.

The Fine Print

There are some additional fees and terms that you should understand.

  • If you take out a cash advance, you would be charged a fee of 5% or $10, whichever is greater. The APR for cash advances is 25.49%, and there is no grace period.
  • The card offers balance transfers. If you transfer a balance by May 10, 2016 you will be charged a 6 month intro APR of 10.99%. After the intro expires, and for any transfer completed after May 10, 2016, the balance transfer rate is 23.49%. A balance transfer fee of 3% will always be charged.
  • The first late payment fee is waived. But, afterwards, you would be charged $37. Returned payments also cost $37.

Alternate Secured Credit Cards

Discover it has one of the strongest offerings in the market. However, it might not be right for everyone. Here are some other good options.

If you cannot afford the $200 minimum deposit, you should consider the Capital One Secured MasterCard. There is no annual fee and a minimum deposit of $49. You will also be able to receive your FICO score for free. Capital One is known for accepting people with more adverse credit histories. So, if you are rejected by Discover, you might want to consider trying Capital One instead.

Capital One Secured MasterCard

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You should also consider a secured credit card from your local credit union. MagnifyMoney has a list of some of the best no fee secured credit cards offered by credit unions here.

Build Your Score, Not Your Balance

Secured credit cards are a great way to build your credit score. And, with this product launch, Discover has created an excellent tool. Just make sure you don’t use your credit card to build a balance and borrow money. Keep your balance well below 20% of your available credit, and pay your statement balance on time and in full every month. If you do that, you should start to see real improvement in your score.

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Best of, Pay Down My Debt

6 Personal Loans for 600 to 700 Credit Scores

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7 Personal Loans for 600 to 700 Credit Scores

If you have a less-than-perfect credit and want to pay off credit card debt, fund home improvement projects, or pay for unexpected expenses, then finding a lender that will consider your credit might seem like an uphill battle.

Refinancing high-interest debt with a personal loan can quickly cut down the amount of interest you’re paying, which effectively allows you to pay if off in less time. You particularly want to avoid payday and title loan lenders at all costs.

Many personal loan companies approve people with scores as low as 600. The best way to shop for the best deal is to use the MagnifyMoney Personal Loan Shopping Tool. With this tool, you can get prequalified for personal loans without hurting your credit score. With just one application (which takes less than five minutes), multiple providers will compete for your business and offer you real rates. You can start shopping here.

If you don’t want to use the tool, you can go to each personal loan company individually. Here are 7 personal loans for people with credit scores of 600 to 700. Read below to see if one is right for you!

1. LendingClub

LendingClub offers loans of up to $40,000, for individuals with a minimum credit score of 600. Its APR ranges from 5.99% to 35.89%. LendingClub also uses a soft credit pull to determine your rate, which will not affect your credit.

The Fine Print

In order to qualify for a LendingClub personal loan you must:

  • Not have more than 5 hard credit inquiries in the last 5 months
  • Have at least two active credit accounts open
  • Have a credit history of at least 36 months
  • Debt-to-income ratio of less than 40%
  • Be able to verify employment and income

Once you have met the minimum criteria, LendingClub uses its own scoring system to determine what amount you can borrow as well as your rate.

You can borrow money for up to 60 months, but it does charge up-front (origination) fees depending on credit worthiness, which come out of the loan amount.

Pros

  • Can see your rate with a soft credit pull
  • Will consider applicants with credit scores as low as 600
  • Offers very competitive interest rates for people with scores below 700
  • The application process only take a few minutes

Cons

  • Missed payments or items in collections will result in your application being rejected
  • Loan processing could take a week or more
  • APR can be as high as 35.89%
  • It does charge origination fees
  • Is not available in Iowa or West Virginia

LendingClub will approve people with credit scores as low as 600. If approved, the interest rates offered can be very competitive and the online application process is easy. This is good first stop for anyone with a score of 600 or higher to find the best deal.

LendingClub

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2. BestEgg

BestEgg offers personal loans up to $35,000 for people with credit scores as low as 640. APRs range from 5.99% to 29.99%. You can check your rate without hurting your credit score, and BestEgg has an excellent application process (that can result in funding your loan very quickly).

The Fine Print

BestEgg does charge an origination fee, which can be between 0.99% and 5.99%. However, there is no prepayment penalty, and you can pay off your loan early without penalty.

 

Pros

  • Can see your rate with a soft credit pull
  • Will consider applicants with credit scores as low as 660
  • Offers very competitive interest rates
  • Fast application process and fast funding

Cons

  • APR can be as high as 29.99%
  • It does charge origination fees

BestEgg offers competitive rates and a quick online process to get your loan. It is an excellent option for people with less than perfect scores.

best egg credit card logo

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3. Avant

Avant offers access to loans from $1,000 to $35,000. There is no prepayment penalty. It is possible to get your loan as soon as the next business day. Although every case is unique, we have seen Avant accept people with credit scores as low as 580 be approved.

The Fine Print

Interest rates range from 9.95% to 36.00%. Avant does charge an up-front origination fee that ranges from 0.95% – 3.75%, which is lower than most of the competition.

Checking your rates through Avant only requires a soft pull to see your rate, which does not affect your credit score, and there are no prepayment penalties.

A personal loan through Avant received an “A” from MagnifyMoney’s Transparency Score.

Pros

  • Approved people with lower credit scores
  • “A” Transparency Score
  • Can see your rate with a soft credit pull
  • Fixed terms, fixed interest rate, no prepayment penalties

Cons

  • Interest rates as high as 36%
  • Avant charges an origination fee
  • Not available in Colorado, Iowa and West Virginia

Avant is a good option for people with less than perfect credit. You can check your rate without hurting your score and it has an “A” transparency score.

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4. OneMain

OneMain offers loans up to $25,000 for individuals with credit scores starting at 600. It offers terms of up to 60 months and APR ranges from 25.10% to 36.00%.

The Fine Print

In order to be accepted for a OneMain Loan, you must live near a OneMain branch, as a face-to-face meeting is required to finalize the loan. OneMain personal loans are not available in Alaska, Arkansas, Connecticut, Massachusetts, Nevada, Rhode Island, Vermont, or Washington D.C.

In order to qualify you must have:

  • Verifiable, steady income
  • No bankruptcy filings, ever
  • Be at least 18 years of age
  • Have at least some established credit history
  • Credit score of at least 600

If, at any time during the application process, OneMain becomes aware that you intend to use the personal loan for gambling, your loan application will be cancelled. OneMain personal loans cannot be used for business expenses or tuition.

You cannot see your OneMain rate until it performs a hard credit pull, which does affect your credit, and the OneMain personal loan earns a “B” Transparency score.

Pros

  • Credit score as low as 600
  • Fixed Rates
  • No Prepayment penalty
  • Fixed terms
  • Convenient location, at OneMain branches

Cons

  • APR ranges from 25.10% – 35.99%
  • Loans cannot be used for business expenses or tuition
  • Cannot see rate without a hard credit pull
  • Personal loans only available up to $10,000
  • Loans not available in Alaska, Arkansas, Connecticut, Massachusetts, Nevada, Rhode Island, Vermont, or Washington D.C.
  • You must visit a OneMain branch to complete the loan.

The OneMain personal loan caters to people with low credit scores, or who would prefer to complete the personal loan application process at a branch, rather than online.

OneMain

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5. Freedomplus

Freedomplus offers loans ranging from $5,000 to $35,000 that can be used for everything from debt consolidation, to unexpected expenses. APR ranges from 8.47% to 29.99%.

Its biggest selling point is the same-day approval and availability of funds within 48 hours, a lifesaver in some circumstances.

The Fine Print

In order to qualify for a Freedomplus loan, you must:

  • Be 18 years or older
  • Be a legal US resident
  • Have a valid ID
  • Minimum credit score of 700
  • At least $25,000 in verifiable income
  • No bankruptcies in the last two years

Freedomplus charges origination fees ranging from 1.00% to 5.00%, which is deducted from the loan amount before you receive the funds. There are no prepayment penalties.

The Freedomplus personal loan scores a “B” Transparency score because its fee structure and much of the fine print is unclear or not covered by the final contract.

You can prequalify with a soft credit pull, which does not affect your credit score. However, Freedomplus requires a phone screening with each applicant before the loan is approved.

Pros

  • Will approve credit scores as low as 700
  • The phone screening may improve your chances of being approved for the loan
  • Same-day approval and funds within 48 hours
  • No prepayment penalty
  • Can prequalify with a soft credit pull

Cons

  • APR ranges from 8.47% to 29.99%
  • The fee structure is not readily available for review
  • Origination fee of 1.00% to 5.00% applies

The Freedomplus personal loan is a good option for you if you have less than perfect credit, and need access to funds quickly, without visiting a physical branch.

FreedomPlusBank

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6. Prosper

The Prosper personal loan process is a little different than a traditional lender. It is not a bank, but rather a peer-to-peer lender. Once you have applied, and checked loan terms and rates, you create a loan “listing” that then appears on in the Prosper marketplace.

From these listings, peers (investors) choose which loans they would like to finance. When your loan listing is financed, the money is transferred to your bank account.

Prosper offers loans from $2,000 to $35,000, and APR ranges from 5.99% to 36.00%. It offers loans terms of either 36 or 60 months. Your APR is determined during the application process, and is based on a credit rating score created by Prosper. Your score is then shown with your loan listing to give potential lenders an idea of your creditworthiness.

The Fine Print

Your loan listing will remain active for 14 days. After 14 days, your loan must be at least 70% funded to receive the funds. If you are not 70% funded within 14 days, you must reapply to have your loan re-listed.

Origination fees range from 1% to 5% and are based on your Prosper score. In order to qualify, you must:

  • Have a bank account
  • Have a social security number
  • No more than 7 inquiries on your credit in the last six months
  • A verifiable, steady income
  • A credit-to-debt ratio of less than 50%
  • At least three open accounts, such as checking, savings, and credit card.
  • No bankruptcies in the last year

A returned payment may result in a $15 fee, and late payments past 15 days are charged a 5% fee, with a minimum of $15.

Prosper’s overall fine print is very clear is its fees are quite minimal, so it scores it an “A” Transparency Score. Also, you can check your Prosper rate with a soft credit pull, which will not affect your credit score.

Pros

  • Minimum credit score of 640
  • Can see your rate with a soft pull
  • No prepayment penalties
  • Paying off a Prosper loan can reduce your APR on future Prosper loans

Cons

  • Only 14 days to secure financing from peer lenders
  • Origination fee of 1% to 5% applies
  • APR varies from 5.99% – 36.00%

Prosper is a flexible alternative with a low-end APR that beats a credit card.

PROSPER

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Shop Around to Find the Best Deal

If you have made past credit mistakes, or have very little credit, there are personal loans out there for you. Many of these lenders offer rates much lower than what you would be paying on a credit card, shaving month and hundred or thousands of dollars off of your debt.

Don’t give up on a personal loan just because of your credit – there are options out there for you. It never hurts to shop around and look for the best rates available, especially if the lender does a soft credit pull to show you your options.

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Building Credit

How to Successfully Repair Your Credit All By Yourself

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“Poor credit? No problem!” claim the credit repair scammers on TV. Scammers and shady businesses swindle away millions of dollars by claiming to have the silver bullet for credit repair, but these companies make promises that they can’t deliver.

Improving your credit score requires thoughtful financial management, but you can improve your credit score on your own. This guide will teach you how to improve your credit score, the right way.

What Is Negative Credit Information?

Negative credit information is any action that causes creditors to consider you a riskier borrower. It includes late payments, accounts in collections, foreclosures, bankruptcy, and tax liens. Once negative credit information is introduced into your credit history, you cannot remove it on your own. However, time heals all wounds. The longer it’s been since the negative information was introduced, the less it will affect your credit score. In time, negative information falls off your credit history.

This list details the length of time that negative credit information affects your credit score:

Late payments: 7 years
Bankruptcies: 7 years for completed Chapter 13 bankruptcies and 10 years for Chapter 7 bankruptcies
Foreclosures: 7 years
Collections: Generally, about 7 years, depending upon the age of the debt being collected
Public record: Generally, about 7 years, although unpaid tax liens can remain indefinitely (always pay the tax man first!)

Rather than despair over negative information, take action to improve your score.

The best way to improve your score is to have good behavior reported every single month. For example, you can take out a secured credit card and use it monthly. Charge no more than 10% of the available credit limit, and pay the balance in full and on time every month. Your credit score will improve as your negative information ages and your credit report fills with positive information.

How to Spot a Credit Repair Scam

Credit repair scammers prey on people who are desperate to remove negative credit information and improve their credit score. Engaging with these scammers won’t improve your credit and may also lead you into legal hot water.

The signs below indicate that a credit repair company is a scam:

  • The company wants you to pay before it provides a service.
  • The company recommends that you don’t contact any credit reporting agencies directly.
  • The company tells you that it can get rid of negative credit information in your credit report, even if that information is accurate.
  • The company advises you to dispute all information in your credit report, regardless of its accuracy or timeliness.
  • The company suggests that you create a new credit identity.

Companies that want you to lie about credit history or create a new credit identity can get you into legal trouble. Companies that provide “new” identifying information use stolen Social Security numbers, and if you use this number then you are committing fraud. Likewise using an Employee Identification Number or Credit Profile Number provided by these companies is a crime. Rather than committing fraud, take the steps below to improve credit on your own.

Assess Your Credit History for Free

You are entitled to receive one free credit report from each of the three major credit reporting bureaus (Experian, Equifax, and TransUnion) every year. These credit reporting agencies keep detailed records of your credit history that you can use to assess your credit. Assessing your credit involves three simple steps:

  1. Download a free copy of all three credit reports.
  2. Review the credit report to find errors.
  3. Prepare a list of items that you need to dispute.

Download free credit reports

AnnualCreditReport.com is a website sponsored by the three major credit reporting bureaus, and they are required to provide you with a full credit report every year. The first time that you assess your credit history, download a report from each of the major credit bureaus by following these steps.

Step one: Visit AnnualCreditReport.com and click on the “Request yours now!” link.

Picture1

Step two: Follow the step-by-step instructions on the website. Download credit reports from all three bureaus because a mistake may only be listed at one bureau.

Picture2

Once you’ve filled out the form and requested reports from all three bureaus, you’ll fill out some security questions and be directed into your report, one agency at a time. If the security questions trip you up, the website will lock you out of your report, but it will offer a phone number that you can call to get your credit report via mail. If you get locked out, request the report via mail.

After the bureau authenticates you, you’ll be directed to your credit report. In the next step, we’ll show you what you need to review.

Review your credit report

Review every credit reporting agency’s credit report in detail. Each report has the following sections: Credit Summary, Accounts (includes payment history), Inquiries, and Negative Information. Reviewing each section can help you understand the source of a poor credit score, and it can help you identify if your report contains errors.

When you review your credit report, you will need to visit each section of your credit report, and keep notes about erroneous information. Remember, there are three bureaus, so you need to repeat this process for all three reports.

The next section details what you should should note.

Take notes

As you review your report, these are the things you should note.

Accounts section
The accounts section contains a detailed history of all accounts (open and closed), your balance, and your payment history associated with each account. You should be able to see month-by-month payment information for 7 years of history. Each month will have a symbol next to it that indicates whether the account was paid as expected or if it was late.

Review each account, the balance, and the payment history, and ask these questions:

  • Do you recognize all of the accounts on your credit report?
  • Are all your closed accounts noted as closed?
  • Does each account have the appropriate account balance listed?
  • Is your payment history accurate?

If you see missed payments that shouldn’t have been there, write it down. Your credit score is negatively impacted when you are 30 days or more past due. If you see a balance on a card that you haven’t used in years, it could be because the account has been stolen. Misinformation in the accounts section harms your credit score, so make a note of all incorrect information.

For your own records you should also take note of the following:

  • What is my current balance relative to my available credit (credit utilization)?
  • Do I have any open accounts that have associated late payments?

Resolving these issues can help you improve your credit score moving forward.

Credit inquiries

Credit inquiries are records of new credit that you’ve applied for. For example, if you apply for a new credit card, a car loan, or a mortgage, you will see records of credit inquiries.

  • Do you recognize all of the inquiries on your credit report?

If someone steals your identity and tries to apply for new credit in your name, an unrecognizable credit inquiry is usually the first sign of a problem. Make a note of any unrecognizable credit inquiries.

You will also want to take note if you see many credit inquiries where you did not receive the line of credit you wanted. Credit inquiries have a slight negative effect on your credit score, so if you’re applying for a lot of credit, you may need to slow down until your credit score improves.

Negative information

Negative information includes negative accounts, collections, or public records. Negative information has the biggest impact on your credit score.

  • Do you recognize all of the negative information on your credit report?

If the negative information in your account is not accurate, you will need to contact the credit bureaus to correct it.

Negative information hurts your credit score, but as it gets older the effect lessens. Take note of all accurate negative information, so you can follow our strategy to avoid it in the future.

Next steps

If all the information in your credit report is correct, then learn how to monitor your credit score for free and how to improve your score.

On the other hand, if you don’t recognize all the information, you will need to take steps to remove incorrect information. And, if your identity has been stolen, there will be even more steps required.

Resolve Incorrect Information on Your Report

Incorrect information appears on your report for four reasons:

  • Someone stole your identity and opened new accounts in your name.
  • Someone stole one of your existing accounts, and started using it.
  • The bank made an error and reported a delinquency or default that never happened.
  • A collection agency made an error and reported a collection item on debt that was never yours.

If someone stole your identity

Incorrect information due to identity theft is a serious issue that you need to resolve as soon as possible. You may not know whether the incorrect information in your report is due to identity theft, but these are some common symptoms of identity theft:

  • You don’t get your bills or other mail because someone has changed the mailing address on your accounts
  • Debt collectors call you about debts that aren’t yours.
  • Medical providers bill you for services you didn’t use.
  • Your health plan rejects your legitimate medical claims because records show you’ve reached your benefits limit.
  • The IRS notifies you that more than one tax return was filed in your name.
  • You are arrested for a crime someone else allegedly committed in your name.

Warning: A common form of identity theft is when a family member steals your Social Security number and uses it to apply for credit.

You can start to resolve identity theft issues by visiting www.identitytheft.gov to report identity theft and get a recovery plan. This is an excellent, free website created by the Federal Trade Commission. In addition to reporting identity theft, you will receive a free action plan, and you’ll gain free access to people who can guide you through the identity resolution process.

Below we detail some important action items you can take.

  1. Place a fraud alert on your account with the credit reporting agencies by calling each credit bureau (numbers below).
    • Equifax: 1-800-525-6285
    • Experian: 1-888-397-3742
    • TransUnion: 1-800-680-72892
  2. Put a credit freeze on your credit reports. A freeze blocks potential creditors from getting access to your credit report, making it less likely an identity thief can open new accounts in your name. Follow the directions in this article to place a credit freeze on your credit reports.
  3. Create an Identity Theft Report by submitting a complaint about the theft to the FTC and filing a police report.

If someone stole your account

If someone stole the account information of an existing account, you should immediately contact your bank or credit card company. Once you report your card as lost or stolen, the bank will typically reissue a new card and correct information on the credit report directly.

Dispute Credit Report Errors

If you do not think you were the victim of identity theft, but believe that there is incorrect information on your credit report, you can dispute the information directly with the credit reporting agencies. We will explain how.

Disputing incorrect information involves three steps:

  • Dispute the item online with each credit reporting agency.
  • Write a letter to each credit reporting agency, and keep copies of your correspondence.
  • Write a letter to each organization (bank, collection agency, credit union, etc.) that submitted incorrect information, and keep copies of those letters.

When you dispute incorrect information, you must keep a copy of your mailed correspondence in case the issue does not get resolved right away. Keeping copies of your correspondence will allow you to get help from the Consumer Federal Protection Bureau if necessary. Your dispute should include all of the following:

  • A copy of your report.
  • Specific information about what is incorrect.
  • Any documents that support your position.
  • An explicit request to remove or correct incorrect information.

If you need to dispute information, download the following step-by-step instructions and letter templates that will make disputing incorrect information as pain free as possible.

Download Now

Reporting to debt collections agencies can be trickier since collection agents are more aggressive in their tactics. The Consumer Federal Protection Bureau has a letter template that you can use to make it clear that you do not owe the debt.

Download Letter Template Now

After you dispute the incorrect information, you will need to follow up to be sure that the information gets resolved.

If following the steps above seems daunting, some organizations specialize in paid credit repair services. Most of the services require a monthly subscription fee between $60-$100 per month, and most reviews report that the negative items are completely removed within 3-5 months. Despite the high cost, legitimate companies provide a valuable service if you’ve been the victim of identity theft and you want someone else to do the work for you.

Of the major credit repair organizations, only Lexington Law has received an A rating from the Better Business Bureau. The Credit People and CreditRepair.com received high ratings from their consumers online, but are not rated by the Better Business Bureau. These companies don’t do anything you can’t do yourself, but they may be worth your money if you’ve got a lot of negative information to remove.

Follow Up on Disputes

Once you register your dispute with the credit reporting agencies, they must investigate the item in question within 30 days, and they must forward all the relevant data you provide about the inaccuracy to the organization that provided the information.

If the information provider finds the disputed information is inaccurate, it must notify all three nationwide credit reporting companies so they can correct the information in your file.

When the investigation is complete, the credit reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. This free report does not count as your annual free report.

If you ask, the credit reporting company must send notices of any corrections to anyone who received your report in the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

What if my dispute isn’t resolved?

If an investigation doesn’t resolve your dispute with the credit reporting company, you can request that a statement of the dispute be included in your file and in future reports. You can also ask the credit reporting company to provide a statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service, and a dispute on your credit report does not improve your credit score.

Do I have any other options?

If you are unhappy with the way your case was investigated by the credit reporting agencies, you do not have to give up. Instead, you can complain to the Consumer Financial Protection Bureau (CFPB) on their website (www.consumerfinance.gov).

When you complain to the CFPB, you can should provide copies of all of your correspondence to prove your case. The CFPB will reach out to the credit reporting agencies on your behalf and try to help get your situation resolved. At MagnifyMoney, we have worked with many people who have had good outcomes working with the CFPB.

Monitoring Your Credit Score

In order to catch issues, and stay on top of your credit score, you should implement a credit monitoring strategy. The best, free way to monitor your credit is with Credit Karma, which gives you access to two out of three credit reports.

If you prefer more monitoring and additional credit protection, you can pay a fee for services that provide daily three-bureau credit monitoring, resolution assistance if your identity is stolen, and insurance if you have to engage in a legal battle. This guide ranks the top identity theft protection services.

Whether you choose a free or paid version, credit monitoring is a great service. As soon as you detect suspicious activity, you can take action. The sooner you work to deal with issues in your credit report, the less damage can be done.

Improve Your Credit Score

Once you resolve issues on your credit report, it’s time to implement a strategy to start improving your credit score. The single best thing that you can do to improve your credit score is to pay current accounts on time and in full every single month. You can picture it as burying negative information under a mountain of positive credit information.

Your top priority should be keeping accounts current. Continue to pay whatever account has the most positive information.

Your next priority should be keeping accounts out of collections. If you owe late payments, work to pay them back before the item goes into collections. Once these accounts are current, they will start to work positively toward your score.

Next, work on paying down your debt to provide positive information, and in time improve your score. Likewise, paying off installment credit (like mortgages and car loans) will add good information to your credit report.

If you have no current accounts, consider taking out a secured credit card and using less than 10% of the available credit each month to add positive information to your report.

The last thing you should do is attempt to resolve debts in collections. Once an item is in collections, paying it off will not improve your credit score.

Going forward, take care to avoid taking on more debt than you can handle, and implement a strategy to pay down your debt quickly. Once you start making positive changes, your credit score will improve, and within a few years, you’re likely to have good credit again.

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Updated May 24, 2016

In 2008 (bad timing), I moved to the US with my wife, Margarita, after living in Moscow, Russia working for Citibank.  She was not a US citizen, and had no credit history or credit score.  Being without a credit score in the US basically means you don’t exist!  So, we had to fix that fast. Within 12 months, she had a very good credit score. And within 18 months, she had an excellent credit score. In this post, I will explain:

  • How Margarita (and you) can open a secured credit card
  • How to use a secured credit card (to maximize the boost in your score)
  • How to select the best secured credit card

How To Open A Secured Credit Card

Opening a secured credit card is relatively easy. You have to provide the bank with a deposit, which is typically $200 or more. The bank will keep the deposit as collateral and will provide you with a credit limit equal to your deposit. In Margarita’s example, she gave the bank a $500 deposit and received a $500 credit limit.

Once open, the credit card works like any other. Your credit limit, balance and payment information is reported to the credit bureau. The only difference: if you fail to pay your credit card on time, the bank can take your deposit and apply it towards the debt.

So – the bank has a guarantee that they won’t lose money. And you have the opportunity to prove that you will use your credit wisely.

How To Use A Secured Credit Card

Given that I was a bank credit risk manager at the time, I knew a bit about credit scoring.  So, I made sure Margarita followed this strategy:

  • She used the card every month, but for a very small amount. Her typical monthly bill would be around $10.

  • She made sure that she paid the balance in full and on time every month by signing up for automatic payments.

  • She subscribed to a credit scoring service to watch her score improve over time.

It took about 6 months for Margarita’s score to cross the 600 threshold. About 18 months after starting, she had a score well above 700. At that point, she applied for a rewards credit card.  It had a great sign-on bonus and a frighteningly high $25,000 credit limit.

So, it only took a year and a half for someone to go from being a credit nobody to one of the most sought after customers in the country. What was the trick? It is actually very simple.

Once a secured credit card is open, you want to follow the three key rules:

  1. Make sure you use the credit card every month. You can only build a credit score if you have activity on your credit report.
  2. Keep your utilization low – preferably below 10%.
  3. Make sure you pay your bill in full and on time every month.

Use Your Card Every Month

In order to have a FICO score, you must have activity on your credit report in the last six months. If there is no activity on your report in the last six months, you cannot get a score.

Activity does not mean you need to go into debt. You can make a single purchase every month (even for just $1) and that is considered activity.

Keep Your Utilization Low

One of the most important components of your credit score is utilization. Your utilization is calculated by dividing your statement balance by your available credit. People with the best credit scores have utilization levels of 10% or less. That means if you have a credit limit of $1,000 you should not spend more than $100 a month.

The best strategy with a secured credit card is to select one small, recurring transaction and automate it. For example, use your secured credit card for your monthly Netflix bill.

Pay You Bill In Full And On Time Every Month

The most important part of your credit score is a history of on-time payments. Even a single missed payment can have a very negative impact on your score. The best way to ensure that you don’t miss a payment is to set up automated monthly payments.

And make sure you pay your balance in full. If you pay the balance in full, you will not have to pay interest. And there is nothing more ridiculous than  paying interest on a secured credit card. Remember: your credit limit is equal to your deposit. You are literally borrowing your own money. But if you pay interest (at a high rate), you will be paying a bank to borrow from yourself.

This is just a long way of saying that Margarita’s approach worked. If you want to use a secured credit card to build your credit score, just use it every month for a $10 charge. And pay that balance in full and on time. Your score will improve quickly.

How To Select The Best Secured Credit Card

When selecting a secured credit card, we recommend that you focus on the annual fee (you shouldn’t have to pay one). You can find our round-up of the best secured cards here. You will see that our top choice is from Discover.

Discover itDiscover’s card has no annual fee. You will have to make a deposit of at least $200, and the credit limit will be based upon your deposit. What we like most is the automated review process to upgrade your account. After just seven months, Discover will review your account every month. As soon as your credit score is good enough for a traditional card, you will be converted automatically. Discover will refund your $200 deposit and graduate you to a standard credit card.

You will also have the opportunity to earn rewards on your secured card. You will be able to earn 2% cash back at restaurants and gas stations, up to $1,000 of purchases each quarter. You will earn 1% on everything else. You can learn more and apply by clicking the link below.

Learn More

Margarita had opened a secured credit card with Bank of America. There was an annual fee, and migrating from the secured to the standard credit card was painful. But, in the end, it worked. If you use a secured credit card wisely, you will not have it for long. So even if you don’t use one of our favorites, we still highly recommend your follow our strategy on any secured credit card – and you should get a good result.

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