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5 Ways to Start Building Your Credit in 2021

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Don’t have much of a credit history yet? Here’s how you can change that.

Building a credit history is a must for every adult, and the sooner you do it, the better.

Your credit history obviously determines whether you get approved for credit cards and loans, but it can also affect other areas of your life. To give one common example, landlords may check your credit before deciding whether to approve your rental application.

The tricky part is getting started. It’s hard to open a credit card when you have no credit score. But it’s also nearly impossible to build credit without a credit account. To help with that, here are several ways you can start building your credit from scratch this year.

1. Petal credit cards

For consumers who are building credit for the first time, I love the two credit cards offered by Petal.

This card issuer is unique because it can use your banking statements to approve your credit card application. Simply link your bank accounts when you apply. Petal will then use your bill payment history from your banking transactions to decide whether to approve you for a card.

Petal currently has two cards:

  • Petal® 1 “No Annual Fee” Visa® Credit Card: Offers 2% to 10% back with select merchants
  • Petal® 2 “Cash Back, No Fees” Visa® Credit Card: Offers up to 1.5% cash back on every purchase (1% to start, 1.25% after you’ve made six on-time payments, and 1.5% after you’ve made 12 on-time payments)

You don’t need to pay a security deposit for either card. And as you can see from the names, neither card charges an annual fee. Be aware that Petal cards are not designed for people with bad credit — such as a history of late payments — but if your credit history is thin, they may be perfect.

2. Student credit cards

If you’re enrolled in college, a student credit card is a great way to start working on your credit.

The best student credit cards don’t charge security deposits or annual fees, so you can build credit free of charge. Many of them earn rewards, with cash back being the most common. And they may also include student-specific features, such as statement credits for good grades.

One thing you may wonder when applying for a student credit card is what to put for your income, especially if you aren’t working. You’re allowed to include scholarships, grants, and any allowance you receive from your parents. These alternative forms of income could help you get approved for a student card.

3. Secured credit cards

Secured credit cards are cards that you open by paying a security deposit. In many, but not all cases, your security deposit is equal to your starting credit limit.

This reduces the credit card company’s risk. It won’t take a loss if you don’t pay your bill, as it can use your deposit to cover what you owe. That lower risk makes secured cards easier to get for consumers with bad credit or those who haven’t yet established credit.

If you decide to get a secured credit card, look for one without any extra fees. Ideally, you won’t need to pay any annual or monthly fees as you build your credit.

Another important feature with secured cards is the opportunity to upgrade to an unsecured card, also known as graduation. You want to be able to get your deposit back eventually, without needing to cancel the card.

4. Become an authorized user

If you know someone who is good with credit and doesn’t mind adding you to their credit card account, it could help your credit score.

This technique is often referred to as credit card piggybacking. When you’re added as an authorized user on a credit card, the card issuer will usually start reporting that card’s activity on your credit file. Positive activity, such as on-time payments and a low balance, will be good for your credit.

It’s best to only do this with a person you trust, such as a parent or spouse. After all, any negative activity could also be bad for your credit.

5. Sign up for a credit boosting service

There are two relatively new services that can help you raise your credit score: Experian Boost and UltraFICOTM.

Both services allow you to pump up your credit history by linking your bank accounts. Experian Boost counts streaming, cell phone, and utility payments in your banking transactions toward your payment history. UltraFICOTM is a different type of scoring model that uses the balances and activity in your bank accounts to potentially enhance your score. Lenders may offer you the chance to opt in when you apply for credit.

Currently, these services can only increase your credit score with Experian. There are two other credit bureaus, Equifax and TransUnion, that also calculate consumer credit scores.

That limitation means you shouldn’t rely entirely on Experian Boost and UltraFICOTM. But they can help to build at least one of your credit scores.

Building credit in 2021

It’s not a big deal if your credit file’s blank right now. There are more ways to build credit fast than ever before. If you make that your goal for 2021, you could be closing in on a good credit score by the end of the year.

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Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom | Fintech Zoom

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Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

Loans Bad Credit Online – Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom



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Loans Bad Credit Online – Reforming India’s deposit insurance scheme | Fintech Zoom

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The government’s incentive to step in and bail out depositors when banks fail is clear from past experience.

By Anusha Chari & Amiyatosh Purnanandam

The failure of the Punjab and Maharashtra Co-operative Bank (PMC) in September 2019 shone a light on the limitations of India’s deposit insurance system. With over Rs 11,000 crore in deposits, PMC bank was one of the largest co-op banks. That the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance covered depositors, provided little solace when the realisation hit that the insurance amounted to a mere Rs 1 lakh per deposit.

The predicament of PMC depositors is, unfortunately, not an anomaly. Several bank failures over the years have severely strained RBI and central government resources. While co-operative banks account for a predominant share of failures, other prime examples include the Global Trust Bank and Yes Bank failures. These failures entail a direct cost to the taxpayer—the DICGC payment or a government bailout. More importantly, bank failures impose long-term indirect costs. They erode depositor confidence and threaten financial stability, presenting an urgent need for deposit insurance reform in the country.

A sound deposit insurance system requires balancing two opposing forces: maintaining depositor confidence while minimising deposit insurance’s direct and indirect costs. At one extreme, the regulator can insure all the deposits, which will undoubtedly strengthen depositor confidence. But such a system would be very expensive.

A bank with full deposit insurance has minimal incentive to be prudent while making loans. Taxpayers bear the losses in the eventuality that risky loans go bad. Depositors also have little incentive to be careful. They can simply make deposits in the banks offering high interest rates regardless of the risks these banks take on the lending side.

Boosting depositor confidence and reducing direct and indirect costs require careful structuring of both the quantity and pricing of deposit insurance. Some relatively quick and straightforward fixes could help alleviate the public’s mistrust while improving the deposit insurance framework’s efficiency.

India has made some progress on this front over the last couple of years. First, the insurance limit increased to `5 lakh in 2020. Second, the 2021 Union Budget amended the DICGC Act of 1961, allowing the immediate withdrawal of insured deposits without waiting for complete resolution. These are very welcome moves. Several additional steps could bring India’s deposit insurance system in line with best practices around the world. Even with the increased coverage limit, India remains an outlier, as the accompanying graphic shows.

The government’s incentive to step in and bail out depositors when banks fail is clear from past experience. However, these ex-post bailouts are costly. The bailout process also tends to be long, complicated, and uncertain, further eroding depositor confidence in the banking system. A better alternative would be to increase the deposit insurance limit substantially and, at the same time, charge the insured banks a risk-based premium for this insurance. Under the current flat-fee based system, the SBI pays144 the same premium to the DICGC—12 paise per 100 rupees of insured deposits—as does any other bank!

A risk-based approach will achieve two objectives. First, it will ensure that the deposit insurance fund of the DICGC has sufficient funds to make quick and timely repayments to depositors. Second, the risk-based premia will curb excessive risk-taking by banks, given that they will be required to pay a higher cost for taking on risk.

India is not alone in trying to address the issue of improving the efficiency of deposit insurance. The Federal Deposit Insurance Corporation (FDIC) recognizes that the regulatory framework governing deposit insurance is far from perfect and the United States is moving towards risk-based premia. The concept is similar to pricing car insurance premia according to the risk profile of the driver. The FDIC computes deposit insurance premia based on factors such as the bank’s capital position, asset quality, earnings, liquidity positions, and the types of deposits.

In India, too, banks can be placed into buckets or tiers along these different dimensions. The deposit premium can depend on these factors. It is easy to see that a bank with a worsening capital position and a high NPA ratio should pay a higher deposit insurance premium than a well-capitalized bank with a healthy lending portfolio. The idea is not dissimilar to a risky driver paying more for car insurance than a safe driver.

Risk-sensitive pricing can go hand-in-hand with the increase in the insured deposit coverage limits bringing India in line with its emerging market peers. In a credit-hungry country like India, these moves would build depositor confidence, possibly increasing the volume of deposits and achieving the happy result of the banking system channeling more savings to productive use.

Chari is professor of economics and finance, and director of the Modern Indian Studies Initiative, University of North Carolina at Chapel Hill and Purnanandam is the Michael Stark Professor of Finance at the Ross School of Business, University of Michigan

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5 Signs You’re Not Ready to Own a Home, According to a CFP

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The housing market has boomed over the last year, despite a global pandemic and millions of Americans struggling to make ends meet. 

Many people are spending less on entertainment, clothing, travel, and other discretionary purchases during COVID. Federal student loan borrowers have seen temporary relief from their loan payments. These expenses will most likely rise again after the pandemic, and many people who committed to a new home with a large mortgage will struggle to keep up. 

I often speak with clients and prospective clients who want to buy a home before they have a strong financial foundation. Buying a home is not only one of the largest purchases you’ll make in your lifetime, but it’s also a huge commitment that’s extremely hard to undo if you have buyer’s remorse

It’s important to make a thoughtful, informed decision when it comes to a home purchase. Before you take the plunge into homeownership, check for these signs that you’re not quite ready to buy. 

1. You have credit card debt

Credit card debt can be a drain on your monthly budget, and when combined with student loans and a car loan, it can lead to high levels of stress. 

Generally, more debt means higher fixed expenses and little opportunity to save for long-term financial goals. Your financial situation will only get worse with the addition of a mortgage. I always recommend that clients be free of credit card or other high-interest debt before they consider buying a home. 

To rid yourself of credit card debt, take some time to get a good handle on your cash flow. Take an inventory of your spending over the last six to 12 months and see where you can cut back. From there, develop a realistic budget that includes aggressive payments to your credit cards. 

There are several strategies to help you knock out credit card debt fast. Regardless of the method you choose, stick with the plan and track your progress along the way. Once you pay off your credit cards, you can allocate your debt payments to savings, which can help you avoid this situation in the future.  

2. You have bad credit

Bad credit is not only a sign that you may not be ready to take on a mortgage, it can also signal a high risk to

mortgage lenders
. A high-risk status results in higher interest rates and more strict requirements to qualify for a loan. A mortgage is one of the largest loans you’ll take out in your lifetime, and if you get behind on payments, you could lose your home. 

Just as with credit card debt, bad credit could be a result of past financial mistakes. Dedicating the time to repair bad credit and improve your credit score will help you beyond purchasing your dream home. 

Start by pulling a recent credit report from each of the three credit bureaus so you can review it for errors. Dispute any errors, address past-due accounts, and bring your overall debt balances down. It’s helpful to learn what has a negative effect on your credit score so you can avoid these mistakes in the future. 

3. You don’t have an emergency fund (or an inadequate one)

If you’re unable to save for a rainy day, you probably don’t have enough money to buy a house. Owning a home is a big responsibility, and unexpected expenses pop up all the time. In addition, you could lose your job, have a medical emergency, or another unexpected expense unrelated to the home. Maintaining an emergency fund is a good sign that you have discipline and are prepared for the responsibility of homeownership.

Many financial experts recommend saving at least six months of living expenses in an emergency fund. If you have variable income, own a business, or own a house, you should save more. To build an emergency fund, set money aside from each paycheck and automate transfers to make the process easier. Give your emergency fund a boost when you receive lump sums such as bonuses or tax refunds. Start by saving one month of living expenses and build from there. 

4. You don’t have separate savings for your home

I always advise clients to set aside savings for a home in addition to an emergency fund. It’s a bad idea to start homeownership with no savings. Whether you have unexpected expenses related or unrelated to the home, having no emergency fund after a home purchase will lead to unnecessary stress — and possibly more debt. 

When purchasing a home, you’re responsible for a down payment and closing costs. While a 20% down payment is ideal to avoid private mortgage insurance, a down payment of at least 3.5% is typically required. Closing costs can range from 2 to 5% of the home’s value. 

Also, you will have moving costs, costs to spruce up your new place (like new furniture or light cosmetic updates), and any initial maintenance and repairs. Be sure to budget for these items to know how much to save on top of your emergency fund. It doesn’t hurt to boost your emergency fund, too, in preparation for homeownership. 

5. You have a low savings rate

It’s much easier to develop good savings habits before you have a lot of responsibilities. To get on track for financial independence, several studies show that you should save at least 15% of your income. The longer you wait, the more you’ll need to save. 

If your savings rate is low before you purchase a home, it will most likely worsen after becoming a homeowner. Even if your mortgage is similar to your rent, ongoing maintenance and repairs, higher utilities, and homeowners association fees can wreak havoc on your budget. 

Take a look at your current savings rate and see if you’re on track for financial independence. If you’re saving less than 15 to 20% of your income, work to improve your savings rate before you consider buying a home. A strong savings habit can help you build your home savings fund faster and ensure that a home purchase doesn’t impede your long-term financial goals. Finally, understand how much house you can afford so you can avoid being house poor. 

Buying a home can be rewarding, and when done the right way, it’s a way to build wealth. Before you decide to buy a home, it’s important to understand your numbers and ensure that you’re ready for the commitment. Without preparation, your dream home could be detrimental to your long-term financial goals.

Chloe A. Moore, CFP, is the founder of Financial Staples, a virtual, fee-only financial planning firm based in Atlanta, Georgia and serving clients nationwide.

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