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How is Your Credit Score Calculated?

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Improve your credit score

How is Your Credit Score Calculated?

When applying for credit, your credit score is one of the most important factors that will help determine if you can qualify for credit and what kind of interest rate and terms you will be offered.

If you have an excellent credit score, then you are more likely to easily get approved for credit products at great low rates. If your credit score is low then you will likely find it more difficult to qualify for credit products, and if you are able to qualify you will likely be forced to pay higher interest rates and costly fees.

How long does it take to improve your credit score?

There are a variety of factors that determine how long it might take to see a significant improvement in your credit score. Depending on how poor your score is to begin with would have a powerful effect on the time it takes to see improvements that are significant enough to help you qualify for top of the line credit products at low rates. Even so, having a strong and achievable strategy can result in significant improvements to your credit score in as little a 30 to 60 days. By taking the right steps, you can see your score increase by 100 to 200 points in no time at all.

What is a good credit score?

Credit scores are made up of a 3 digit number that ranges differently from the United States and Canada. In the United States,and your credit score will range from 300 to 850, and from 300 to 900 in Canada. Equifax and TransUnion are the two main credit bureaus that calculate your credit score using a variety of factors. The majority of banks and lenders rely on the information provided by these two companies in your credit report to assess your creditworthiness. Your credit score helps lenders understand how risky of a borrower you might be and how likely you are to either make your debt payments on time, miss payments, or completely default on your debts.

In the United States 620 and above is considered to be a good credit score, whereas in Canada, most lenders consider a good credit score is considered to be a score of 650 or higher.

What is a bad credit score?

For those who may have experienced some financial difficulties or made credit mistakes in the past, they may have a low credit score as a result. Most Canadian lenders would consider a score of 599 or lower as a poor or bad credit score.

A bad or poor credit score can negatively affect your chance of getting approved for loans or mortgages through banks and other more conventional lending institutions. This doesn’t mean that you can’t qualify for credit, it just means that you might be more limited with your options and be forced to pay higher interest rates. Even with bad credit, you might still be able to qualify for prepaid credit cards, or a mortgage loan through an alternative lending institution such as a trust company. If your credit is really bad, then you can qualify for things like a mortgage or home refinance loan through a private mortgage lender. Here is some helpful information on how you can qualify for a private mortgage.

How is your credit score calculated?

How is your credit score calculated?

Factors that impact your credit score

In order for you to be able to improve your credit score, you need to be able to understand how credit bureaus calculate your credit score:

  1. Payment and Repayment History and Habits:

    The habits you display through your payment history is one of the most influential factors that affect your credit score. About 35% of your credit score is based on your payment history and habits.

  2. Utilization Ratio:

    The utilization ratio takes into account how high of a debt balance you carry in comparison of your individual and overall credit limits. Your utilization ratios makes up approximately 30% of your credit score

  3. Credit History Length of Time:

    The length of time that you have been using credit makes up roughly 15% of your credit score.

  4. New Credit History:

    New accounts, recent credit applications, and new credit bureau inquiries makes up roughly 10% of your credit score.

  5. Types of Credit You Have:

    The various credit accounts that you might have accounts for approximately the remaining 10% of your credit score.

Here is a simplified breakdown of how most lenders in rate a borrower’s credit score:

United States:

  • 800 – 850: Excellent
  • 740 – 799: Very Good
  • 670 – 739: Good
  • 580 – 669: Fair
  • 300 – 579: Poor or Bad

Canada:

  • 800 – 900: Excellent
  • 720 – 799: Very Good
  • 650 – 719: Good
  • 600 – 649: Fair
  • 300 – 599: Poor or Bad

By understanding how your credit score is calculated, you can start to develop a realistic and effective plan to help improve your credit score and maintain it on an ongoing basis. With a good, very good, or excellent credit score, you will be able to qualify for better credit and loan products at great low rates.

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Bad Credit

Do Personal Loans Have Penalty APRs?

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

When you make your credit card payment late, you’re often subject to late fees and a penalty APR, which is a temporary spike in your interest rate.

The Blue Cash Preferred® Card from American Express, for instance, has a 13.99% to 23.99% variable APR, but the penalty APR is a variable 29.99% (see rates and fees). Penalty APRs usually last for at least six months, but card issuers often reserve the right to extend them — especially when you continue making late payments. A look at the terms for the Citi® Double Cash Card show us that the “penalty APR may apply indefinitely.”

Penalty APRs are certainly not a trap you want to fall into, but it’s not something you usually have to worry about if you have a personal loan. Personal loan lenders can, however, charge late fees upwards of $39 per late payment. Whether your loan charges late fees all depends on how good of a loan you qualify for, and that comes down to your credit score, borrowing history and ability to make your payments.

Personal loans also tend to charge lower interest rates than credit cards, too. The average personal loan interest rate for two-year loans is currently 9.46% according to Q1 2021 data from the Federal Reserve, compared to 15.91% for credit cards.

Typically, interest rates for personal loans range between roughly 2.49% and 24%, but personal loans for applicants with bad credit can come with even higher APR — so do your research before applying.

Other common personal loan fees include:

  1. Interest: The monthly charge you pay to borrow money
  2. Origination fee: A one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs
  3. Late fee: A one-time fee charged for each payment that you fail to make by the due date or within your grace period
  4. Early payoff penalty: A fee incurred when you pay off your balance faster than planned (because the lender misses out on months of expected interest payments)

As you can see, personal loans can be costly, even without a penalty APR. It’s obviously best to avoid paying extra fees whenever possible. That’s easier to do when you have a good to excellent credit score, since you’ll qualify for better loan options.

Select has a free tool to help match you with personal loan offers without damaging your credit score.

None of the loans on our best personal loan list charge origination fees or early payoff penalties, but some may charge late fees.

Our top picks for best personal loans

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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Early Termination of a Car Lease

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If you’re leasing a vehicle in order to save money, but are thinking of terminating your lease contract early, you may want to think twice. Leases aren’t always as easy or as affordable to get out of as auto loans.

Can You Terminate Your Car Lease Early?

In most cases, you can get out of an auto lease early, but you may not be able to do it cheaply.

Leasing typically comes with fees both at the beginning and end of your term. However, if you need to get out of your lease early, there may be early termination fees (ETF), making the cost more than you bargained for.

Additionally, lessors often require you to pay all your remaining lease payments in one lump sum before releasing the contract early. Costs involved with getting out of your car lease early may also include:Early Termination of an Auto Lease

  • Excess mileage charges
  • Wear and tear fees
  • Any taxes not yet collected
  • Any negative equity
  • Storage and transport fees
  • Pay the cost of sale preparation

Check your lease contract to see if your lessor has any charges for terminating your lease early, or if there are stipulations that prevent you from getting out of the contract before a certain time. Even if there are extra fees imposed on you for returning your leased vehicle early, it might be easier to terminate a lease nowadays than it’s been in the past.

Since the pandemic, many dealerships and lenders have pushed into the digital realm to get business done. This includes video conferences to meet with dealers that typically needed to be done in person in the past. Of course, your vehicle still needs to be turned into a franchised dealership to be inspected and processed before a leasing company allows you to terminate your lease contract early.

Is it Worth it to Terminate Your Lease?

The first step is to look at your leasing contract and see if you even can get out of your lease early, and how much it’s going to cost you in ETFs. Then, you need to gather the following information:

  • Your monthly lease payment amount
  • How many payments you have left on your contract
  • The residual value of the vehicle

To figure out a good ballpark figure for getting out of your leased vehicle early, add together the cost of your remaining lease payments and any ETFs. To see if it’s worth it, compare this figure with the buyout price at the end of your lease, and find out what the current market value of the car is by checking sites like Kelley Blue Book and NADAguides.

Depending on how close you are to the end of your lease term, if the buyout price on the vehicle is significantly lower than the early termination price, it may be a good idea to wait it out. Then, once you buy out your lease, you can trade in the car for something else.

If you decide not to wait, how you handle getting out of your leased vehicle early could depend on the difference between the current market value of the car and the residual value of the vehicle as predetermined in your leasing contract. If the car has more value than the lessor predicted, you may be able to sell it for enough to pay your way out of your lease early.

Three Options for Terminating Your Lease Early

If you’re looking to get out of your lease early, for whatever reason, you typically have three options:

  1. Sell your leased car to a dealer – Selling your leased car to a dealer is similar to doing a trade-in, except they pay off your lease contract, including the early termination fees. It’s typically a pretty easy process, especially since used vehicles are in high demand since the pandemic. You may be able to get a little more for a car that’s coming off a lease since the turnaround time on a sale is likely to be shorter, depending on demand. If this is the case, you may even be able to walk away with some cash in hand depending on if the dealer’s willing to pay more than the lessors estimated residual value on the vehicle.
  2. Have someone else take over your lease – Lease assumption isn’t always something you can do, but in many cases, you can transfer your lease to someone else, as long as they meet all the lessor qualifications and there’s equity in the vehicle.
  3. Lease buyout – With the demand for used vehicles at affordable prices up right now, you may be able to buy out your lease then sell the car privately as long as you get enough money to make it worth your while. If you can’t come close to selling it yourself for the amount you need to pay off your lease, including ETFs, it may not be worth it to try and get out of the vehicle early. Most leasing companies allow for some form of early lease buyout, but again, it may cost you those extra fees.

If Leasing Isn’t for You

Now that you’ve figured out whether it’s worth it or not to get out of your lease early, it’s time to decide what to do next when it comes to getting a vehicle.

If you didn’t mind leasing but the car just wasn’t for you, you likely have the option to swap into another lease on a different vehicle with the same company. Many lessors contact lessees toward the end of their contracts to see if they’d be willing to get into another car lease early.

However, leasing isn’t for everyone. If you found that the restrictions that come with it such as the mileage limitations, or cost of maintenance and repairs are too much for you to handle, it may be time to consider an auto loan for your next go-round. If this is the case, Auto Credit Express wants to get you started on the path toward your next vehicle.

We’ve gathered a nationwide network of special finance dealerships that are signed up with lenders to help people with credit challenges. Whether you’re just not sure where to start or you need a little help due to bad credit, start here. By filling out our fast, free, no-obligation auto loan request form, you’re taking the first step toward finding your next car loan without all the hassle of searching. Get started right now!

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GSB focuses on social responsibility

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State-owned Government Savings Bank (GSB) has focused on providing loans to people without a record in the National Credit Bureau system or with bad credit over the last year to help those impacted by the pandemic deal with unprecedented economic hardship.

GSB president and chief executive Vitai Ratanakorn said the bank has extended loans to people with no credit history who have never borrowed from commercial banks or non-bank institutions.

He said the bank had already provided 1.5 million loans to members of this group of people.

The bank has also provided loans to 200,000 people with bad credit records.

Mr Vitai said the lending was aimed at drawing those outside the credit bureau system into the system and enabled them to get access to the loans, which was one of the main roles of state-run banks. This lending has been supported by the government.

He said this lending was not aimed at seeking profit as GSB charged a low monthly interest rate of 0.1-0.3%. For example, if the bank provided a 10,000 baht loan to a person under this scheme, it would only gain interest income of around 120 baht per year.

In addition to its objective of becoming the country’s genuine social bank, GSB’s other goal this year is to prevent loans from becoming bad debts, he said. The bank will rush to help customers in danger of accumulating bad debt to restructure before it reaches that stage.

Mr Vitai said GSB will not focus on growing its loan portfolio during the first six months of the year, but on serving the state’s policy of helping people and business operators cope with the impacts from Covid-19. Grassroots people and small and medium-sized enterprises are suffering the most from the pandemic, he said.

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