Little expenses can bleed your bank account dry. Here are three types to be aware of.
We pay small(ish), avoidable expenses all the time. Banks make billions on overdraft fees alone. Utility companies tack on late fees if our payment reaches them two days late. We pay both a “delivery fee” and a tip whenever pizza is delivered. These expenses add up. We are often so distracted by everyday life that we don’t pay attention to them, but imagine what would happen if we did.
Here are three expenses we should all take time to note and do whatever we can to avoid them.
1. Credit card charges
Credit cards can be a useful financial tool. Used wisely, they help build credit, secure services (like hotel rooms and rental cars), and earn you great rewards. That said, there are plenty of credit card-related costs to watch out for. The good news is, once you recognize how much they cost, you can look for alternatives. Keep your eye on these three charges:
- Interest charges: Carrying a balance on a credit card can cost you dearly, particularly when you pay only the minimum payment. For example, let’s say you charge $2,000 worth of goods one month. If you pay the credit card off within 30 days, those purchases will cost you nothing extra. However, if you decide to make the minimum 2% payment each month instead of paying the balance in full, those purchases will cost you a lot more. Assuming your credit card carries an 18% interest rate and you make a minimum 2% payment each month, it will take you just over 24 years to pay off the balance. Worse yet, you will pay $4,397 in interest. Your best bet is to pay your credit card off in full each month. If that’s not possible, don’t just make the minimum payment. For example, if you instead paid $50 each month, it would take five years and 2 months to pay off. And you’d pay $1,077 in interest – that’s $3,320 less than you would have paid by making only minimum payments.
- Cash advances: If you ever find yourself in a pinch and decide to take a cash advance, you may end up paying far more than expected. In addition to a cash advance fee, you will be hit with a higher interest rate on the cash portion of your debt. And because interest begins accruing the day the transaction clears your account, you will have no grace period during which you can avoid interest by paying the balance in full. A better option may be to take out a short-term personal loan with a low, fixed rate and pay it off as soon as possible.
- Changing rates: There are a number of circumstances when a credit card company can increase your rate – meaning you’ll pay more interest on your purchases. For example, if your credit score drops for some reason and you have held the card for over a year, your credit card company can give you notice that it is raising your interest rate. If this happens to you, you have the right to close your account or try to negotiate with your card issuer. Make sure you make payments on all your debts in full and on time each month. In other words, don’t give your credit card company any reason to worry that you may not pay them as agreed.
2. Personal loan fees
Personal loans can be an awesome weapon in your financial arsenal. They are a great way to consolidate high-interest debt, finance a home project, or otherwise meet your financial obligations. Even so, there are things to look out for.
- Origination fees: Make sure you factor in the cost of origination fees – often 0% to 5% – when deciding if a personal loan is right for you. You should also watch out for late fees and, if you may want to pay off your loan early, make sure to choose one that does not charge a prepayment fee.
- Personal loan scams: Be wary of lenders who offer no-credit-check loans or demand upfront fees for processing your loan. If you are worried about your credit, look for a legitimate loan company that specializes in loans for bad credit.
3. “Buy here, pay here” car dealerships
Buy Here, Pay Here dealerships work like this: Buyers (normally with low credit scores and trouble qualifying for a traditional auto loan) find a car they want on the dealership lot. The important thing to remember is that Buy Here, Pay Here outfits are expensive.
The average interest rate at a Buy Here, Pay Here lot hovers around 20%, far more than you would pay through a traditional lender. They often charge more and lend more than the car is actually worth, meaning you’ll owe more than the car’s value. And, unlike traditional lenders, not all Buy Here, Pay Here dealerships will report your payments to the credit reporting agencies, which would help to build your credit score. If you’re going to take out a loan, the least you should expect is the opportunity to build your credit.
It can take vigilance to avoid everyday expenses. You can save money through simple acts, like checking receipts when you leave a store, setting up auto payments so your bills are never late, and keeping a portion of your emergency fund in checking so your account is never overdrawn.
After all, it’s your money and it’s worth protecting.
Consumer prices: The CPI index had the biggest drop ever. Is that a good thing?
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How to get a business credit card with bad personal credit
Dear Business Banter,
I want to start a business, but I have bad credit. What are my options? – James
Although an impressive credit history and high credit scores aren’t required to start a business, they sure help! After all, you may soon want to borrow funds from a financial institution so you can do everything from pay for the costs of a launch to managing ongoing operations.
To appeal to a lender, your past credit history will be relevant. Thankfully, you can overcome the problems associated with bad credit to qualify for a business credit card—and a loan, since that might be necessary too.
Have a business question for Erica? Drop her a line at the Ask Bankrate Experts page.
Build up your score
Since your business has yet to begin, you don’t have a business credit profile that can help you qualify for credit products. Therefore, lenders will assess your personal creditworthiness to determine qualification and set terms.
To know what is dragging your credit scores down, pull your credit reports up. You can get a report from each of the three credit reporting agencies—Experian, TransUnion and Equifax—once a year for free from annualcreditreport.com.
The information listed in the sections for trade lines, public record, and credit inquiries of your credit report is all inputted into scoring models, so read your reports carefully. If you spot any inaccuracies, file a dispute with one of the credit reporting agencies. The one you use will notify the other two, and your files will be updated.
To improve your scores (even when the negative data is still being listed):
- Pay all credit accounts on time. Although late payments hurt credit scores (especially when there are many, or accounts are seriously delinquent), establishing a perfect payment history from this point forward will help mend the damage.
- Reduce credit card debt. If you have credit cards and they’re maxed out, reduce the balance to well below the credit limit.
- Open up a credit card. Consider opening a personal credit card. Many credit cards are created specifically for people with bad credit. Once you have it, choose a small bill to charge each month, then pay it off in full and on time.
- Add utility and cell phone accounts to your report. The more on-time payments you have on your credit report, the better. Experian has a free Boost program where you can add non-credit accounts to your file. Those payments should help give your FICO 8 credit score at least a few extra points.
With this strategy, your credit score will increase over time.
Get a business credit card
Although you can use a personal credit card for your business, it’s better to get one specifically for your company. They offer benefits that are designed to help business owners do everything from handle their enterprise’s expenses to helping with accounting.
Just be aware that these cards remain your personal responsibility. Even if it’s in your business’s name, you will be on the hook for all payments and any outstanding debt.
So, how can you get a business credit card with bad personal credit? When your scores are at least in the “good” range, start looking into the business credit card options that are available. As you’ll see, there are many from which to choose, so give this task plenty of time.
Be aware that some business cards are charge cards while others are credit cards. With a charge card, there is no preset limit, but you’ll need to pony up the entire balance within about 30 days. With a credit card, there is a maximum amount you can charge, but you can pay at least the minimum requested payment and then revolve the rest. Ultimately, you may want one of each.
When your scores are at least in the “good” range, start looking into the business credit card options that are available.
Almost all business cards have rewards programs attached to them, so read over the program’s details and focus on those that you’ll use. For example, if you think traveling will be in your future, concentrate on a card that gives you the best perks for flights, airport amenities, hotels and car rentals.
Many business credit cards offer excellent sign-up bonuses, too, where you would receive a large amount of points, cash or miles after spending a certain amount with the card within a few months of activation.
Some also offer 0 percent APRs for a fixed number of months, which will give you a nice amount of time to pay for your venture’s needs before financing fees are assessed. As long as you pay the debt in full before the real rate begins, you get a free loan! As you use the card, you’ll be racking up rewards.
These programs differ, so make sure it’s a good match. One card may offer an exceptional reward value for restaurant meals, while another gives the most for things like office products.
Finally, prepare for annual fees. Not all cards charge them, but if you get more out of the account by way of perks and rewards, you’ll come out ahead. Choose wisely.
Look into loans
Credit and charge cards tend to be great for short-term financing, while business loans are preferable for big-ticket expenses that you want to pay off over several years.
To get a business loan with the best terms, it’s best to wait until your credit is in decent shape. However, if you must borrow a significant amount of money right away and then pay in equal installment payments, there are startup business loans for bad credit.
Loans with no credit checks still pass through an approval process, but the lender analyzes your assets and income for approval instead of your credit history. If it appears that you can make the payments that are associated with the loan, it should be approved. Other lenders do check credit reports and scores, but the standards for qualification are low.
In either case, loans that are developed for people with bad credit tend to be smaller and come with higher interest rates than those for people who have good credit.
Whichever loan you get, simply pay it off according to the agreement. Assuming the lender furnishes information to the credit reporting agencies (most do, but if you get a “no credit check loan,” ask the lender to be sure), it will help your credit scores rise.
Take these simple steps and you’ll not only repair your bad credit but will have the good credit products for your business!
To qualify for a business credit card (and a business loan), take action to improve your personal credit history.
Shape up your FICO score, identify the right business card for your needs and consider a business loan.
Home Equity Loan With Bad Credit: Can It Be Done?
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
Home equity loans let you turn your equity into cash, which you can use to pay for home improvements, unexpected medical expenses, or any other bills you might be facing.
Generally, lenders require at least a 620 credit score to qualify for a home equity loan. If your score isn’t quite there yet, though, you still have options.
Here’s how you may be able to get a home equity loan with bad credit:
- Check your credit and try to improve it
- Find out your debt-to-income ratio
- Find out how much equity you have
- Think about bringing on a cosigner
- Shop around for the best rates
- Consider alternatives to bad credit home equity loans
1. Check your credit and try to improve it
To start, head to AnnualCreditReport.com and pull your credit. You get one free report from all three credit bureaus per year.
Once you have your credit report, check it for errors and evidence of identity theft, such as accounts you don’t recognize and credit cards that aren’t yours. Reporting these to the credit bureau can help improve your score. So can taking these steps:
- Pay all your bills on time: Payment history — or your track record of payments — accounts for 35% of your score, so make it a point to pay all of your bills on time, every time.
- Pay down your debts: Lenders want to see a credit utilization rate of 30% or less — meaning your balances account for 30% or less than your total available credit.
- Keep credit cards open: How long your accounts have been open impacts 15% of your credit score, so avoid closing accounts — even once you’ve paid them off.
- Avoid applying for new cards: This will result in hard credit inquiries, which can hurt your score.
Learn More: How Your Credit Score Impacts Mortgage Rates
2. Find out your debt-to-income ratio
Most lenders want a DTI of 43% or lower. A low DTI can help improve your chances of getting a loan, especially if you have a lower credit score, since it indicates less risk for the borrower.
3. Find out how much equity you have
How much equity you have in your home, as well as your loan-to-value ratio, will determine whether you qualify for a home equity loan — and how much you can borrow. To find out yours, you’ll need to get an appraisal, which is a professional evaluation of your home’s value. The national average cost of a home appraisal is $400, according to home remodeling site Fixr.
Once the appraisal is finished, you can calculate your loan-to-value ratio by dividing your outstanding mortgage loan balance by your home’s value.
4. Think about bringing on a cosigner
Bringing in a family member or friend with excellent credit to cosign your bad credit loan can help your case, too. If you do go this route, make sure they understand what it means for their finances. Though you may not intend for them to make payments, they’re just as responsible for the loan as you.
5. Shop around for the best rates
A lower credit score will typically mean a higher interest rate, so it’s incredibly important you shop around and compare your options before moving forward. Get rate quotes from at least three to five lenders, and make sure to compare each loan estimate line by line, as fees and closing costs can vary, too.
Credible makes comparing rates easy. While Credible doesn’t offer rates for home equity loans, you can get quotes for a cash-out refinance — another strategy for tapping your home equity. Get prequalified in just three minutes.
6. Consider alternatives to bad credit home equity loans
A bad credit score can make it hard to get a home equity loan — especially one with a low interest rate. If you’re finding it difficult to qualify for an affordable one, you might consider one of these alternatives:
Cash-out refinances replace your existing mortgage loan with a new, higher balance one. You then get the difference between the two balances in cash.
Personal loans offer fast funding, and you don’t need collateral either. Rates can be a bit higher than on home equity loans and refinances, though, so it’s even more important to shop around. A tool like Credible can help here.
Compare multiple lenders
If you have bad credit, there are still ways to tap your home equity or borrow cash if you need it. Head to Credible to see what personal loan options and mortgage refinance rates you might qualify for. With Credible, you can easily compare prequalified rates from all of our partner lenders without leaving our platform.
A Look Back At Housing 2020: Rental Housing Gets Riskier
According to the American Housing Survey cited in a recent article, there are about 48 million rental housing units in the United States ranging from single-family homes to large multifamily apartment complexes. Of those 48 million units about 23 million are owned by individuals, according to a recent Rental Housing Finance Survey; that’s more than half of the occupied units in the country. Yet private rental housing providers have been under relentless attack in recent years increasing risks and costs. This has worsened in 2020 as I have pointed out. More risk means fewer housing units and higher prices, not a good outlook for the future.
Any business based on renting assets is based on risk. Think about the last time you went bowling. When you rent the shoes, the person behind the counter often will hold a driver’s license? Why? It’s a way of offsetting the risk that you’ll go home with the shoes either on purpose or accidentally. Nobody wants to deal with a lost driver’s license. Offsetting this risk has absolutely nothing to do with you or your trustworthiness; it is uniformly applied and routine.
Housing providers have to similarly offset the risk of allowing a stranger occupy their private property. There are several ways of doing this, including using credit checks. But lately, politicians are beginning to eliminate the credit check from the tools that housing providers can use to offset risk. Minneapolis for example has eliminated credit checks arguing that they are a “barrier” to housing.
Is race a factor in bad credit and thus a barrier to people of color to get housing? The fact is, yes, African American people have more credit issues. But would eliminating credit checks help them? The answer is, “No.”
An article in the Washington Post, “Credit scores are supposed to be race-neutral. That’s impossible,” is emblematic of how this issue plays among the public and policy makers. The author says two contradictory things. First,
“This would lead one to think that credit-score calculations can’t be biased. But factors that are included or excluded in the algorithms used to create a credit score can have the same effect as lending decisions made by prejudiced White loan officers.”
Then she writes,
“One quick way to impact your credit history is a court-ordered judgment. And Black borrowers are more likely to fare badly when taken to court by their creditors. Debt-collection lawsuits that end in default judgments also disproportionately go against Blacks, according to a 2020 Pew Charitable Trusts report.”
Logically, the right way to state this is that credit measures are biased against people who have default judgments against them, and African Americans have higher rates of defaults. Then the next question would be, “Why?” The most obvious answer is the right one, poverty is disproportionately concentrated among people of color.
But eliminating credit checks for housing won’t help that problem. If a housing provider is unable to evaluate risk based on past financial performance her only option will be to raise rents and deposit amounts in case there is a problem; that extra cash would provide a buffer if a resident stops paying rent. This won’t help anyone with less money. What’s the response to that? Ban rent increases by imposing rent control! That’s a bad idea too and won’t help either.
The answer is to figure out how people who have less money and therefore have more issues making ends meet can solve that problem and improve their credit scores. The author of the Washington Post article makes a sensible suggestion: include steady rent payments in credit scores. Some housing providers do, and it’s a great idea. But it is a positive one that actually helps the family; banning quantitative measures of past financial performance doesn’t.
The danger that unfolded in 2020 is that justifiable outrage about racism could lead to interventions that don’t address poverty and it’s negative consequences like default judgments but elimination of accepted measures of those consequences. Eliminating the evidence of poverty – struggling to pay bills – doesn’t help pay the bills! At best, these kinds of measures sweep the problem under the rug ensuring higher rents and making housing a risky business only big corporations will be able to do.
The answer is to address the broader underlying issues of poverty and increasing housing production. When there is more supply of housing providers compete with providers for residents and will be forced to bargain with potential residents, even those with dings or dents or completely destroyed credit. Housing abundance solves a housing problem while eliminating measure of risk only makes that risk higher and actually creates a housing problem.
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