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What Is a Credit Inquiry?

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If you have checked your credit report lately, you may have noticed an “inquiries” section. An inquiry refers to a request to look at your credit file and falls into one of two camps: hard or soft.

A credit inquiry occurs when you apply for a credit card or loan and permit the issuer or lender to check your credit. Some inquiries have no effect on your credit, but others can lower your credit score.

Knowing the difference between the two types of credit inquiries and how inquiries affect your score is a must.

What Is a Credit Inquiry?

A record of a request for your credit report is called a credit inquiry. You’ll see an inquiry on your credit report anytime someone pulls your report from one of the three national credit bureaus.

Your credit report will tell you who has accessed your credit data and when. You will see lenders or card issuers on your report if you have applied for credit.

Other firms may request your credit report to provide an insurance quote or a background check. And sometimes inquiries may occur without your knowledge or permission.

Inquiries typically stay on your credit report for about two years. But they only factor into your FICO credit score for one year.

Not all credit inquiries are equal. Some types may indicate higher credit risk, and others do not. Even the two major credit scoring models, FICO and VantageScore, do not treat them the same way.

Unlike hard inquiries, soft inquiries will not affect your credit score. Here is more about both types of credit inquiries:

Soft credit inquiries. A credit application does not trigger a soft inquiry. Examples of soft credit inquiries include:

  • You check your own credit report.
  • One of your creditors checks your report.
  • An insurer pulls your credit for a quote.
  • A company views your credit report for a background check.
  • You seek preapproval for a loan or credit card or apply to prequalify for credit offers.

An interesting feature of soft inquiries is that only you and the credit bureau can see them. “Soft inquiries will only be visible to the consumer and will never be shown to other companies looking at your credit report,” says Matt Listro, expert in credit disputes and organizer of CreditCon, a conference for credit professionals.

Hard credit inquiries. A hard inquiry is linked to an application for credit, such as a mortgage, a credit card or an auto loan. It will appear on your credit report, and too many could hurt your score.

You can relax if you’re rate shopping and you apply for a few loans to get the best interest rate. Applications for the same type of loan within a certain time span will only count as one hard inquiry on your credit report.

VantageScore counts all inquiries within 14 days as a single inquiry if they’re for the same type of loan. “FICO, the newer versions, allows for a 45-day umbrella for inquiries pertaining to mortgage, auto and student loan applications,” Listro says.

Does Checking Your Credit Score Lower It?

Many myths surround credit inquiries. You may have come across a few, such as:

  • Checking your credit score will lower it.
  • Every time you apply for credit, your credit score drops.
  • Requesting a copy of your credit report will damage your credit score.

Of course, none of these statements is true. Checking your own credit will never lower your score. You can, and should, check your three credit reports several times a year to make sure they’re accurate.

Why Do Credit Inquiries Lower Credit Scores?

Some people struggle to understand why certain types of inquiries could damage their credit score. Credit inquiries signal credit risk because you’re looking for credit – and could get in over your head.

“When you apply for multiple lines of credit, the facts support that you’re a greater risk,” says Shawn Lane, co-founder and chief operating officer of credit repair service Financial Renovation Solutions.

Listro suggests sticking to two hard inquiries per year unless you’re trying to establish credit. In that case, you may be willing to take a short-lived hit on your credit for the chance to build credit history.

“In the long run, after 12 months, the benefits of having more established accounts will be helpful, and the effect of the inquiries will have passed,” Listro says.

How Many Points Do You Lose From a Credit Inquiry?

Inquiries aren’t worth a specific point value in FICO’s credit scoring models. What matters more to your credit score is the number of hard inquiries on your credit report in the last 12 months.

One inquiry may subtract up to five points from your FICO credit score. That said, try to keep the effect of inquiries in perspective.

Hard inquiries affect only 10% of your FICO score and 5% of your VantageScore. “In the grand scheme of things, (inquiries aren’t) a big deal,” Lane says.

Still, only apply for credit when you need it, he adds. Limiting inquiries is wise, but you don’t have to fear applying for new credit when you will use it responsibly.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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