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What is Considered a Bad Credit Score?

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If you have bad credit, you know how it can get in the way of living a good life. Bad credit makes many common financial activities more difficult, whether you’re opening a new credit card or taking out a first mortgage. If you have poor credit, you might get stuck with lower credit limits and higher interest rates — and bad credit might even prevent you from getting that new job.

What is considered a bad credit score? Why do you have bad credit, and what can you do to fix it? Let’s take a closer look at how credit scores work, what factors go into a bad credit score and how you can improve your credit score and access better financial opportunities.

What is a bad credit score?

Credit scores are ranked along the following metric: Excellent (sometimes called “Exceptional”), Very Good, Good, Fair and Poor.

Here’s how the FICO credit scoring system ranks credit scores:

  • Exceptional: 800-850
  • Very Good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Poor: 300-579

A bad credit score is somewhere between 300 and 579 using the FICO system, which is one of the most common credit scoring systems. In fact, according to myFICO.com, over 90 percent of top lenders use FICO to help them make lending decisions.

In 2018, the average FICO credit score was 704 points. If you have bad credit, your credit score is significantly lower than the average. However, that doesn’t mean that you have to let your bad credit hurt your finances long-term. Credit scores aren’t set in stone — and once you understand how to improve your credit, you can begin working your way toward a perfect credit score.

How does a bad credit score affect your credit?

A bad credit score comes with a high cost. If your credit score is below 580, it might be harder for you to open a new credit card, get a mortgage or rent an apartment. Poor credit could even hurt your chances of getting a new job if your employer runs a credit check as part of the hiring process.

In many cases, lenders will be less willing to offer loans or other lines of credit to people with low credit scores. If you do receive a loan or a credit card, you might end up paying higher interest rates than people with higher credit scores. That said, you still have options. You can apply for one of the best credit cards for bad credit or put a deposit on a secured credit card and begin rebuilding your credit score. If you need to take out a loan, here are some bad credit personal loans to consider — and if you’re shopping for a mortgage, here’s our advice on how to get a mortgage with bad credit.

How is a bad credit score calculated?

Your credit score is based on the information in your credit report. Each of the three major credit bureaus (Equifax, Experian and TransUnion) builds a unique credit report based on the way you use the various credit accounts under your name. If you pay your credit card bills on time every month, that shows up on your credit report — but if you miss a credit card payment, that shows up on your credit report as well.

Here are the five factors that make up your credit score, according to the FICO model:

  • Payment history: whether you make regular on-time payments on your credit accounts (35 percent).
  • Credit utilization: your debt-to-credit ratio, or your current credit balances compared to the amount of credit available to you (30 percent). To keep your credit utilization from negatively affecting your credit score, try to only use between 10 and 30 percent of your available credit.
  • Credit history: the length of your credit history — that is, how long you’ve successfully maintained open credit accounts (15 percent). This is why it’s a good idea to keep old credit cards open, even if you’re no longer using them.
  • Credit mix: the mix of credit in your account (10 percent). Having multiple types of credit under your name, such as a credit card and a car loan, can boost your credit score. Lenders like to see that you can manage both revolving credit and installment loans.
  • Credit applications: how often you apply for new lines of credit (10 percent). Every time you apply for a credit card or loan, a lender does what’s called a “hard pull” on your credit report. This credit inquiry signals that you’re shopping for new credit — and if you’re shopping for too much new credit at once, it’s a signal that you might be planning to take out debts that you can’t pay off.

It’s possible to have a high credit score even if you are weak in one of the five factors. If you are relatively new to credit, for example, you might not have an extensive credit history — and you might only have one or two credit cards under your name, which means you don’t have much of a credit mix yet. However, if you make on-time payments, keep your balances low and avoid applying for too much credit at once, you can still build and maintain a good credit score.

How can you improve a bad credit score?

There are many ways to improve a bad credit score. Your first step? Making on-time payments on all of your credit accounts every month. Since payment history is the biggest factor that goes into your credit score, it’s important to prioritize those on-time payments — even if you can only make minimum payments right now.

Once you’ve gotten into the habit of making regular on-time payments, see if you can start paying off your balances. Getting out of debt can be hard, but any progress you make on your outstanding balances will lower your credit utilization ratio and help boost your credit score.

As your credit score starts to improve, you might want to consider asking for a credit limit increase or applying for a new credit card. Both of these options will increase the amount of credit available to you, lower your credit utilization ratio and help your credit score — as long as you don’t turn your new credit into new debt.

If you have so much debt that it feels overwhelming, you may need to ask for help. Look for a reputable credit counseling service that can work with you to create a plan to pay down your debts and get your credit score up.

Here’s one more tip: Some people with bad credit have what are called “derogatory marks” on their credit report. These represent major financial setbacks, such as bankruptcies or foreclosures. Derogatory marks can seriously hurt your credit score, but they don’t last forever. Most derogatory marks and old debts fall off your credit report after seven years, and you can start rebuilding your credit right away.

Now that you understand what a bad credit score is and what factors make up your credit score, you can use this knowledge to boost your credit score and begin your journey toward good credit. Bad credit can make it harder to complete everyday financial activities like applying for a new credit card, but a bad credit score doesn’t have to be permanent. Keep practicing good credit habits like making on-time payments, and you’ll likely start to see your bad credit score improve.

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Bad Credit

Why Are There Different Types of Credit Scores?

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You probably know that you should be checking your credit score on a regular basis—but which credit score should you check? Do you need to know both your FICO credit score and your VantageScore, or is checking one credit score enough? How are FICO and VantageScore different from each other, anyway—and why are there multiple types of credit scores in the first place?

Originally, there was just one credit scoring service, the FICO credit score, created in 1989. The three major credit bureaus (Equifax, Experian and TransUnion) developed VantageScore in 2006 as an alternative to the FICO score. Both FICO and VantageScore offer different types of credit scores depending on what kind of information lenders are requesting and which credit score model is being used.

What does this all mean for you and which credit scores should you be tracking? Let’s take a closer look at how credit scores work, the different types of credit scores and what you need to know about VantageScore versus FICO.

What is a credit score?

A credit score is a three-digit number that represents your creditworthiness. Lower credit scores indicate that you are more likely to be a credit risk, while higher credit scores indicate that you are more likely to be a responsible borrower.

Although there are different types of credit scores, the two main credit scoring models—FICO and VantageScore—use a 300-850 point credit scoring scale. Each credit score falls within a specific credit score range and helps lenders understand how you have used credit in the past and how you are likely to use credit in the future.

What are the main credit scoring models?

Most types of credit scores fall under two main scoring models: FICO and VantageScore. The differences between VantageScore vs. FICO are relatively minor, in the sense that a person with a good FICO score is likely to have a good VantageScore as well. Likewise, a person with a bad credit score under the FICO scoring model is probably going to have bad credit in the VantageScore model.

Here’s what you need to know about the different types of credit scores:

FICO model

The FICO credit score was first developed in 1989 by Fair, Isaac and Company (now called the Fair Isaac Corporation). According to MyFICO, over 90 percent of top lenders use FICO credit scores to make lending decisions.

FICO offers many different types of credit scores. If you are taking out an auto loan, for example, a lender might check your FICO Auto Score. If you are applying for a credit card, a lender might look at your FICO Bankcard Score. If you don’t have much of a credit history yet, you can sign up for UltraFICO to have your banking activity factored into your credit score.

FICO regularly updates its credit scoring models to reflect changes in the industry and provide a more nuanced perspective of an individual’s creditworthiness, although these models can take some time to roll out. FICO recently released the FICO Score 10 suite, for example—but the FICO Score 8 model is still the most widely-used FICO credit score.

The FICO credit score ranges:

  • Exceptional: 800-850
  • Very Good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Poor: 300-579

VantageScore model

The VantageScore model was created in 2006 in a collaboration by the three major credit bureaus. Equifax, Experian and TransUnion created VantageScore as a way to provide an alternative to the FICO scoring model. Although VantageScore uses many of the same factors to determine your credit score, it weights these factors differently.

Under the FICO scoring model, for example, your payment history is the biggest factor affecting your credit score. Under the VantageScore model, your credit card balances and credit utilization ratio are the most influential factors in credit scoring.

Like FICO, VantageScore regularly updates its credit scoring models. The VantageScore 4.0 model, for example, became commercially available in 2017 and uses trended data to track changes in credit behavior over time. FICO’s Score 10 Suite also incorporates trended data into its credit scoring decisions—but VantageScore got there first.

The VantageScore credit score ranges:

  • Excellent: 781-850
  • Good: 661-780
  • Fair: 601-660
  • Poor: 500-600
  • Very Poor: 300-499

Other credit score models

FICO and VantageScore aren’t the only two credit scoring models out there. Equifax, for example, has created its own credit scoring model—and unlike the 300-850 point scale used by the most popular FICO and VantageScore models, the Equifax model uses a 280-850 credit score scale.

Other credit score providers offer credit scores that might sound unique, but are actually based on the FICO or VantageScore models. When you check your TransUnion credit score, for example, you’re actually getting a credit score based on the VantageScore 3.0 model. The personal finance app Mint offers “free Mint credit scores,” but these are also based on the VantageScore model—Mint hasn’t created its own credit scoring system.

Check the fine print to learn whether your credit score provider is using FICO, VantageScore or some other kind of credit scoring model. If you’re looking for a free credit score, try to pick credit score providers that use FICO or VantageScore.

Why do you get different scores from different credit bureaus?

Sometimes, one credit bureau might give you a different VantageScore or FICO credit score than the other bureaus. If you make a large purchase that uses a significant percentage of your available credit, for example, your credit score is likely to drop until you pay off your high balance. But it might drop more quickly with one credit bureau than with the other two.

Why? Because each credit bureau is continually adding new information to your credit file—but the three credit bureaus don’t always receive the same information at the same time.

So if you check your Equifax credit score on the first week of the month, your Experian credit score on the second week of the month and your TransUnion credit score on the third week of the month, you might get slightly different scores depending on how your credit activity has changed over the past three weeks.

There’s one more reason why you might have different credit scores with different credit bureaus. If one of your credit reports contains an error, it could affect your credit score. Since millions of Americans have errors on their credit reports, it’s a good idea to review your credit reports with each bureau on a regular basis and dispute any incorrect information you find.

How credit scores are calculated

Credit scores are calculated by analyzing the information in your credit report and assigning a numerical value to the data. This three-digit number reflects your credit history and the way you use credit. It also lets lenders know whether you are likely to be a credit risk. If you have a history of on-time payments, for example, your credit score is likely to go up—but if you start missing credit card payments, your credit score is likely to go down.

Here’s how FICO and VantageScore credit scores are calculated. Note that FICO weights each attribute by a specific percentage, while VantageScore merely identifies which attributes have the most influence on your credit score.

How FICO calculates your credit score

  • 35 percent—payment history
  • 30 percent—amounts owed
  • 15 percent—length of credit history
  • 10 percent—credit mix
  • 10 percent—new credit

How VantageScore calculates your credit score

  • Extremely influential—total credit usage, balance and available credit
  • Highly influential—credit mix and experience
  • Moderately influential—payment history
  • Less influential—age of credit history
  • Less influential—new accounts

How to check your credit score

There are many different ways to check your credit score. Many banks and credit card issuers provide free credit scores to account holders, and apps like CreditWise® from Capital One and Discover® Credit Scorecard will let you check your credit score even if you don’t have a Capital One or Discover credit card.

You can also sign up for a credit monitoring service. These services not only give you updated credit score information, but also track your credit report for potential signs of identity theft. Some credit monitoring options are free, while others come with a monthly or annual subscription cost.

You might even be able to access your credit score through a budget tracking app. Mint, for example, offers users unlimited access to their VantageScore credit score.

Here are some of the best ways to check your credit score online:

 

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Should I Trade In a Paid-Off Vehicle?

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Trading in a vehicle that’s paid off is a great way to put some money toward your next car purchase. Trade-ins are very common, and they often help bad credit borrowers meet auto loan eligibility requirements.

Vehicle Trade-Ins

If you completely own your car, you’re in a good position when you want to trade it in. If you still have an active loan, some or all of your trade-in amount needs to be put toward your auto loan balance. Auto lenders place a lien on the title which stops borrowers from selling a vehicle that isn’t paid off. Once the loan is paid off – either by finishing the loan term or paying it off with a lump sum – the lender releases the lien, which allows you to sell the car.

Should I Trade In a Paid-Off Car?However, if your loan is completely paid off you don’t have to worry about getting a high enough offer to pay off your loan. This makes the whole process less stressful and when you accept a dealer’s offer for your trade-in, you can pocket the full amount or put it toward your next vehicle.

In order to get the most out of your trade-in, you should get a few different estimates by getting it appraised with a few dealerships. Call around to at least three dealers in your area before you accept an offer. We also recommend contacting at least one franchised dealership that sells your car’s brand. This way, you have more estimates and can accept the largest offer possible for your trade-in. Most trade-in offers are good for around one week, giving you time to weigh your options.

Sell it or Trade it In?

Selling your own vehicle privately means listing it in the right places, waiting for a bite, and then handling the paperwork by yourself. This typically means being available for test drives with interested buyers, drafting a bill of sale, possibly heading to the bank with the buyer, signing the titles, and transferring ownership at the Department of Motor Vehicles or the Secretary of State. If you’re not prepared to take on these steps, selling your car yourself can be a hassle.

Trading in your car with a dealership can take the burden off your shoulders, all you have to do is get the vehicle appraised and let the dealer handle the rest. This is a good option, but you may not get as much for your trade-in as if you sell it yourself. Often, trade-in value is less than a private-party value because dealerships usually prep trade-ins to be sold on their lot. Since dealers are the ones that determine your car’s actual cash value (ACV), your trade-in offer can depend on the condition of your vehicle, its mileage, the dealer’s current stock, and much more.

If you own your car and you want to skip the hassle of selling it yourself, then trading it in to a dealership is a logical choice. Plus, you can use its trade-in value to lower the price of your next vehicle. If you’re looking to get into another auto loan, trading your current car is like getting two birds with one stone.

Bad Credit and Trade-Ins

Trade-ins are very common and can help borrowers that need some cash down for their next auto loan. If you completely own your vehicle, your trade-in offer can help even more than if there’s still a lien on the title.

Many lenders require down payments if your credit score is less than perfect. Subprime lenders who work with credit-challenged borrowers typically require a down payment of at least $1,000 or 10% of the vehicle’s selling price to qualify for an auto loan. However, you don’t have to use just cash to meet this requirement – you can use trade-in equity, too.

Get Matched to a Special Finance Dealership

If you want to sell your current car, and get in touch with lenders that can assist with bad credit, then consider a special finance dealership. You can skip the hassle of looking all over for a lender, and the dealer can handle the trade-in paperwork for you. Finding one of these dealerships can be tough, but we want to make it easier.

Trading in your current, paid-off car is a great way to satisfy a down payment requirement. You can also apply for financing with a special finance dealership if your credit score isn’t stellar. Here at Auto Credit Express, we want to help you find a dealer that has the resources to assist bad credit borrowers.

Get started right now by filling out our free auto loan request form. We’ve created a nationwide network of dealerships, and we want to match you to one in your local area.

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2021 beginners guide to real estate investment : Augusta Free Press

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real estate investment

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The real estate market is more lucrative than ever and has been on an upward surge for the last five decades. Houses have appreciated and rental prices are rising as well. These figures may be stressful for regular homebuyers but for a potential investor, they are an assurance of good tidings to come.

Contrary to common belief, real estate is not the preserve of the stinking rich in society. Real estate is the perfect venture to add to your portfolio if you are just developing an interest in the market.

This does not mean that it is easy. You need to consider several essential factors to ensure that you are well-set to start investing in real estate property. Let’s have a look at the most vital things to consider in this promising venture.

A good credit score

Your credit score determines whether you get approved or rejected for an investment loan. As such, you need to go through your credit report so you know if you are safe or need to improve it.

Excellent credit scores range between 750 and 850 while poor credit scores are between 600 and 649. Most lenders demand credit scores of 752 and above to be considered for a real estate loan. This is because a bad credit score portrays poor financial responsibility and the possibility that you might not pay back the money loaned to you.

Since credit scores are achieved with long periods of financial credibility, you might want to get a head start on improving yours. You can start by paying your bills on time, making punctual payments for existing loans, and avoiding overdraws from your credit cards.

How your credit score affects interest rates

High credit scores mean your lender is confident that you will repay your loan punctually. As such, you will enjoy lower interest rates and mortgage fees. Some lenders even downsize the down payment you are expected to pay if your credit score is impressive.

A credit score below 620 may get you a loan but see you paying higher interest rates. Lenders will also be inclined to award you a larger down payment to compensate for your lack of good credit.

Alternative ways to finance your investment

The analysis provided above does not spell utter doom for you if you have a bad credit score. You can opt to invest through some of the following routes:

• Hard money loan

This is a loan that requires real property as security. Most investors consider it as their last resort. The money is lent by a company or individual instead of a bank. They are also funded faster because these types of loans depend largely on the collateral provided.

Hard money loans are characterized by the loan to value ratio (LTV). It is calculated by division of the loan amount ratio by the value of the collateral property. There are also additional fees that accrue in the form of points throughout the duration of your loan. Lenders usually lend more than 65 to 75% of the property’s present value.

• Wholesaling

This involves finding real estate properties at significantly lower prices than the market value. You then hold them by use of a special kind of agreement with their owners and look for a buyer to buy your contract. No down payment or credit requirements are involved but the process is very time-consuming.

These methods may seem like viable alternatives but they come with exorbitant interest rates and may prove detrimental to your investment if things go awry.

Down payments

Buying real estate property demands quite a large down payment. Most down payments for properties range between 20 and 50%. These high rates are because mortgages with low down payments demand mortgage insurance which is very difficult to obtain for investment estates.

Pros and cons of lower FHA down payments

FHA loans are very attractive for first-time investors but they have their downsides. They are characterized by simple credit requirements and relatively low down payments. Let’s have a look at some of the reasons that make them an excellent but limiting choice.

Pros

  • FHA loans offer small down payments of as low as 3.5%
  • The cost of closing is much lower
  • They are available to borrowers with low credit scores of up to 580
  • FHA offers loans to clients with a maximum debt-income ratio of 43% while other lenders demand a ratio below 36% and inclusive of housing.
  • Can be used to buy rental properties with a maximum of four units if you plan to live in one of the units. They approve customers looking to buy manufactured homes and condos as well.

Cons

  • FHA loans demand upfront mortgage insurance premiums of up to 1.75% of the sum of your loan. Additionally, you ought to pay a premium of 0.85% of your loan annually.
  • Their loan limits are lower than those for standard loans. For instance, locations like Madison, Wisconsin have a maximum limit of $316250 while others like San Diego, California enjoy a maximum of $690,000.
  • They have minimum property requirements that are intended to protect you from buying substandard property but may hinder you from buying the home you want. This is especially troublesome if you plan on investing in an old home that requires some sprucing up.

Why you need to work with a good realtor

It is easy to overlook hiring a real estate agent so you can save some money but that might not be the best idea. Here are some of the benefits of hiring a reliable Realtor.

• Understand the locality

You most probably have the kind of property you want to invest in laid out down to the size, neighborhood, and features. However, searching for that home in a new area can be time-consuming. A good agent can help you pinpoint the kind of home you want in record time.

• Know the market

The property market is prone to changes in current trends, inflation, and mortgage rates, among other factors. Experienced Realtors keep track of these changes and are better placed to advise you on the best course of action.

• Beneficial networks

Realtors have gathered numerous helpful contacts in their line of work. They can link you to appraisers, real estate lawyers, and mortgage experts to aid in your investment efforts.

• Keen eye when assessing property

They can spot small or emerging flaws in a property that you may not have noticed. Your realtor looks out for your interests and advises you on what properties are worth investing in and which ones aren’t.

• Excellent negotiation skills

Realtors have negotiated tens of property sales. As such, they know what skills to employ to get you the best price within your budget.

Get pre-approved

Before you hire a realtor, it would be best to get pre-approved so that you know your purchasing power and set a realistic budget. Most lenders are willing to draft personalized pre-approval letters for every offer you tender on a property on sale.

Pre-approval also helps you bag a good realtor. Most agents ask for it because they would rather not spend their valuable time on a window shopper who isn’t likely to buy. Some lenders even recommend reputable real estate agents.

Final thoughts

Investing in real estate can be a life-changing venture and as simple as it may sound, it is not advisable to go it alone. Being new in the market means that there is a lot you are yet to learn and you do not want to learn from grave mistakes. We hope that this post has given you the necessary insight you need for a smooth-sailing investment experience.

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