Connect with us

Bad Credit

What to Do if Your Credit Score Has Dropped During COVID-19

Published

on

Sheet of paper showing a bad credit score of 520 with a red stamp over it that reads REJECTED.

Image source: Getty Images.

While it doesn’t influence our opinions of products, we do receive compensation from partners whose offers appear here. We’re on your side, always. See our full advertiser disclosure here.

The coronavirus pandemic has left many in difficult financial situations. This can quickly lead to a drop in your credit score if you need to take on more debt or can’t pay your bills on time.

If your credit has taken a hit recently, then it’s important to work on rebuilding it right away. Credit score problems often get worse the longer you wait to fix them. They can also limit your options as you try to improve your finances going forward. For example, a lower credit score could prevent you from consolidating debt or paying off purchases over time with a zero-interest offer.

To help you fix your credit, let’s look at how to diagnose the problem and what to do about it.

Find out why your credit score dropped

Before you can rebuild your credit, you need to know what’s negatively affecting it. During the COVID-19 pandemic, there have been two common factors:

  • You’re delinquent on one or more payments: Your payment history is the most important factor used to calculate your credit score. If you haven’t paid one or more bills for 30 days or longer, that can severely hurt your credit.
  • Your credit utilization is too high: Your credit utilization ratio (how much you owe compared to how much credit you have) is the second-biggest part of your credit score. Ideally, you should use less than 20% of your total credit. If you’ve had to carry larger balances lately or a card issuer has cut your limit, your credit utilization could be higher than usual.

Unfortunately, these two issues often happen simultaneously. You don’t have the money to pay your bills, so your credit card balance gets higher and higher. Then, you can’t make a payment and your account becomes delinquent. This combination of factors can cause a major credit score drop.

If you’re not 100% sure what’s affecting your credit, a credit score tool can tell you. Several credit card companies offer this service to cardholders, but there are also several free credit score tools online.

Now, we’ll look at what you can do to improve your credit in each of those situations.

You’re delinquent on one or more payments

If you can, make minimum payments on delinquent accounts as soon as possible. These won’t erase the impact to your credit, but they at least help you avoid any further damage. A payment that’s late by 30 days isn’t as bad as one that’s late by 60 or 90 days.

Keep in mind that if you’re less than 30 days late on a payment, you can still prevent it from hurting your credit. Creditors can only report late payments that are past due by at least 30 days. If you make a minimum payment that’s 29 days late, you could incur a late fee, but your credit score will remain intact.

But what if you can’t make minimum payments? Contact creditors and ask about their hardship plans. Many creditors have been providing extra assistance during the pandemic. You may be able to temporarily get lower monthly payments or put them on hold.

Another option is refinancing debt. With debt consolidation loans, you could get a lower interest rate and even a lower monthly payment. The same is often true with balance transfer credit cards. These options do, however, typically require that you have at least a fair to good credit score.

Your credit utilization is too high

First, check to see if any of your card issuers have reduced your credit limit. Some credit card companies have lowered cardholder credit limits during the pandemic. If that happened to you, then you’ll have less total credit, which can cause your credit utilization to rise.

Some consumers in this position have been successful calling and asking card issuers to restore their original credit line. You should try doing the same if any of your credit limits were cut.

Of course, it isn’t that simple if the balances on your credit cards have been steadily rising and you can’t pay them down yet. In that case, there are a few ways to reduce your credit utilization:

  • Make payments as soon as possible. Companies usually report balances after the statement closing date. If you pay your bill before this, there will be a lower balance to report.
  • See if you can get a credit line increase from any of your card issuers.
  • Open a new credit card. Its credit line will increase your total credit. A balance transfer card is the best option if you have the credit score to qualify.
  • Get a personal loan and use it to pay down your credit cards.

Recovering your credit score

It may take time, but when it comes to your credit, there’s no issue you can’t fix. Whether you’re dealing with delinquent payments, high credit utilization, or both, you’ll see your credit score go back up if you begin working on it now.

10 stocks we like better than Walmart
When investing geniuses David and Tom Gardner have an investing tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now… and Walmart wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

Stock Advisor returns as of 2/1/20

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Bad Credit

10 things you didn’t know will help you get a mortgage

Published

on

Anyone who wants to apply for a mortgage right now will know that it’s not easy. Coronavirus has made the process of applying longer, while lenders are now more careful than ever about who they will lend to. You probably already know that having a healthy credit score is essential to a successful mortgage application, but how can it be achieved? Personal finance experts from Ocean Finance  weigh in with the top tips for making sure your application is a success – that you may not have heard about. 

1. Make sure your name is on all household bills

If you share a rental, it can be tempting to let someone else put their name down on the utility bills and just pay them back. If you want a mortgage, avoid doing this: bills with your name and address on them are proof that you pay them on time. This especially applies to the rent itself – never move into a house share without your name being on the contract. Before applying for a mortgage, ask your landlord for a letter confirming that you pay on time. 

Source link

Continue Reading

Bad Credit

How Can I Prequalify for a Personal Loan? A Guide

Published

on

When you are in need of money quickly, you very likely don’t want to sit around pondering a bunch of different options. You want to find the option that works best for you and utilise it. Unfortunately for so many people around the country, it can be difficult to get their hands on the money they need due to them having a bad credit score, or even no credit score at all.

How Can I Prequalify for a Personal Loan?

Photo, Varun Gaba.

Your credit score is thought of as being pretty important, as it shows your financial trustworthiness to financial institutions like banks, credit card companies, lenders, and more. Your credit score is one thing that will usually be considered by just about any company you apply for a loan through, so keeping a close eye on your credit score is imperative for your financial life.

No matter what your credit score looks like, knowing how you can prequalify for a personal loan can be a comforting feeling when you are in need of quick cash. After all, when you are eligible for personal loan prequalification, you feel a little better going into the loan process knowing you won’t have to wait around for a loan decision.

How is Pre-qualification Decided? Prequalifying for a personal loan can depend on several different factors that you will have to keep in mind, and it will vary greatly depending on the lender you are applying through. Here are two of the things you will need to keep in mind when it comes to your loan that could affect whether or not you prequalify for the loan.

— Your credit score; Yes, this is always going to be something you are going to need to think about. Depending on the financial institution or lender you are going through, you can bet that your credit history and score will play a huge part in whether or not you prequalify.

— The amount of your loan; How much money you plan on borrowing from the lender or bank is also going to play a part in deciding whether or not you prequalify.

To get the most out of your search for a lender that you could prequalify with, think about applying with more than just one lender. This way, you might get several pre-qualification offers, and this will allow you to sort through the lenders and decide which one works best for you.

How Can I Prequalify for a Personal Loan?

Photo, Christina @ wocintechchat.com.

The Pre-qualification Process: No matter where you are trying to prequalify for your loan through, you will find the process to be pretty simple and largely similar across most lending platforms. You will need to provide some information to the lender that will help them decide whether or not to prequalify you.

How Can I Prequalify for a Personal Loan?

Photo, Windows.

Some of the information you will need to provide includes:

— Your full name; You will want to make sure you provide your full legal name so you can make the process simple for yourself and the lender. Depending on the lender, you might also be asked to provide images of your government issued ID or driver’s license to validate your identity.

— Your income and information on your job; Your income and employment status are often considered over your credit score when it comes to pre-qualification for loans, especially if you are applying for a personal loan through a lender who deals with customers with bad credit or no credit.

— The loan amount you want; Of course, you will have to include the amount of money you would like to borrow. Make sure it is something reasonable, and something that you can realistically pay back on time.

What Will the Lender Do? If you are trying to prequalify through a lender who specialises in bad credit clients, then you won’t have to worry about your credit score being negatively affected by taking out your loan. However, if the lender reports to the credit bureaus, your payments could still make an impact on your credit score.

If not working with a specialised lender, you might find that the lender will do a soft inquiry on your credit when going through the pre-qualification process. No worries here, as this doesn’t put any dents in your score. If you prequalify for the loan you are looking for, you should get an alert via email from the lender of your choice.

The Money You Need: Hopefully, you will have prequalified for the loan you are looking for so you can ensure you have access to the money you need, when you need it. Whether you’re going through some unexpected circumstance in life or just need money to pay something off quickly, knowing you are prequalified for the loan you need is a comforting feeling, allowing you access to the cash you need for whatever you need it for.



Source link

Continue Reading

Bad Credit

Are No Down Payment Auto Loans Bad?

Published

on

Qualifying for a zero-down car deal likely means having good credit and qualifying income. However, if you’re a bad credit borrower, you’d be hard-pressed to qualify for an auto loan without a down payment. Besides – down payments are typically a great idea for borrowers across all credit ranges!

Is Zero Down a Bad Idea?

Opting for a zero-down car loan isn’t a bad thing – but with a lower credit score, it’s not likely to happen. Most bad credit auto lenders require at least $1,000 down or that you bring at least 10% of the vehicle’s selling price to the table. Down payments are a requirement of most subprime (bad credit) lenders, and it’s often called having “skin in the game.”

Are No Down Payment Car Loans Bad?Research shows that borrowers with skin in the game are more likely to complete a car loan. To a lender, a borrower that brings a down payment to a deal is more likely to make their payments, complete the loan, and avoid default. It also means a higher likelihood of qualifying for the auto loan.

Down payments can widen your vehicle choices since they allow you to get into more expensive cars that are outside your preapproval amount. If you’re approved for a $15,000 auto loan, but can’t find anything for your situation, adding a larger down payment amount may open up more vehicle choices. In this scenario, if you have your heart set on an $18,000 vehicle, coming in with a $3,000 down payment could put it in your price range.

More Down Payment Benefits

Auto loans are typically simple interest loans, meaning you’re charged interest on the principal of your loan. If you combine a large loan amount, a high interest rate, and a long term, it can mean paying more than your vehicle is worth.

Remember this:

High loan amount + High interest rate + Long loan term = Paying more interest charges. A down payment can combat this, and help save you money.

For borrowers with poor credit, a high interest rate could mean paying more for your auto loan – but a down payment can soften the blow.

Down payments can help protect you from negative equity, too. Negative equity is when you owe more on the auto loan than what the car is valued at. Vehicles are depreciating assets, meaning they lose value over time, and that never stops.

Negative equity causes problems for borrowers when it’s time to sell the vehicle. If you owe thousands more on the loan than what you can sell the car for, you may not be able to sell the car. You must pay off the loan before you can transfer vehicle ownership.

If you finance a vehicle for $10,000, that car may not be worth $10,000 in a year. Most used vehicles lose around 10% to 15% of their value each year. Brand new vehicles can see around a 20% drop in value within the first 12 months of ownership! Having a down payment can help keep your auto loan in an equity position, which means you’re likely to have fewer issues selling the car if you need to.

How Much Should Save for a Down Payment?

Your down payment requirement largely depends on your credit score and the size of the loan you’re applying for. Like we mentioned, saving at least $1,000 is probably a good starting point if your credit score is less than perfect. But if the vehicle you want is expensive, it could mean having to shell out more cash than that to qualify for the loan.

How much you need to save can also depend on your monthly budget. If you want a specific vehicle but the monthly payments are too high, you can put more cash down to lower your payment and make the loan work for your situation. You can use our auto loan calculator to estimate how much you may need to put down to get your car payment where you want.

You also don’t need cold, hard cash to meet a down payment requirement. Trade-ins with equity can completely satisfy a down payment requirement if there’s enough value, or you can use a combination of cash and your trade-in. If you have a car you’d like to trade in, research its estimated value on sites such as NADAguides and Kelley Blue Book so you can see what a dealer may offer.

The bottom line with down payments is you should save as much as you comfortably can afford. Even if you qualify for a zero-down car loan, putting cash down on your next auto loan is only going to bring you benefits in the long run.

Where Can I Find Bad Credit Car Loans?

If your income or credit score isn’t quite up to snuff, then you can expect to need some cash down to qualify for vehicle financing. You may also need to work with the right auto lender to get the vehicle financing you need.

With a lower credit score, not only are you faced with a down payment requirement but also the struggle of having to find an auto lender that can work with poor credit. Most traditional auto lenders prefer borrowers with good credit. If your credit score is rough around the edges, then applying for vehicle financing through a special finance dealership could be the way to go.

Special finance dealerships are signed up with subprime lenders. These lenders specialize in assisting borrowers with credit challenges and look at more than your credit reports and score. They do require a down payment, but they can often work around tough credit circumstances.

At Auto Credit Express, we’ve amassed a nationwide network of special finance dealerships and we want to help you find one in your local area. To get matched to a dealer near you that has bad credit lending options, fill out our free auto loan request form.

(function(d, s, id){ var js, fjs = d.getElementsByTagName(s)[0]; if (d.getElementById(id)) {return;} js = d.createElement(s); js.id = id; js.src = "http://connect.facebook.net/en_US/sdk/debug.js"; fjs.parentNode.insertBefore(js, fjs); }(document, 'script', 'facebook-jssdk'));

Source link

Continue Reading

Trending