Connect with us

Bad Credit

What’s a good credit score? Myths about credit

Published

on

When you’re applying for credit, whether it’s a mortgage, a personal loan or a credit card, your lender will almost always look at your credit score. But what exactly does your credit score mean, and what’s a good credit score versus a bad one?

Before we get into good credit scores versus bad scores, it’s important to understand what a credit score actually is. Basically, a credit score is your entire credit report boiled down into one easy-to-reference three-digit number. It includes almost everything on your report, such as the number of open accounts, the types of accounts, your payment history, how often you’ve tried to get new credit and so on.

Credit scores typically range from 300 to 850, but not always, and that brings up an important point — not all credit scores are the same. There are many different ways to translate the information on your credit report into a simple three-digit number, so there are many different credit scoring models, which are the algorithms that decide how to calculate that one number.

The most well-known and widely used credit scoring system is called FICO, named after Fair, Isaac and Company, which invented it. A second competing system known as VantageScore is also sometimes used by lenders and other companies analyzing your credit.

Monitor your credit with these credit score offers.

While both systems use a range of 300 to 850, they differ on what constitutes a good credit score. So when determining whether your credit score is good or bad, it’s important to know which credit scoring model your score comes from.

With all that in mind, here’s how a typical FICO credit score breaks down:

  • Excellent: 800 and higher
  • Very good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: 579 and lower

The tiers of a VantageScore credit score are slightly different and look like this:

  • Excellent: 781 and higher
  • Good: 661 to 780
  • Fair: 601 to 660
  • Poor: 500 to 600
  • Very poor: 499 and lower

As you can see, there’s a lot of variation between the two competing systems. A FICO credit score of 600 would be rated as “fair,” but a VantageScore of 600 falls into the “poor” category. On the other hand, a VantageScore credit score of 785 would be considered “excellent,” while the same score would be deemed just “very good” in the FICO system.

And even within these two broad credit scoring systems, there are dozens of different models that focus on various aspects of your credit, and you’ll get a different credit score from each model. Some models can even have a scoring system that varies from the typical 300 to 850 range.

Check your score now and keep an eye on your credit with these offers.

However, the most important factor is what your lender considers to be a good credit score. Lenders can internally use a variation on the above tiers, and while one bank may offer its best interest rates to people with a FICO credit score of 720 and above, another lender might only provide those top rates to folks with credit scores higher than 740. Plus, a lender will also take other factors into account beyond your credit score, such as your income and existing monthly debt payments.

Your credit score is just one piece of information that a lender will use when determining whether to offer you credit, and at what rate.

Your credit score is just one piece of information that a lender will use when determining whether to offer you credit, and at what rate.

PHOTO:
iStock

In the end, don’t panic too much about whether your credit score falls into the “very good” or “good” bracket. The key is knowing roughly where you stand, then working to improve your score. Your credit score changes every time there’s a change to your credit report, so using your current credit responsibly can drive your score higher in a relatively short amount of time.

And before you start applying for credit anywhere, it’s vital to know your credit score. If it’s lower than you think it should be, you’ll want to take a close look at your credit report to see if any of the information on it is incorrect. It’s not uncommon for credit reports to have the wrong data, and with so many data breaches in recent years, it’s also possible for fraudulent accounts to appear on your report if your sensitive personal information has fallen into the wrong hands.

So, if you’re considering opening a new credit card or refinancing your mortgage, take a moment to check your credit score and get an idea if you have good credit or bad credit.

Get access to your credit score and credit report for little to no cost with these offers.

Read other stories in our “Myths about credit” series:

Looking for a new credit card? Read CNN Underscored’s guide to the best credit cards of 2020.

Get all the latest personal finance deals, news and advice at CNN Underscored Money.

Source link

Continue Reading
Click to comment

Leave a Reply

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

Bad Credit

Are Buy Now, Pay Later Apps Better Than a Credit Card?

Published

on

You might think BNPL saves you money and time, but it can cost you big if you’re not careful.

If you’ve noticed a lot more “buy now, pay later” apps popping up when you check out with online retailers, it’s because they’ve become increasingly popular.

This comes as no surprise when you consider how younger generations are hesitant to use credit cards. According to a new study on buy now, pay later (BNPL) apps done by The Ascent, 67% of millennials don’t have a credit card. For some, that’s because they can’t get approved, and others prefer to avoid credit. Many don’t think it makes sense to use a credit card for small, everyday purchases and are worried about the impact of credit cards on their credit scores.

Which one is better: BNPL apps or credit cards? The answer, as you might expect, is: It depends.

Better for ease of approval: Buy now, pay later

One of the main draws of BNPL apps is that they typically don’t require credit approval, and most don’t even involve a hard pull on your credit report.

This is good news for folks with bad credit or no credit at all, and it’s helpful for anyone who wants to keep credit inquiries to a minimum. Having multiple new inquiries on your credit report in a short period of time — and credit card applications are considered an inquiry — can cause your credit score to drop.

Shopping with an online retailer and paying with a BNPL app at checkout is certainly convenient. It means you don’t have to fill out a lengthy application and wait to see if you’re approved. However, just because it’s easy doesn’t mean it’s a wise choice.

Better for improving your credit score: Credit cards

Using a credit card regularly and paying it off in full and on time each month is one of the best ways to build credit. Of course, credit cards don’t inherently improve your credit — responsible credit card usage does. Late payments and delinquent accounts can completely wreck your credit score. And, as discussed above, the credit card application itself can ding your score slightly.

Many BNPL apps, on the other hand, don’t report on-time payments to the credit bureaus. This means you won’t get credit for them — pun intended. On the other hand, any failure to make your payments can be reported to the credit bureaus and damage your score.

Credit cards have the potential to either help or hurt your credit depending on how you use them. In contrast, a lot of BNPL apps only have the potential to drag down your score if you fail to pay off your balance.

Better for avoiding interest: It depends

Every BNPL option has its own set of terms and conditions, so it’s important to read the fine print before making a decision. Some come with an interest-free period, while others charge interest rates of up to 30%. You typically won’t be charged any fees to use a BNPL service if you take advantage of an interest-free promotion and pay off your full balance within the interest-free period and on time. That said, most of these services do charge late fees and returned payment fees if you don’t have sufficient funds in your bank account to make one of your scheduled payments.

The decision between a BNPL app and a credit card comes down to interest, so you should know the interest rate on your credit card. You can find that information on your monthly statement. If the BNPL app you’re considering charges interest, compare the rate to what your credit card would charge. In either case, you’ll likely pay a premium to put the purchase on credit, as the interest rates on credit cards and BNPL apps are extremely high.

Often, BNPL apps will offer an interest-free period, which is what can make them so enticing. A typical interest-free offer will break up the total cost of your purchase into four installments, asking you to pay 25% of the purchase price up-front and then make the remaining three payments every two weeks.

If you do this, you’ll have six weeks to pay off the purchase and won’t have to pay any interest. This makes it a slightly better deal than a credit card, which typically has a grace period of 21 days, or three weeks, before interest is assessed on a purchase.

However, if you miss a single payment or fail to pay off the full purchase by the end of the interest-free period, even if you only have a few dollars left to pay off, you could be in for a rude awakening. BNPL interest rates are typically far higher than those charged by credit cards. Some even charge what’s called “deferred interest,” meaning interest accumulates on the original purchase price, not the remaining balance. What’s more, some of these services charge late fees as a percentage of the original purchase value, which can be very costly.

In other words, BNPL services can save you money on interest, but they can also cost you a lot more if you’re not careful. They also give you a very short period of time to pay off your purchase interest-free, especially when compared to 0% intro APR credit cards with 18-month introductory periods.

Better for big purchases: Credit cards

Most BNPL apps are meant for smaller items — think a few hundred dollars — rather than major purchases. If you’re looking to finance something in the thousands of dollars range, you might have trouble finding a BNPL app that will help you out. Credit cards tend to come with higher credit limits, especially if you have good credit and a decent income.

That being said, financing an expensive purchase on a credit card is typically not a good idea either, due to the high interest rates. The only time you should consider putting a big-ticket item on credit is when you can take advantage of a good 0% intro APR credit card. Even then you need to be certain you can pay off the balance before the introductory period ends. Otherwise, you’ll end up getting slammed with massive interest fees.

Saving enough money to pay up-front is almost always the best way to pay

In most cases, the best way to pay for a purchase is to save up the money first and buy it outright. This ensures you’ll avoid interest fees, debt, and potential credit damage.

This isn’t always possible, but it is a best practice you should exercise for any non-essential purchases. Instead of swiping your credit card or using a BNPL app, open a free savings account specifically for that goal and transfer money into it once each week. Wait until you have enough money saved to buy the item you’ve had your eye on.

It won’t get you instant gratification, but it also won’t cause you to stress about making your payments or land you in debt. And that is priceless.

Source link

Continue Reading

Bad Credit

It’s never too early to monitor your kid’s identity

Published

on

As children return to school, security experts want parents to add one more thing to their yearly checklist – safeguarding their child’s identity.

Monday is Child Identity Theft Awareness Day.

“This is a huge problem that frankly no one is aware of if they’re not paying attention to it, because it feels like an adult crime and it couldn’t possibly happen to a child, but it does,” said Eva Velasquez, President and CEO of Identity Theft Resource Center.

Recent studies show over 1 million children are impacted each year, with losses over $2.6 billion.

This year, new government programs for COVID-19 relief have created new vulnerabilities.

Children are prime targets because thieves can use their credentials to build credit history over time, then take out loans, open credit cards and max them out.

It can take months or even years for parents to realize their kids now have bad credit.

“The detection methods adults use just by engaging in the outside world, those aren’t there for children and the thieves realize that and they know it can go undetected for long periods of time,” said Velasquez.

The center says it’s never too early to start monitoring your child’s identity.

Teach them cyber safety as they get older and watch for red flags.

If you get something in the mail for your kid that looks like it should be for adult, don’t write it off as a mistake.

The biggest recommendation is to freeze your child’s credit. It won’t solve everything, but it will significantly lower risks.

appId : '117981068372285',

xfbml : true, version : 'v2.9' }); }; (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.js"; fjs.parentNode.insertBefore(js, fjs); }(document, 'script', 'facebook-jssdk'));

Source link

Continue Reading

Bad Credit

4 Signs of a Online Loan Scam

Published

on

Over the years, complaints about online loan scams are fortunately decreasing, thanks to warnings about loan scams and more reputable online lenders surfacing nowadays. However, even though the number of people getting scammed is steadily decreasing, the amount of money these scams are getting is still massive.

A report made by the Federal Trade Commission stated that consumers had lost about $905 million back in 2017, which is significantly higher than 2016’s $63 million. The FTC has made general guidelines about online scams through credited education, awareness programs, and even enforcement. However, even with all that, consumers are still losing millions through these fraudulent activities.

Typically, financial scammers primarily prey on people who have been previously denied a loan and desperately need money. For people like them, the need to borrow money is stronger than the urge to be vigilant about the loan they are applying for, making them easy prey for online loan scams. Even then, we need to be vigilant. That said, here are some signs you should watch out for to see if you are applying for an online loan scam.

No Credit Check

Now, don’t get us wrong. Not all lenders who don’t look at your credit history are scammers. Some alternative lenders are more interested in your income or profits (if you are running a business) rather than your credit history or merely running online loans for people with bad credit.

However, that doesn’t mean that you don’t have to be vigilant when encountering a lender that doesn’t require a credit check. If you base your decision on whether it’s a scam or not, merely seeing if they do a credit check is wrong.

It is essential to take note that most reputable lenders do a credit check. This is important to them because it helps them determine if you are a risky borrower or not. On the other hand, fraudulent loans aren’t even interested if you can pay the loan. They relish the fact that the borrower can’t repay the debt to incur more fees and penalties upon the borrower.

Upfront Fees

Some lenders will make you pay money in advance before doing any service. This is a red flag. The lender will disguise these as application fees or introduction fees.

Some even disguise these fees as document fees for them to process your application. It’s like them saying you need to send them money first before sending you money for the loan, which is 100% a scam if you ask us.

It is important to remember that any penalties, application fees, and whatnot will be rolled into repayment, or the principal cost when you get approved for the loan.

Unregistered Lender in Your State

All personal loan companies or any financial companies must be registered to the state they operate in. Their registration must pass through the State Attorney General’s Office, which will help the state monitor its businesses. This is applicable even if they operate online.

Online loan scams will typically say they are out of the state’s reach because they are online or a foreign company, which is what a scammer would say. If they operate outside of the state laws, they might be lending money illegally, or it’s an outright scam. When you find one, you can report them to the authorities to prevent these lenders from scamming other people.

If you aren’t sure whether they are legal, you can always check the State Attorney General’s Office if there are some complaints made about them. This might take time, but remember, we are talking about your money here. What is a week of waiting compared to you losing money over a scam?

They Demand a Credit Card

Under no circumstances will a lender or any other legitimate financial institutions demand your credit card or a photocopy of your credit card. If a lender asks for your credit card, it is a scam. They will typically say it is for insurance or some other excuse.

Legitimate financial companies will ask for a payment for the credit report, appraisal, or application, but those charges will be forwarded to your loan, not to your credit card. This is a popular way for scammers to get your money since credit from your credit card is virtually untraceable by the authorities. You also can’t report it to them because you voluntarily gave it to the scammers.

Remember to never give away your credit card or your credit card information to anybody, no matter how legitimate they sound or for any purposes. Doing so will rack you up tons of debt that you may never pay for for the rest of your life.

Takeaway

Online loan scams are still prevalent, even though the cases are steadily decreasing over time. Always be vigilant, especially if your money is at stake. Never give these scammers a chance to get any of your info, no matter how insignificant it is, especially your credit card information. Keep safe.

Source link

Continue Reading

Trending