Building Credit

Minimize Rejection: Check if You’re Pre-qualified for a Credit Card

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Check if You're Pre-qualified for a Credit Card

Updated September 28, 2016

Are you avoiding a credit card application  because you’re afraid of being rejected? Want to see if you can be approved for a credit card without having an inquiry hit your credit score?

We may be able to help. Some large banks give you the chance to see if you are pre-qualified for cards before you officially apply. You give a bit of personal information (name, address, last 4 digits of your social security), and they will tell you if you are pre-qualified. There is no harm to your credit score when using this service. This is the best way to see if you can get a credit card without hurting your score.

What does pre-qualified mean?

Pre-qualification typically utilizes a soft credit inquiry with a credit bureau (Experian, Equifax, TransUnion). A soft inquiry does not appear on your credit report, and will not harm your credit score.

Banks also create pre-qualified lists by buying marketing lists every month from a credit bureau. They buy the names of people who would meet their credit criteria and keep that list. When you see if you are pre-qualified, the bank is just checking to see if you are on their list.

A soft inquiry provides the bank with some basic credit information, including your score. Based upon the information in the credit bureau, the bank determines whether or not you have been pre-qualified for a credit card.

If you are not pre-qualified, that does not mean you will be rejected. When they pull a full credit report or get more information, you may still be approved. But, even if you are pre-qualified, you can still be rejected. In my experience, over 80% of pre-qualified applications are approved. So, why would you be rejected?

  • When you complete a formal credit card application, you provide additional personal information, including your employment and salary. If you are unemployed, or if your salary is too low relative to your debt – you could be rejected. There are other policy reasons that can be applied as well.
  • When a full credit bureau report is pulled, the bank gets more data. Some of that incremental data may result in a rejection.
  • Timing: your information may have changed. The bank may have pre-qualified you a week ago, but since then you have missed a payment. Final decisions are always made using the most up-to-date information.

Where can I see if I have been pre-qualified?

We have put together a list of the main banks. This list is kept updated regularly.

CreditCards – CardMatch is a very good tool developed by CreditCards.com that can match you to offers from multiple credit card companies without impacting your credit score. This is a good first stop.

Bank of America

Barclaycard – unfortunately Barclaycard has taken down their pre-qualification tool, but we will keep looking to see if it comes back.

Capital One (Click Credit Cards and then “See if you’re pre-qualified”)

Citibank

Credit One  – This company targets people with less than perfect credit.

Discover

U.S. Bank

American Express

Consider A Personal Loan (No Hard Inquiry and Lower Rates)

If you need to borrow money, you may also want to consider a personal loan. A number of internet-only personal loan companies allow you to see if you are approved (including your interest rate and loan amount) without a hard inquiry on your credit report. Instead, they do a soft pull, which has no impact on your credit score. Personal loans also tend to have much lower interest rates than credit cards. If you need to borrow money, personal loans are usually a better option.

You can use our online tool to see if you can qualify for a loan. You only need to fill in one application, and MagnifyMoney will check your rate with multiple lenders (and without hurting your score). Check your rate without hurting your score here.

Not pre-qualified but still want to apply?

We still believe that people are too afraid of the impact of credit inquiries on their score. One inquiry will only take 5-10 points off your score.

If you pay your bills on time, do not have a ton of debt (less than $20,000) and want to apply for a new credit card, an inquiry should not scare you. The only way to know for certain if you can get approved is to do a full application.

How We Can Help

Don’t forget to follow us on Twitter @Magnify_Money and on Facebook.

*We’ll receive a referral fee if you click on the “Apply Now” buttons in this post. This does not impact our rankings or recommendations You can learn more about how our site is financed here.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Get A Pre-Approved Personal Loan

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Building Credit, Featured, News

Average Credit Score in America Reaches New Peak at 699

Editorial Disclaimer: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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In late 2016, American consumers hit an important milestone. For the first time in a decade, over half of American consumers (51%) recorded prime credit scores. On the other side of the scale, less than a third of consumers (32%) suffered from subprime scores.1 As a nation, our average FICO® credit score rose to its highest point ever, 699.2

Despite the rosy national picture, we see regional and age-based disparities. A minority of Southerners still rank below prime credit. In contrast, credit scores in the upper Midwest rank well above the national average. Younger consumers struggle with their credit, but boomers and the Silent Generation secured scores well above the national average.

In a new report on credit scores in America, MagnifyMoney analyzed trends in credit scores. The trends offer insight into how Americans fare with their credit health.

Key Insights:

  1. National average FICO® credit scores are up 13 points since October 2009.3
  2. 51% of consumers have prime credit scores, up from 48.1% in 2007.4
  3. One-third of customers have at least one severely delinquent (90+ days past due) account on their credit report.5
  4. Average Vantage® credit scores in the Deep South are 21 points lower than the national average (652 vs. 673).6
  5. Millennials’ average Vantage® credit score (634) underperformed the national average by 39 points. Only Gen Z has a lower average score (631).7

Credit Scores in America

Average FICO® Score: 6998

Average Vantage® Score: 6739

Percent with prime credit score: 51%10

Percent with subprime credit score: 32%11

Credit Score Factors

Percent with at least one delinquency: 32%12

Average number of late payments per month: .3513

Average credit utilization ratio: 30%14

Percent severely delinquent debt: 3.37%15

Percent severely delinquent debt excluding mortgages: 6.9%16

The Big 3 Credit Scores

Credit scoring companies analyze consumer credit reports. They glean data from the reports and create algorithms that determine consumer borrowing risk. A credit score is a number that represents the risk profile of a borrower. Credit scores influence a bank’s decisions to lend money to consumers. People with high credit scores will find the most attractive borrowing rates because that signals to lenders that they are less risky. Those with low credit scores will struggle to find credit at all.

Banks have hundreds of proprietary credit scoring algorithms. In this article, we analyzed trends on three of the most famous credit scoring algorithms:

  1. FICO® 8 Credit Score (used for underwriting mortgages)
  2. Vantage® 3.0 Credit Score (widely available to consumers)
  3. Equifax Consumer Risk Credit Score (used by the Federal Reserve Bank of New York)

Each of these credit scores ranks risk on a scale of 300-850.

In all three models, prime credit is any score above 720.

Subprime credit is any score below 660. All three models consider similar data when they create credit risk profiles. The most common factors include:

  1. Payment history
  2. Revolving debt levels (or revolving debt utilization ratios)
  3. Length of credit history
  4. Number of recent credit inquires
  5. Variety of credit (installment and revolving)

However, each model weights the information differently. This means that a FICO® Score cannot be compared directly to a Vantage® Score or an Equifax Risk Score.

American Credit Scores over Time

Average FICO® Credit Scores in America are on the rise for the eighth straight year. The average credit score in America is now 699.

We’re also seeing healthy increases in prime credit scores. In the three major credit scoring models, a prime credit score is any score above 720.

According to the Federal Reserve Bank of New York, 51% of all Americans have prime credit scores as measured by the Equifax Risk Score. Following the housing market crash in 2010, just 48.4% of Americans had prime credit scores.20

Credit Scores and Loan Originations

Following the 2007-2008 implosion of the housing market, banks saw mortgage borrowers defaulting at a higher rates than ever before. In addition to higher mortgage default rates, the market downturn led to higher default rates across all types of consumer loans.

To maintain profitability banks began tightening lending practices. More stringent lending standards made it tough for anyone with poor credit to get a loan at a reasonable rate.

Although banks have loosened lending somewhat in the last two years, people with subprime credit will continue to struggle to get loans. In February 2017, banks rejected 85% of all credit applications from people with Equifax Risk Scores below 680. By contrast, banks rejected 8.74% of credit applications from those with credit scores above 760.22

Credit Scores and Mortgage Origination

Before 2008, the median homebuyer had an Equifax Risk Score of 720. In 2017, the median score was 764, a full 44 points higher than the pre-bubble scores. The bottom tenth of buyers had a score of 657, a massive 65 point growth over the pre-recession average.23

Some below prime borrowers still get mortgages. But banks no longer underwrite mortgages for deep subprime borrowers. More stringent lending standards have resulted in near all-time lows in mortgage foreclosures.

Credit Scores and Auto Loan Origination

The subprime lending bubble didn’t directly influence the auto loan market, but banks increased their lending standards for auto loans, too. Before 2008, the median credit score for people originating auto loans was 682. By the first quarter of 2017, the median score for auto borrowers was 706.26

In the case of auto loans, the lower median risk profile hasn’t paid off for banks. In the first quarter of 2017, $8.27 billion dollars of auto loans fell into severely delinquent status. That means the owners of vehicles did not pay on their loans for at least 90 days. Auto delinquencies are now as bad as they were in 2008.28

Consumers looking for new auto loans should expect more stringent lending standards in coming months. This means it’s more important than ever for Americans to grow their credit score.

Credit Scores for Credit Cards

Unlike other types of credit, even people with deep subprime credit scores usually qualify to open a secured credit card. However, credit card use among people with poor credit scores is still near an all-time low. In the last decade, credit card use among deep subprime borrowers fell 16.7%. Today, just over 50% of deep subprime borrowers have credit card accounts.30

The dramatic decline came between 2009 and 2011. During this period, half or more of all credit card account closures came from borrowers with below prime credit scores. More than one-third of all closures came from deep subprime consumers.

However, banks are showing an increased willingness to allow customers with poor credit to open credit card accounts. In 2015, more than 60% of all new credit card accounts went to borrowers with subprime credit. 25% of all the accounts went to borrowers with deep subprime credit.

State Level Credit Scores

Consumers across the nation are seeing higher credit scores, but regional variations persist. People living in the Deep South and Southwest have lower credit scores than the rest of the nation. States in the Deep South have an average Vantage® credit score of 652 compared to a nationwide average of 673. Southwestern states have an average score of 658.

States in the Upper Midwest outperform the nation as a whole. These states had average Vantage® Scores of 689.

Unsurprisingly, consumers across the southern United States are far more likely to have subprime credit scores than consumers across the north. Minnesota had the fewest subprime consumers. In December 2016, just 21.9% of residents fell below an Equifax Risk Score of 660. Mississippi had the worst subprime rate in the nation. 48.3% of Mississippi residents had credit scores below 660 in December 2016.35

These are the distributions of Equifax Risk Scores by state:37

Credit Score by Age

In general, older consumers have higher credit scores than younger generations. Credit scoring models consider consumers with longer credit histories less risky than those with short credit histories. The Silent Generation and boomers enjoy higher credit scores due to long credit histories. However, these generations show better credit behavior, too. Their revolving credit utilization rates are lower than younger generations. They are less likely to have a severely delinquent credit item on their credit report.

Gen X and millennials have almost identical revolving utilization ratios and delinquency rates. Compared to millennials, Gen X has higher credit card balances and more debt. Still, Gen X’s longer credit history gives them a 21 point advantage over millennials on average.

To improve their credit scores, millennials and Gen X need to focus on timely payments. On-time payments and lower credit card utilization will drive their scores up.

A report by FICO® showed that younger consumers can earn high credit scores with excellent credit behavior. 93% of consumers with credit scores between 750 and 799 who were under age 29 never had a late payment on the credit report. In contrast, 57% of the total population had at least one delinquency. This good credit group also used less of their available credit. They had an average revolving credit utilization ratio of 6%. The nation as a whole had a utilization ratio of 15%.39

Sources

  1. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  2. Ethan Dornhelm, “US Credit Quality Rising … The Beat Goes On,” Fair Isaac Corporation. Accessed May 24, 2017.
  3. Ethan Dornhelm, “US Credit Quality Rising … The Beat Goes On,” Fair Isaac Corporation. Accessed May 24, 2017.
  4. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  5. 2016 State of Credit Report” National 2016 90+ Days Past Due, Experian, Accessed May 24, 2017
  6. 2016 State of Credit Report” State 2016 Average Vantage® Credit Score, Experian. Accessed May 24, 2017.
  7. 2016 State of Credit Report” National 2016 Average Vantage® Credit Score, Experian. Accessed May 24, 2017.
  8. Ethan Dornhelm, “US Credit Quality Rising … The Beat Goes On,” Fair Isaac Corporation. Accessed May 24, 2017.
  9. 2016 State of Credit Report” National 2016 Average Vantage® Credit Score, Experian. Accessed May 24, 2017.
  10. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  11. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  12. 2016 State of Credit Report” National 2016 90+ Days Past Due, Experian. Accessed May 24, 2017.
  13. 2016 State of Credit Report” National 2016 Average Late Payments, Experian. Accessed May 24, 2017.
  14. 2016 State of Credit Report” National 2016 Average Revolving Credit Utilization Ratio, Experian. Accessed May 24, 2017.
  15. Quarterly Report on Household Debt and Credit May 2017” Percent of Balance 90+ Days Delinquent by Loan Type, All Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  16. Calculated metric using data from “Quarterly Report on Household Debt and Credit May 2017” Percent of Balance 90+ Days Delinquent by Loan Type and Total Debt Balance and Its Composition. All Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.Multiply all debt balances by percent of balance 90 days delinquent for Q1 2017, and summarize all delinquent balances. Total delinquent balance for non-mortgage debt = $284 billion. Total non-mortgage debt balance = $4.1 trillion $284 billion /$4.1 trillion = 6.9%.
  17. 2016 State of Credit Report” State 2016 Average Vantage® Credit Score, Experian. Accessed May 24, 2017.
  18. Ethan Dornhelm, “US Credit Quality Rising … The Beat Goes On,” Fair Isaac Corporation. Accessed May 24, 2017.
  19. Ethan Dornhelm, “US Credit Quality Rising … The Beat Goes On,” Fair Isaac Corporation. Accessed May 24, 2017.
  20. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  21. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  22. Survey of Consumer Expectations, © 2013-2017 Federal Reserve Bank of New York (FRBNY). The SCE data are available without charge at http://www.newyorkfed.org/microeconomics/sce and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.
  23. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  24. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  25. Quarterly Report on Household Debt and Credit May 2017” Number of Consumers with New Foreclosures and Bankruptcies, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  26. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  27. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  28. Quarterly Report on Household Debt and Credit May 2017” Flow into Severe Delinquency (90+) by Loan Type, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  29. Quarterly Report on Household Debt and Credit May 2017” Flow into Severe Delinquency (90+) by Loan Type, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  30. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed May 24, 2017.
  31. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed May 24, 2017.
  32. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed May 24, 2017.
  33. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed May 24, 2017.
  34. 2016 State of Credit Report” State 2016 Average Vantage® Credit Score, Experian. Accessed May 24, 2017.
  35. 2016 State of Credit Report” State 2016 Average Vantage® Credit Score, Experian. Accessed May 24, 2017.
  36. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  37. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  38. 2016 State of Credit Report” National 2016 Vantage® Credit Score, Experian. Accessed May 24, 2017.
  39. Ethan Dornhelm, “US Credit Quality Rising … The Beat Goes On,” Fair Isaac Corporation. Accessed May 24, 2017.
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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Balance Transfer, Building Credit, Credit Cards

How to Do a Balance Transfer with Citi

Editorial Disclaimer: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Here's the Right Way to Use a Student Credit Card

A balance transfer can be a great way to consolidate debt and reduce your interest rate. Citi credit cards offer some of the best options for balance transfers. If you’re looking for a balance transfer card that has low fees and a long 0% introductory APR, you might want to consider the Citi Diamond Preferred.

The Citi Diamond Preferred card currently has a 0% balance transfer offer good for 21 months. There is no annual fee; however, Citi will charge $5 or 3% of the total amount transferred to the card, whichever is greater. The card does offer some perks. Citi cardholders can access their FICO score for free and have access to the Citi Easy Deals portal, which provides discounted shopping items for everything from clothing and accessories to household goods. In this guide, we’ll explain exactly how to apply for a balance transfer with the Citi Diamond Preferred credit card. Although Citi offers balance transfers on other Citi cards, this is one of the best offers out there at this time.

If you have a Citi card and want to complete a balance transfer, keep reading and we will explain the process step by step.

How to Apply for a Balance Transfer with Citi

With the Citi Diamond Preferred card, you can apply for a balance transfer by phone or online. If approved, you can opt to receive a balance transfer check easily and quickly by phone or online. A balance transfer check is similar to a regular check only it’s issued by the bank (Citi in this case) and used to withdraw cash from your credit line.

With the check, you’ll need to send the money directly to the company that has the debt you’d like to pay off. With the Citi Diamond Preferred card, you can even set up direct deposit for your balance transfer so the funds will go directly into your account if you are trying to pay off a credit card online.

What You Need

To get started, you’ll need the account number and amount(s) you wish to transfer from your current credit card.

The account you are transferring is considered the “transfer from” account, while the Citi credit card will be the “transfer to” account.

If you choose to have the money deposited directly into your account, you’ll also need your bank account and routing number. With direct deposit, the funds can be deposited into your account within 1 to 2 business days. Checks are received within 10 business days.

Keep in mind that you cannot transfer the balance from other accounts issued by Citibank or its affiliates.

Completing a Balance Transfer Online

Like many other banks, Citi allows you to complete a balance transfer conveniently online. Once you receive your card and sign up for online banking, you’ll be able to complete a balance transfer online. Here are the steps you’ll need to take.

  1. Log in to your account. On the main dashboard, you should see an account summary and a link to view a balance transfer offer. Click on “View Offer.”
  1. Next, you’ll be taken to a balance transfer request page where you can review the offer and accept it by clicking “Select Offer.”
  1. Now, you’ll need to enter the transfer information, such as the amount you need to transfer, the account number, and the creditor. At this stage, you can pay up to four creditors at once under the same offer if you wish ($100 minimum amount per transfer).

If you’d like to receive a check transfer, you can also choose if you’d prefer direct deposit or a check by mail. After you’ve finished filling out all the required fields and read the terms and conditions, move to the next step.

  1. Next, you’ll be taken to a summary page where you can verify that all the information you entered was accurate. If everything looks OK, look over the terms and conditions once more and check the box at the bottom, then press the green “Submit” button.
  1. Once you click “Submit,” your balance transfer request will be complete, and you’ll be taken to a confirmation page that you can print for your records.

If you sent a payment to your creditor electronically, keep in mind that it will be received in 2-4 business days. If a balance transfer check was sent, your creditor should receive it in 7-10 business days.

Completing a Balance Transfer by Phone

If you prefer to request a balance transfer by phone, you can call the number on the back of your card and speak to a customer service representative, who can help submit the balance transfer request on your behalf.

To complete your balance transfer request over the phone, you’ll need:

Name the account is held in
Type of card/account
Card/account number
Amount to be transferred
Name of issuing organization

Balance Transfer Best Practices

Remember to keep these things in mind before you do a balance transfer:

  • Make sure you request a balance transfer within 60 days of receiving your new credit card or receiving an offer.
  • Check to make sure the terms of the balance transfer match the offer you received.
  • Keep making payments on your credit card debt even after submitting a balance transfer request. If the request takes a few days to process and your credit card bill is due, you don’t want to be stuck with a late fee for not paying on time.
  • If your sole goal of setting up a balance transfer is to pay off existing credit card debt, you may want to avoid receiving a check or direct deposit payment as you could be tempted to use the money you receive on something else instead of paying off the creditor.
  • Read the fine print carefully before you make purchases on your Citi card. Some introductory 0% balance transfer offers do not apply to purchases. In that case, you would be charged the regular APR.
  • Make sure you pay your bill on time or you may lose your balance transfer offer.

 

Chonce Maddox
Chonce Maddox |

Chonce Maddox is a writer at MagnifyMoney. You can email Chonce at chonce@magnifymoney.com

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Building Credit

Build Your Credit Score: 6 Best Secured Cards With No Annual Fees

Editorial Disclaimer: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Build Your Credit Score

Updated: June 1, 2017

Applying for a secured card is a simple way to begin building (or rebuilding) your credit history. Secured cards are a way to prove to a lender you can be responsible without a lender having to take much risk. When you open a secured card, you put down a deposit and the lender gives you a line of credit. Typically, your line of credit matches the amount of your deposit. But just like credit cards, not all secured cards are created equal. Below are the five secured cards that don’t charge an annual fee, thus save you money as you build credit history.

Our #1 Pick from Discover

Discover it® Secured Card – No Annual Fee

Discover offers our favorite secured credit card. Unlike most credit card companies, Discover is ensuring that benefits and rewards traditionally associated only with unsecured credit cards will be available on the secured card. This card is best for people with no credit, or with scores of 670 or less. Here are the reasons why this card is our favorite:

No annual fee: There is no annual fee on this card. You do need to make a security deposit of $200 or more to establish your credit line. If you want a bigger limit, you will have to make a bigger deposit.

Bankruptcy? No problem: If you have filed Chapter 7 bankruptcy in the past, you can still qualify for this card. It is a great way for people to rehabilitate their credit.

Automatic monthly reviews: Discover will start automatic monthly reviews at month 8. If you qualify, you could be transitioned to an account with no security deposit. Even better, you could potentially be eligible for a bigger credit limit. This feature really sets Discover apart from the competition – and your goal should be to get back your deposit as quickly as possible through responsible credit behavior.

Earn cash back: Most secured credit cards do not offer any rewards. With Discover it, you have the opportunity to earn cash back while earning rewards. You can earn 2% at restaurants and gas stations (on up to $1,000 of spend each quarter). Plus, get 1% cash back on all your other purchases. Earning cash back is not the primary reason to select a secured credit card, but it is a nice option to have available.

Free FICO Credit Score: Discover will provide you with a copy of your official FICO credit score. If you use a secured credit card properly, you should expect to see your score increase over time. And by providing your FICO score for free, you will be able to watch your improvement.

You can learn more and apply by clicking on the link below:

Learn more


Citi Secured MasterCard with $0 Annual Fee

Citi® Secured MasterCard® – No Annual Fee

citi-secured-credit-cardCitibank has just eliminated the annual fee on its secured credit card. If you are declined by Discover, this could be a good back-up option. In order to qualify, you cannot have filed for bankruptcy in the last two years. Citi will hold onto your deposit for 18 months. Unlike Discover, there is no cash back available and Citi will not perform annual eligibility checks to see if you can be approved for a standard card. Here are the key facts:

  • $0 Annual Fee
  • Provide a security deposit between $200 and $2,500. Your credit limit will be equal to the amount of the security deposit you’ve submitted.
  • 22.49% Variable APR

LearnMore


Option Two – Your Local Credit Union

If you belong to a credit union, go there and ask. They probably have a no annual fee option and could set you up right away. It doesn’t hurt to ask a bank either, but they are less likely to have a no annual fee option.

Option Three – Credit Unions “Anyone Can Join”

If you don’t belong to a credit union, or don’t like the secured card options your bank offers, below are three no fee cards from credit unions anyone can join. While it may cost as much as an annual fee to join the credit union, there is also an added benefit of being a credit union member for life.

These are ranked by lowest to highest minimum deposit

JFCU-LOGO-2C

Justice Federal: Visa Classic Secured Credit Card

  • Cost to join – $5 to join JFCU or $43 if you need to join another organization to become eligible
  • Minimum deposit – $110

Eligibility

Unfortunately, not everyone can easily join Justice Federal Credit Union. JFCU provides financial services to employees of Justice, Homeland Security and the Law Enforcement Community, as well as their family members. If you believe you may qualify, then check the credit union’s member eligibility page. Those who qualify, will need a five dollar deposit and to fund their account.

However, there is a loophole.

One of the eligible associations for membership is the National Sheriff’s Association. It costs $38 to join the NSA as an auxiliary member or student. By joining the NSA first, anyone can then become a member of the Justice Federal Credit Union. This brings the cost of membership to $43.

The Secured Card

Visa Classic Secured Credit Card

  • No annual fee
  • 16.90% APR
  • Credit limits ranging from $100 up to 110% of pledged shares

 

State Department

State Department Federal Credit Union 

  • Cost to join – $1 to join the credit union (which the SDFCU usually covers) + $5 (or $15) to join American Consumer Council, if you don’t work for the Department of State.
  • Minimum deposit – $250

Eligibility

You are eligible to join the SDFCU if you’re an employee of the Department of State or one of the extensive organizations with ties to the credit union (all listed here under “who can join”). If you don’t work for the Department of State, you may also be eligible through the American Consumer Council. You can join the ACC for only $5 if you’ve used any major consumer product or service within the past 12 months – and you probably have.

The Secured Card

EMV Savings Secured Visa Platinum Card

  • 7.49% APR
  • No annual fee
  • Minimum deposit –$250

 

DCU

Digital Federal Credit Union (DCU)

  • Cost to join – $5 to join DCU + membership costs to join eligible organization if you aren’t eligible
  • Minimum deposit – $500

Eligibility

You must be a member of DCU in order to apply for the secured card. You can be eligible to join DCU if a relative is already member, if your employer offers membership or your community is included within field of membership. If none of these apply, you can join an organization with member privileges. Joining these organizations range in membership cost from $25 to $120. Once you join DCU, you have a lifelong membership, so you could cancel a membership with the other organization after joining.

The Secured Card 

Visa Platinum Secured Card

  • No annual fee
  • 12.00% APR (18% penalty APR)
  • Minimum deposit – $300

Option Four – Banks

If you don’t want to join a credit union, these banks offer instant online applications with no annual fee.

Harley Davidson Visa Secured Card from US Bank

Harley

 

 

 

We know it seems a little strange, but the Harley Davidson Visa Secured Card from US Bank offers a good option for those not interested in paying to join a credit union.

  • 23.49% APR – so don’t carry a balance
  • Minimum deposit – $300
  • No annual fee

Capital One secured card

Capital One secured cardIf you currently can’t afford the $110 – $500 deposit, consider the Capital One  secured card with a $49 minimum deposit for a $200 line of credit. Capital One used to have an annual fee of $0.

However, this deposit is based on what Capital One deems as “creditworthy.” It is possible it will ask for a deposit of $99 or $200.

Understand how to use your secured card properly

Once you’re approved, be sure to use your secured card responsibly. You can find more tips on how to use a secured card and build your credit history here.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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Building Credit

Which Credit Cards Allow a Co-Signer (And What to Do If You Can’t Get One)

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Which Credit Cards Allow a Co-Signer (And What to Do If You Can't Get One)

There may be no greater misconception in the financial world than the notion that “anyone” can get a credit card. Getting approved for a traditional credit card is no sure thing. In fact, a recent study by the Consumer Financial Protection Bureau found the approval rate for general-purpose credit cards to be less than 40%.

All of which means many borrowers, particularly those who are routinely denied new credit, need another way to access credit if they want to build or improve their credit history. Finding a reliable co-signer is one option. The concept is simple. If you can’t get approved for a traditional credit card on your own, you find a co-signer with a stronger credit profile who is willing to agree (in writing) to bear full responsibility for the card’s balance should you not pay, thus easing the lender’s concerns.

Joint accounts work much the same way, but there’s a big difference: joint account holders have charging privileges, meaning they can use the card as they want, whereas co-signers usually do not. At the end of the day, whether someone is a co-signer or a joint account holder, they’re every bit as liable as you for any outstanding debt on the card and, for better or worse, the resulting impact on their credit history.

Banks That Accept Co-signers

Among the major credit card providers, only a few, such as Bank of America and U.S. Bank, allow for joint or co-signed accounts, while most others, such as American Express, Capital One, Chase, Citi, and Discover, do not.

Should You Ask Someone to Co-sign Your Credit Card?

According to most credit experts, however, it’s not really a question of can you get a co-signed credit card, but rather, should you?

The answer, according to those same experts, is virtually unanimous.

Experts Agree: Avoid Co-signed Credit Cards

“Few people realize what they’re asking when they ask someone to co-sign,” says Ben Woolsey, president and general manager of CreditCardForum. “They think the bank just needs someone as a credit reference. It’s way beyond that, and something that’s never really a good idea.”

Among the many drawbacks to pursuing a co-signed or joint account is the significant risk you’re asking that co-signer to accept, according to Michelle Black, a credit expert with HOPE4USA, an organization that specializes in helping consumers and businesses repair and access credit. Ultimately, the co-signer has nothing to gain and everything to lose. If you fall behind on payments, they must either pick up the slack or see their own credit dragged down by your failure to stay current.

“Co-signing is like playing Russian roulette with your credit scores,” says Black. “It’s extremely dangerous and typically ends badly.”

The fact that all of the risk associated with a co-signed credit card generally falls on the shoulder of the co-signer often creates challenges that go beyond the financial realm, according to Woolsey.

“It’s something people should approach carefully with respect to the ethical position you’re putting someone in,” Woolsey says. “Aside from the financial risk, there’s also the dynamic of potentially hurting the personal relationship, and that’s something people don’t really think about.”

Fortunately, there are many alternatives to co-signed credit cards, most of which are equally effective at providing access to credit and building your overall credit profile, without the financial and moral hazards.

Alternatives to Getting a Co-signed Credit Card

Become an authorized user on someone else’s account

One of the best alternatives to a co-signed credit card is to have someone add you as an authorized user to an already existing account, says Woolsey.

“It gives you all the benefits of getting a card in your own name, but it gives the primary account holder the control they don’t have as a co-signer, because they can revoke that privilege any time they want,” he says.

Whereas only some of the aforementioned credit card companies allow for co-signed credit cards, all allow for the addition of authorized users to an account.

Get a secured credit card

If you’re strictly looking to build or improve your credit, the secured credit card is another alternative. With a secured credit card, you put down a cash deposit that in turn becomes the line of credit for your account. If you put down a $1,000 deposit, you have $1,000 against which to spend and build credit. As you make “payments” on your secured card over a set period of time (usually 6 to 12 months), the lender will report your good behavior to credit bureaus. Some lenders may even upgrade you to a traditional credit card once you’ve proven you can make on-time payments.

Most major credit card companies offer secured credit cards, as do most credit unions.

“Secured cards can be a wonderful credit-building tool when managed responsibly,” says Black.

Take out a personal loan

If you’re looking to build your credit profile while also gaining access to cash, a personal loan is another option to consider, says Tim Hong, SVP of Products at MoneyLion.

“When you agree to a personal loan, you get your funds upfront and have a steady, predictable payment schedule,” Hong says. “You know exactly how much it will cost over time and when you’ll be done. That’s a dramatically different and more predictable experience than a credit card.”

Apply for retail credit cards

Finally, borrowers needing to build their credit profile can always fall back on the old-fashioned store credit card. Though not everyone is a proponent of store credit cards, most such cards, especially those from retailers, tend to have a lower barrier to entry than standard credit cards, says Ryan Frailich, a financial coach and planner based in New Orleans, La.

“Of course, since they’re taking on more risk by approving cards for those without a great track record, they also have the highest interest rates,” says Frailich. “If you go this route, you have to be absolutely certain you can pay off the full balance monthly.”

The Bottom Line

Whether you find a co-signer for your credit card or pursue one of the many alternatives, the experts agree your primary focus should be on building your credit to the point where banks will approve you on your own.

“What it boils down to is that co-signing is really just one option amongst many,” says Hong. “In the big picture, it’s about showing that reliable payment history and improving your credit score so you avoid having the need for the co-signed card to begin with.”

 

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12 Million People Are About to Get a Credit Score Boost — Here’s Why

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12 Million People Are About to Get a Credit Score Boost

Some serious tax liens and civil judgments will soon disappear from millions of credit reports, the Consumer Data Industry Association announced this week. As a result, millions of consumers could see their FICO scores improve dramatically.

The CDIA, the trade organization that represents all three major credit bureaus — Equifax, Experian, and TransUnion — says they have agreed to remove from consumer credit reports any tax lien and civil judgment data that doesn’t include all of a consumer’s information. That information can include the consumer’s full name, address, Social Security number, or date of birth. The changes are set to take effect July 1.

Roughly 12 million U.S. consumers should expect to see their FICO scores rise as a result of the change says Ethan Dornhelm, vice president of scores and analytics at FICO. The vast majority will see a boost of 20 points or so, he added, while some 700,000 consumers will see a 40-point boost or higher.

Even a small 20-point increase could improve access to lower rates on financial products for these consumers.

“For consumers, the news is all good,” says credit expert John Ulzheimer. “Your score can’t go down because of the removal of a lien or a judgment.”

The change will apply to all new tax lien and civil-judgment information that’s added to consumers’ credit reports as well as data already on the reports. Ulzheimer says consumers who currently have tax liens or judgments on their credit reports that are weighing down their credit scores will be able to reap the rewards of removal almost immediately

“The minute the stuff is gone, your score will adjust and you’re going to find yourself in a better position to leverage that better score,” says Ulzheimer.

But, importantly, he notes that just because credit reporting bureaus will no longer count tax liens or civil judgments against you, it does not mean they no longer exist at all. Consumers could still be impacted by wage garnishment and other punishments associated with the liens and judgments.

“This is the equivalent of taking white-out and whiting it out on your credit report. You can’t see it any longer, but you still have a lien, you still a have a judgment,” Ulzheimer says.

Solution to a longstanding problem

Many tax liens and most civil judgments have incomplete consumer information.

The changes are part of the CDIA’s National Consumer Assistance program that has already removed non-loan-related items sent to collections firms, such as past-due accounts for gym memberships or libraries. The program also has set a 2018 goal to remove from credit reports medical debt that consumers have already paid off.

“Some creditors may have liked having inaccurate credit reports, as long as they were skewed in their favor. That’s not the way the system is supposed to work. This action is just one more proof that the CFPB [Consumer Financial Protection Bureau] works, and works well, and shouldn’t be weakened by special interest influence over Congress,” says Edmund Mierzwinski, consumer program director at the U.S. Public Interest Research Group.

The move is likely the result of several state settlements and pressure from the Consumer Financial Protection Bureau, the federal financial industry watchdog.  Beginning in 2015, the reporting agencies reached settlements with 32 different state Attorneys General over several practices, including how they handle errors. The CFPB also released a report earlier this month that examined credit bureaus and recommended they raise their standards for recording public record data.


Time to start shopping for better loan rates?

High credit scores can lead to long-term savings. Borrowers who expect their scores to improve as a result of these changes may find better deals if they can wait a few months to buy a new house, refinance a mortgage, or purchase a new car. Even a 10-point difference can lead to lower rates on loans.

If you expect the credit reporting changes might benefit you, Ulzheimer suggests holding off on taking out new loans or shopping for refi deals, such as student loan refinancing.
“Let it happen, pull your own credit reports to verify the information is gone, then take advantage of the higher scores,” Ulzheimer says.

Ulzheimer also says the changes may not be permanent. “There is a possibility that if the credit reporting bureau is able to find the missing information, the negative information could reappear on consumer credit reports,” he says.

There isn’t anything in the law that forbids the reporting of liens and judgments anymore, and lenders can still check public records on their own to find missing information.

Ulzheimer says if he were the CEO of a reporting agency, that’s exactly what he would do.

“I would embark on a project to get this information immediately back in the credit reporting system,” he says, then adds all he’d need to do is find an economic way to populate the missing data.

“From a business perspective, I would do it in a New York minute. Because I would immediately have a competitive advantage over my two competitors,” says Ulzheimer.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Guide to Adding an Authorized User to Your Credit Card

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Disclaimer: Though we have done our best to research information regarding this topic, be aware that issuing banks may have unique rules and agreement terms that apply to their particular credit card accounts. Contact issuing banks directly for questions on terms and policies relevant to specific credit card accounts.

What is an Authorized User?

An authorized user on a credit card account is any person you allow to access your credit card account. Not to be confused with a joint account holder, an authorized user can only make purchases and, in some cases, have access to certain card benefits and perks. Joint account holdership is becoming extremely rare, but typically occurs when two people apply for a credit card together. In joint account ownership, both people are liable for charges and can access and make changes to a credit card account.

An authorized user can be a spouse, relative, or employee. When you designate an authorized user on your credit card account, this person usually gets a card bearing their name with the same credit card number as the primary cardholder. In this scenario, the primary cardholder is liable for all transactions made by themselves as well as by any authorized user tied to their account.

Why Would You Add an Authorized User to Your Credit Card Account?

There are many reasons you might think about designating an authorized user for your credit card account. It all comes down to convenience and extending benefits that a credit account offers: access to credit, related perks, and credit card rewards, as well as the potential to improve the credit score of the authorized user.

For example, couples that share expenses might find it easier to designate one or the other as an authorized user to avoid passing a single card back and forth to make purchases. Perhaps you have a relative who lives far away, and it would be easier to give them access to your credit account for emergency purchases. You may also have a child that you want to assist in building credit history to increase their credit score. Adding them as an authorized user could help with this, but we’ll cover that more in another section.

Additionally, if you are an employer whose employees need to make purchases on behalf of the company, it would make sense to make them an authorized user. Without this designation, it could be extremely inconvenient for them to not have a company credit card at their disposal.

In some cases, adding an authorized user can also accrue reward points connected to a credit card account. These reward points can be used to make purchases or receive discounted pricing on things like travel and retail products. Typically, points are accrued from reaching credit card spending amounts within a certain time frame. Sometimes, the act of adding an authorized user can garner additional rewards as well.

How Can I Add an Authorized User to My Credit Card Account?

screen shot 1

As the primary cardholder you are the only person who can designate an authorized user. The authorized user cannot contact the credit card issuer and add themselves to your account. You will have to contact the issuing bank and request to add one or more authorized users to your account.

Depending on the bank and the technology in place, you may be able to handle this process entirely online. Some banks allow you to log in to your banking portal to designate additional authorized users, create their own bank login and profile as well as determine the level of access you’d like them to have to your account. Levels of access can range from being able to view transactions only to making purchases. If your bank doesn’t have this technology in place, usually a phone call is sufficient.

Adding Authorized Users Online

How to Add an Authorized User to a Chase Credit Card Account:

  1. Log into your Chase credit card account
  2. Under “My Accounts” click “Add Authorized User”
  3. Complete the information requested (see screenshot below for reference)How to Add an Authorized User to a Chase Credit Card Account

How to Add an Authorized User to a Bank of America Account:

  1. Log onto your Bank of America account.
  2. Select the credit card you’d like to change.
  3. Click on the tab labeled ‘Information & Services’
  4. Scroll down to the section labeled “Services”
  5. Click on “Add an authorized user”

How to Add an Authorized User to a Chase Credit Card Account

screen shot 2

How to Add an Authorized User to a Capital One account:

  1. Log onto your Capital One credit card account online.
  2. Under the “Services” tab, click “Manage Authorized Users”
  3. Click “Add New User”

screen shot 6
screen shot 7

How to Add an Authorized User to a American Express credit card account:

  1. Log onto your Amex account online.
  2. Click on “Account services”
  3. From the lefthand menu, select “Card Management”
  4. Under “Account Managers”, click “Add and Manage Users with Account Manager”screen shot 10
    screen shot 11

How to Add an Authorized User to a Citi credit card account:

1. Log onto your Citi credit card account online.
2. Select the “Account Management” tab.
3. Click “Services” from the lefthand menu.
4. Click “Authorized Users”
5. Click “Add an authorized user”
6. Fill in the authorized user’s personal information.

 

screen shot 14

 

 

screen shot 12

How to Add an Authorized User to a Barclays credit card account:

  1. Log onto your Barclays credit card account.
  2. Select the “services” tab.
  3. Under the dropdown menu, select “Authorized users”
  4. Select “Add an authorized user”
  5. Complete the form to add an authorized user.
    screen shot 17screen shot 18screen shot 20

Who Can Be an Authorized User on My Account?

An authorized user can be anyone you choose, whether they are related to you in some way or not. In most cases, the bank will request identifying information such as name, birthdate, Social Security number, and address. Some card issuers require that authorized users meet age requirements, and others do not have age requirements. As always, check with the bank to understand the criteria authorized users must meet for your card.

The Fees

Some credit cards will charge an additional fee for more additional authorized users, while others will offer this benefit at no charge. Make sure you read the fine print in your cardholder agreement so that you are aware of all the fees associated with having one or more authorized users on your account.

Fees can range from less than $100 to a few hundred dollars and beyond each year. Business accounts especially can carry higher fees when multiple authorized users are associated to one account.

Liability

As the primary account holder, you must understand that you are 100% solely liable for any and all charges made on your account by both yourself and your authorized user. If you have been designated as an authorized user, you do not legally share liability for purchases made on the credit card account. However, you may have a personal arrangement with the primary account holder to pay your share of charges when the bill is due.

What Can an Authorized User Do?

This can depend on the level of access you’ve chosen with your card issuer for your authorized user. If there are not varying levels of access to choose from, check with the card issuer to find out exactly what an authorized user can and cannot do.

In most cases, an authorized user cannot make changes to an account. They cannot close an account, request changes in bill due dates, change account information, or request limit increases or a lower annual percentage rate.

Again, this varies from card issuer to card issuer, but there are many other things an authorized user can do.

Here are some possible capabilities based on the terms of your credit card issuer:

  • Make purchases
  • Report any lost or stolen cards
  • Obtain account information
  • Initiate billing disputes
  • Request statement copies
  • Make payments and inquire about fees

Benefits of Adding an Authorized User

As mentioned before, adding an authorized user to a card can be for convenience, accruing rewards, or sharing card perks and benefits. An authorized user can be incredibly convenient in the case that you don’t have your personal card or for some reason don’t have immediate access to it.

Having an authorized user can help a primary user reach limits to earn reward points for some cards. One of the most effective marketing strategies of credit card companies is to offer bonuses and rewards for adding authorized users to your account. Adding another user to your account could add a few thousand extra reward points you would not have earned without adding the user. Then, there’s always the chance that the authorized user will make purchases that contribute even more to your attempt to accrue reward points.

Finally, there are a number of credit cards that offer perks or benefits that can extend to your authorized users. Depending on your credit card, benefits like car rental insurance, lost luggage reimbursement, and extended warranties could apply to all purchases made, including those by your authorized users, on your credit card account.

Benefits of Becoming an Authorized User

Though the credit-reporting landscape is changing, there’s still the potential to “piggyback” on a primary account holder’s credit history for a card in good standing. But not all credit card companies report information to credit bureaus for authorized users in all circumstances. However, to know for sure what will be reported to the credit bureaus in regard to your authorized user status, speak with your card issuer for the details of what information is reported and when to credit bureaus.

Another benefit is having access to more credit. If you are in a bind and have emergencies that come up, access to credit can be helpful. Plus, exercising diligence in managing purchases and bill payment can help you develop good credit habits.

You should also know that being an authorized user may grant you access to certain perks for account holders and their primary users. There are benefits like access to travel lounges, Global Entry or TSA PreCheck application, travel credits, and discounts an authorized user could be privy to as well.

What Could Go Wrong?

If for some reason the credit card account doesn’t remain in good standing, the credit score of both the primary account holder and the authorized user could be affected. If you are a primary account holder, make sure your authorized user understands the terms under which they can make purchases. If they make purchases that cause your payments to be delinquent, your credit score could suffer.

Even if you did not give this person permission to make purchases with your credit card account, the fact that you designated them as an authorized user is evidence that you at some point trusted them with your credit card access. A claim of criminal or fraudulent activity in this instance would be extremely difficult to prove, so choose your authorized users wisely.

Though not as common with an authorized user, your credit score could be negatively affected if an account becomes delinquent. Because tradeline reporting for authorized user accounts to credit bureaus varies from card to card and scenario to scenario, a delinquent account status could still appear on your credit report. If you will be added to someone’s account as an authorized user, find out whether or not the credit history of the account will be reported to credit bureaus under your authorized user status.

Removing an Authorized User from an Account

Either the primary cardholder or the authorized user can remove an authorized user from an account by contacting the credit card issuer. You may be asked to verify your information as well as the information of the primary account holder.

In many cases, only one card number is issued between one or more users. Your credit card company may deactivate the primary cardholder’s credit card number and reissue a new card and number once an authorized user is removed from an account.

If your status as an authorized user does show up on your credit report for the credit account after you’ve been removed from a credit card account, you may have to contact credit bureaus to have it removed.

The Best Way to Manage Shared Credit Access

Designating someone as an authorized user is not something to be taken lightly. Even a small misunderstanding of credit card issuer terms and your own interpersonal credit arrangement can cause problems. Before adding an authorized user to your account, set ground rules around card use that covers access to perks and making purchases.

Some things to consider and discuss with your authorized user include:

  • What is the goal in having the authorized user on the account?
  • Will the authorized user have a physical card?
  • When is it OK to use or not use the credit card to make purchases or access card perks?
  • The credit history of both the primary cardholder and the authorized user
  • Good credit habits that will prevent identity theft and fraud
  • Setting up monitoring alerts with the credit card company or an identity theft protection service

The ability to add an authorized user to a credit card account can be a double-edged sword. On one hand, convenient benefits of access to credit and credit card perks can make life easier in so many ways.

On the other hand, this same convenience can cause problems if both the primary cardholder and the authorized user don’t understand the rules of engagement with each other or the terms set forth by the credit card company.

Adding an authorized user to your account has the potential to be incredibly convenient and mutually beneficial if handled the right way. Make sure you follow best practices to get the most out of this financial arrangement.

Aja McClanahan
Aja McClanahan |

Aja McClanahan is a writer at MagnifyMoney. You can email Aja here

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Collection Accounts Don’t Always Hurt Your Credit for Seven Years

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Collection Accounts Don't Always Hurt Your Credit for Seven Years

When you fall behind on a bill, you might get charged a late fee and your late payments could be recorded in your credit reports. If a bill goes unpaid for long enough, your creditor may send or sell your account to a collection agency.

The collection agency will then attempt to collect the balance from you — sometimes aggressively — and often reports its possession of your account to the credit bureaus. A new account with the collection agency’s name will then appear on your credit reports, and this can have a significant negative impact on your credit scores.

You might think that paying off the debt clears everything up, but that isn’t necessarily the case.

Generally, if you pay the amount you owe or settle for a lower payment, the collection account on your reports will be updated and marked paid in full, settled, or something similar. The impact of a collection account on your credit scores diminishes over time, and a paid account could look better to creditors than an unpaid account. But like other derogatory marks, the account can remain on your reports for up to seven years and 180 days since the account first became delinquent (your first late payment with the original creditor).

After an account is removed from your credit report, collection agencies can still continue to attempt to collect payment as long as the account isn’t outside the governing statute of limitations (state laws determine how long a creditor can attempt to collect certain debts).

Even so, removing a collection account could improve your credit scores, making it easier and less expensive to open new loans or lines of credit. Here are a few exceptions to the standard timeline and instances when a collection account won’t affect your credit score.

You’re a New York state resident. For current New York state residents, satisfied judgments and paid collection accounts must be removed five years from the date filed or date of last activity, respectively.

The collection account was for a medical bill that your insurance paid. A settlement between New York Attorney General Eric Schneiderman and the three nationwide credit bureaus — Experian, Equifax, and TransUnion — in March 2015 resulted in new national credit-reporting policies. Now, medical debt can’t be reported to the credit bureaus for 180 days, and medical collection accounts that are being paid, or are paid in full, by an insurance company must be removed from your credit report.

You didn’t have a contractual agreement to pay the debt. Another result of the settlement in New York was that credit reporting agencies can no longer report debts that aren’t a result of a contract or agreement you signed. In other words, if your debt from a parking ticket or library fine gets sent to a collection agency, it won’t be added to your credit reports.

The collection agency agrees to a pay for delete. Also known as pay for removal, a pay-for-delete agreement with a collection agency is an arrangement in which you agree to pay some or all of the amount owed the collection agency and requests the credit bureaus delete the collection account from your reports.

You’ll want to get a written agreement from the collection agency before sending a payment, but this could be difficult because in general a pay-for-delete agreement is considered a little shady. “Right now, the credit reporting standards do not allow for deletion of accurate collections simply because they’re paid,” says credit expert John Ulzheimer, formerly of FICO and Equifax. “That doesn’t mean it doesn’t happen, simply that it’s counter to the standards that debt collectors have been given by the credit reporting industry players.”

It requires the collection agency to stop reporting an account that legitimately existed, which may violate the agreement the collection agency has with one or more of the credit reporting agencies.

Your debt collection agency has a special policy. In October 2016, Midland Credit Management, a subsidiary of Encore Capital Group, one of the largest debt collection agencies in the world, announced a new policy.

If MCM bought your debt and you begin payments within three months, and continue making payments until the account is paid off, the company won’t report the account to the credit bureaus (i.e., it won’t appear on your credit reports).

Additionally, if it’s been more than two years since the date of delinquency and you pay the account in full or settle the account, MCM will request the credit bureaus delete the collection account from your credit reports.

The account isn’t yours. If a collection account is on one of your credit reports and you don’t owe the debt, or it’s a type of collection account that meets one of the above criteria for removal, you may be able to dispute the account. The Fair Credit Reporting Act requires the credit bureaus and data furnishers (such as a collection agency) to correct inaccurate information.

Your lender uses one of the latest credit-score models. You might have paid or settled a collection account and still have to wait for the account to drop off your credit reports. However, if your lender is using the latest base FICO Score, FICO 9, or the VantageScore 3 scoring model, paid or settled collection accounts won’t affect your credit score. FICO Score 8 and 9 don’t consider collection accounts if your original balance was under $100.

However, lenders may use older credit-scoring models, which means a collection account could affect your score for as long as it’s on your credit reports and regardless of the original debt.

Louis DeNicola
Louis DeNicola |

Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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7 Signs You’re Working With a Shady Credit Repair Firm

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7 Signs You're Working With a Shady Credit Repair Firm

It’s natural to want a quick fix for your credit problems, but be wary of any practice that seems deceptive — even if it could work in your favor.

In September 2016, the Consumer Financial Protection Bureau filed a lawsuit against Prime Marketing Holdings, a credit repair firm based in Van Nuys, Calif. In its complaint, the CFPB alleged the company charged customers advance fees “totaling hundreds of dollars” and misled customers about their ability to remove negative items from their credit reports.

The case is still active, but it’s just one example of the proliferation of credit repair abuse in the U.S. And it gives rise to the question: How do I know if a credit repair company is legitimate or just another scam?

We’ve put together a litmus test of seven signs you could be working with a shady credit repair company.

1. They ask you to pay before they start working.

One of the biggest red flags in the credit repair business is requiring an upfront fee before any services are rendered. Under the Credit Repair Organizations Act (CROA), credit repair companies can’t charge advance fees before rendering services.

In some cases, advance fees can be only a couple of hundred dollars. But some companies have been found to ask for thousands of dollars upfront. In 2011, the Federal Trade Commission sued Doug and Julie Parker, owners of a Texas-based credit repair firm called RMCN Credit Services, Inc. The FTC claimed the couple charged customers a staggering $2,000 retainer fee before they completed any work. In the end, the Parkers were fined $400,000 by the federal watchdog.

2. They try to give you a new “credit identity.”

Another dodgy credit repair practice is when a company tries to convince clients to create a “new credit identity.” To establish this identity, the firm may offer to issue the client a nine-digit “credit profile number” or even prompt them to apply for an employer identification number with the IRS. With the new number in place, the firm could them encourage the client to apply for new credit and stop using their real Social Security number.

Don’t be fooled — this practice is completely illegal. An EIN is only used to identify businesses, and it is not a substitute for a Social Security number. Additionally, that credit profile number could easily be someone else’s stolen Social Security number. “These companies may be selling stolen Social Security numbers, often those taken from children,” the FTC warns. If you fall for this trap, you are essentially committing identity theft.

3. They ask you to lie on credit applications.

Some credit repair organizations may also ask you to lie on credit applications in order to qualify for more credit. For example, they may ask you to report more income than you earn. It’s illegal to make false statements on credit applications.

4. They dispute correct information on your credit report.

Yet another way credit repair companies try to manipulate the system is by misinforming consumers about the rules surrounding credit reports. They may tell consumers that they can fight every single item on their credit report — even if the item is accurate.

This is not true. If there is a negative item on your credit report that you feel is an error, you absolutely can fight to have it removed. But if it’s negative because you were, indeed, late on your bill, or did, in fact, file for bankruptcy, you cannot file to have it removed by claiming it is inaccurate.

5. They promise to get you a perfect credit score.

When a company promises they can improve your credit score or even get your score up to a specific number, don’t believe their hype.

In 2015, the FTC filed suit against a company called FTC Credit Solutions for making exactly these types of claims. The company’s representatives told customers they would get their credit score into the 700s and promised any negative credit report information could be removed. On top of that, they also charged advance fees before rendering any services. The case was settled very quickly to the tune of a $2.4 million penalty against the defendants.

6. They claim they are affiliated with a government agency.

Some repair firms fraudulently claim they are affiliated with the FTC or another government agency. If you are filing bankruptcy, it is true that you’ll be required to get some kind of credit counseling. But that counseling must be from a government-approved organization. There’s a full list of approved credit counseling firms on the U.S. Trustee Program website. If you’re thinking of working with a firm that isn’t on that list, you might want to reconsider.

7. They don’t want you to contact the credit bureaus on your own.

Don’t believe a company that tells you they are the only way to contact the credit bureaus. By law, any consumer can contact credit bureaus directly without a third party. You also have the right to access your credit report from each of the three credit bureaus once per year for free. If you’ve been rejected for anything for credit-related reasons, you have 60 days to request a free copy of your report. This enables you to keep potential creditors honest.

If a company ever tells you that you are not allowed to contact the credit bureaus on your own, walk away — fast.

How to Repair Your Credit All by Yourself

The MagnifyMoney team highly recommends taking simple steps to improve your credit on your own, without the risk of working with a shady credit repair firm.

Read MagnifyMoney’s full, in-depth guide to repairing your own credit.

Start by getting a copy of your free credit report from each of the credit bureaus. The simplest way to do this is by requesting copies at AnnualCreditReport.com, which is a government-sponsored website.

From there, look over your information to make sure everything is accurate. If there are late payments listed, did you actually pay late? Does it show closed accounts accurately? Do you recognize all of the accounts?

Sometimes reports do have errors. If you find one, consider the fact that you may be a victim of identity theft and take appropriate steps as necessary.

If you’re instead the victim of an honest mistake, contact the credit bureaus directly. You will have to do so online and via written letter. You will also have to contact the entity that incorrectly reported the line item. You can get a sample letter here.

Be sure to keep copies of all of your paperwork and follow up on your dispute. The credit bureaus have 30 days to investigate. If all turns out well, they will remove the item, which could result in a higher credit score.

If they do not find in your favor, you can request that a copy of the dispute be attached to your credit report moving forward, but you will have to pay a fee to do so. While this will not improve your credit score, it could potentially alert future creditors to the fact that you do not agree with the negative item.

There are also rare cases where you can attempt to get an accurate item removed from your credit report. If you were not aware of a debt, but you quickly paid it off once you were properly notified, the creditor may be willing to remove the item from your report. This kindness may also be extended if you were experiencing a temporary illness or life emergency. These removals are rare, but are most often rewarded when you are an otherwise responsible steward of your debts.

To make your case to your creditor, you will need to write them a letter of goodwill. In it, explain that you understand why the item is on your report, but also explain why you temporarily were unable to fulfill your obligation. Stress the fact that you are an otherwise responsible borrower, and point out specific instances in your business relationship where this has proven to be true.

It’s also a good idea to appeal to their human side. Explain what the removal of the debt would mean for you. Is there a major milestone coming up, such as a job interview or a mortgage application? Thank them sincerely for the time they’re taking to review your case and cross your fingers. Goodwill letters do not have a high success rate, but you will have a zero percent success rate if you don’t try.

Read MagnifyMoney’s full guide on letters of goodwill.

Finding Legitimate Solutions

Even though there are a lot of scammers out there, it’s good to remember that there are legitimate credit repair organizations, too. However, before you pay a company to help you repair your credit, read our guide on repairing your credit on your own and our guide on credit counseling. At the very least, properly vet a credit repair firm before you sign up for their services — and watch out for the warning signs we covered before.

Another potentially safer way to go about credit repair is by working with a not-for-profit credit counselor. These organizations have a lower rate of deceptive practices and can work with you in a more holistic manner to resolve not just your credit report woes but also your current debt situation.

Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne at brynne@magnifymoney.com

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Where to Get Your Credit Report for Free

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Where to Get Your Credit Report for Free

If you haven’t checked your credit report lately, you’re not alone. A 2016 survey conducted by Princeton Survey Research Associates International found more than half — about 54% — of Americans hadn’t even checked their credit score — the number constructed from factors in your credit report — within the past year. What’s worse, almost a quarter of respondents had never checked their score, making them extremely vulnerable to financial crime. Checking your credit report may seem like any other financial chore, but you shouldn’t keep placing it on the back burner. Similarly to getting a check-up at the doctor’s office, checking your credit report is a preventative measure you should take at least once a year with a bonus: it’s free.

What Is a Credit Report?

Your credit report paints a financial picture of your life. It is a complete history of your use of credit going back at least seven years, good and bad. This includes credit card accounts, student and personal loans, and mortgages, and information about how you use them such as payment history or accounts that have gone to collections. It may also include any utility and other bills that have gone unpaid and were sent to collections. There are three main companies that track your credit report: Experian, Equifax, and TransUnion.

Don’t confuse your credit report with your FICO credit score. Your credit score is a numerical figure that is calculated by using the information from your credit reports. Banks and lenders weigh information from your credit report to create a credit score to gauge how responsible you are when it comes to credit. If your credit reports show a solid history of on-time payments and a good mix of different types of loans, your score will reflect that. Likewise, if your credit report shows lots of missed payments and debt collection accounts, you can expect a poor score.

Knowing the information that is currently on your credit report can help you stay ahead of fraudsters and give you details about how you can improve your credit score. If you don’t check your credit report annually, you may not be able to accurately track the health of your credit score, or know when someone has used stolen personal information from you. In addition to those benefits, checking your reports annually can be an exciting way to benchmark your financial progress.

Where to Get Free Credit Reports

You should check your credit report annually for yourself, but you may also need a report to apply for a car loan or to rent an apartment, etc. When you do need a copy of your report, you can get one for free from a few sources.

You are entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting bureaus. You can order a free copy of your credit report from all three bureaus from AnnualCreditReport.com. Like the name implies, you can only order each report once a year for free.

Since you only get one free report from each of the three bureaus per year, stagger them throughout the year. For example, once every four months, request a report from one of the bureaus.

If you want to get an update on your credit report more than once a year, but you don’t want to pay for it, there are a bunch of tools out there that offer credit monitoring for free.

Credit.com offers a Credit Report Card tool to monitor your Experian credit report. All you need to do is go to credit.com, and click “Free Credit Report Card” under the “Credit Cards & Score” tab to create an account. The report card updates every 14 days.

Credit Karma gives you access to your TransUnion and Equifax credit reports for free. You can also sign up for their free credit and account monitoring services. If you do, you’ll receive an email alert whenever your credit score changes, and you’ll be notified whenever a new account is opened. The reports update weekly.

Credit Sesame gives you access to your TransUnion credit report via their credit monitoring service. The service updates your report each month.

Mint.com, a free money-management website and app, gives anyone with a Mint account access to their free Equifax credit report. The report is updated every 30 to 60 days.

Quizzle offers a free VantageScore — a scoring model developed by all three credit bureaus — and a free Equifax credit report, which is updated every six months.

Once You Have Your Report

Once you see your credit report, you should check it carefully for any wrong or negative information impacting your credit score. Double check to make sure the open accounts reported all belong to you. Check that the payment information is accurate and all of the account balances are correct. If you find any errors, you should dispute them directly through the bureau websites. MagnifyMoney has a more in-depth guide about how to do that here.

You might not see any errors, but realize that you need to work on rebuilding your credit. A healthy credit score can be very helpful to you when making a large purchase like a car or first home. MagnifyMoney’s complete guide to help you rebuild your credit can be found here.

You may also notice that you’ve been a victim of identity fraud. That may take a few more steps to clear up, but you can find what to do here.

 

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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