Tag: CREDIT SCORE

Building Credit, Featured, News

Average Credit Score in America Reaches New Peak at 699

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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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Won’t impact your credit score

Investing, Personal Loans

Earnest: Personal & Student Loans for Responsible Individuals with Limited Credit History

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Earnest - Personal & Student Loans for Responsible Individuals with Limited Credit History

Updated January 24, 2016

Earnest is anything but a traditional lender for unsecured personal loans and student loans. They offer merit-based loans instead of credit-based loans, which is good news for anyone just starting to establish credit. Their goal is to lend to borrowers who show signs of being financially responsible. Earnest is working to redefine credit-worthiness by taking into account much more than just your score.

They have a thorough application process, but it’s for good reason – they consider different variables and data points (such as employment history, education, and overall financial situation) that traditional lenders don’t.

Earnest*, unlike traditional lenders, says their underwriting team looks to the future to predict what your finances will look like, based upon the previously mentioned variables. They don’t place as much emphasis on your past, which is why a minimal credit history is okay.

Additionally, as their underwriting process is so thorough, Earnest doesn’t take on as much risk as traditional lenders do. With their focus on the financial responsibility level of the borrower, they have less defaults and fraud, which allows them to offer some of the lowest APRs on unsecured personal loans.

Personal Loan (Scroll Down for Student Loan Refinance)

Earnest offers up to $50,000 for as long as three years, and their APR starts at a fixed-rate of 5.25% and goes up to 12.00%. They claim that’s lower than any other lender of their type out there, and if you receive a better quote elsewhere; they encourage you to contact them.

Typical loan structure

How does this look on paper? If you needed to borrow $20,000, your estimated monthly payment would be $599-$638 on a three- year loan, $873-$911 on a two- year loan, and $1,705-$1,744 on a one-year loan. According to their website, the best available APR is on a one-year loan.

Not available everywhere

Earnest is available in the following 36 states (they are increasing the number of states regularly, and we keep this updated): Arkansas, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C., West Virginia, Wisconsin and Wyoming.

Get on LinkedIn

Earnest no longer requires that you have a LinkedIn profile. However, if you do have a LinkedIn profile, the application process becomes a lot faster. When you fill out the application, your education and employment history will automatically be filled in from your LinkedIn profile.

What Earnest Looks for in a Borrower

Earnest AppEarnest wants to lend to those who know how to manage and control their finances. They want borrowers to know the importance of saving, living below their means, using credit wisely, making timely payments, and avoiding fees.

They look at salary, savings, debt to income ratio, and cash flow. They want borrowers with low credit utilization – not those maxing out their credit cards and experiencing difficulty in paying.

Borrowers must be over 18 years old and have a solid education background. Ideally, they attended college or graduate school, have a degree, and have a history of consistent employment, or at least a job offer that gives them the opportunity to grow.

Overall, Earnest wants to make sure borrowers are taking their future as seriously as they are. After all, they’re investing in it! The team at Earnest knows that money often holds people back when it comes to being able to achieve their dreams and goals, and they’re all about helping borrowers get there.

For that reason, Earnest seeks to learn more about those that apply for loans with them. They review every line of your application, and they want to develop a lifelong relationship with their borrowers. They genuinely want to help and see their borrowers succeed.

The Fine Print – Are There Any Fees?

Earnest actually doesn’t charge any fees. There are no late fees, no origination fees, and no hidden fees.

There’s also no penalty for prepaying loans with Earnest – they encourage borrowers to prepay to reduce the amount of interest they’ll pay over the life of the loan.

Earnest states that one of its values is transparency (and of course, here at MagnifyMoney, that’s one of ours as well!), and they are willing to work with borrowers who are struggling to make payments.

Hala Baig, a member of Earnest’s Client Happiness team, says, “We would work with the client to make accommodations that are appropriate to help them through their situation.”

She also notes that if borrowers are late on payments, they do report the status of loans on a monthly basis.

What You Can Do With the Money

The $30,000 loan limit is enough to pay off debt such as an undergraduate student loan, medical debt, or consumer debt, relocate for a job, improve your home or rental property, help you fund a down payment, or further invest in your education.

Earnest’s APR is much, much better than you’ll receive on many credit cards, and it could be a viable way to decrease the burden of debt you’re currently experiencing.

Earnest logo 1

Apply Now

The Personal Loan Application Process

Earnest does a hard inquiry upon completion of the application. They’re very open about this on their website, stating that hard inquiries remain on credit reports for two years, and may slightly lower your credit score for a short period of time.

Compared to Upstart, their application process is more involved, but that’s to the benefit of the borrower. They aim to underwrite files and make a decision within 7 business days – it’s not instantaneous.

However, once you accept a loan from Earnest and input your bank information, they’ll transfer the money the next day via ACH, so the money will be in your account within 3 days.

Student Loan Refinance

When refinancing with Earnest, you can refinance both private and federal student loans.

The minimum amount to refinance is $5,000 – there’s no specific cap on the maximum you can refinance.

We encourage you to shop around. Earnest is one of the best options, but there are others. You can see the best options to refinance your student loans here.

Earnest offers loans up to 20 years. Unlike other lenders, Earnest allows borrowers to create their own term based on the minimum monthly payment you’re comfortable making. Yes, you can actually choose your monthly payment, which means the loan can be customized to your needs. Loan terms start at 5 months, and you can change that term later if needed.

You can also switch between variable and fixed rates freely – there’s no charge. (Note that variable rates are not offered in IL, MI, MN, OR, and TN. Earnest isn’t in all 50 states yet, either.)

Fixed APRs range from 3.35% to 6.49%, and variable APRs range from 2.61% to 6.28% (this is with a .25% autopay discount).

If you refinance $25,000 on a 10 year term with an APR of 5.75%, your monthly payment will be $274.42.

The Pros and Cons of Earnest’s Student Loan Refinance Program

Similar to SoFi, Earnest offers unemployment protection should you lose your job. That means you can defer payments for three months at a time, up to a total of twelve months over the life of your loan. Interest still accrues, though.

The flexibility offered from being able to switch between fixed and variable rates is a great benefit to have should you experience a change in your financial situation.

As you can see from above, variable rates are much lower than fixed rates. Of course, the only problem is those rates change over time, and they can grow to become unmanageable if you take a while to pay off your loan.

Having the option to switch makes your student loan payments easier to manage. If you can afford to pay off your loans quickly, you’ll benefit from the low variable rate. If you have to take it slow and need stability because you lost a source of income, you can switch to a fixed rate. Note that switching can only take place once every 6 months.

Earnest also lets borrowers skip one payment every 12 months (after making on-time payments for 6 months). Just note this does raise your monthly payment to adjust for the skipped payment.

Beyond that, Earnest encourages borrowers to contact a representative if they’re experiencing financial hardship. Earnest is committed to working with borrowers to make their loans as manageable as possible, even if that means temporary forbearance or restructuring the loan.

Lastly, if you need to lower your monthly payment, you can apply to refinance again. This entails Earnest taking another look at your terms and seeing if it can give you a better quote.

Who Qualifies to Refinance Student Loans With Earnest?

Earnest doesn’t have a laundry list of eligibility requirements. Simply put, it’s looking to lend to financially responsible people that have a reasonable ability to pay their loans back.

Earnest describes its ideal candidate as someone who:

  • Is employed, or at least has a job offer
  • Is at least 18 years old
  • Has a positive bank balance consistently
  • Has enough in savings to cover a month or more of regular expenses
  • Lives in AR, AZ, CA, CO, CT, FL, GA, HI, IL, IN, KS, MA, MD, MI, MN, NC, NE, NH, NJ, NY, OH, OR, PA, TN, TX, UT, VA, WA, Washington D.C., and WI
  • Has a history of making timely payments on loans
  • Has an income that can support their debt and routine living expenses
  • Has graduated from a Title IV accredited school

If you think you need a little help to qualify, Earnest does accept co-signers – you just have to contact a representative via email first.

Application Process and Documents Needed to Refinance

Earnest has a straightforward application process. You can start by receiving the rates you’re eligible for in just 2 minutes. This won’t affect your credit, either. However, this initial soft pull is used to estimate your rates – if you choose to move forward with the terms offered to you, you’ll be subject to a hard credit inquiry, and your rates may change.

Filling out the entire application takes about 15 minutes. You’ll be asked to provide personal information, education history, employment history, and financial history. Earnest takes all of this into account when making the decision to lend to you.

The Fine Print for Student Loan Refinance

There aren’t any hidden fees – no origination, prepayment, or hidden fees exist. Earnest makes it clear its profits come from interest.

There are also no late fees, but if you get behind in payments, the status of your loan will be reported to the credit bureaus.

Earnest logo

Apply Now

Who Benefits the Most from Earnest

Those in their 20s and 30s who have a good grip on their finances and are just getting started with their careers will make great borrowers. If you’re dedicated to experiencing financial success once you earn enough money to actually achieve it, you should look into a loan with Earnest.

If you have a history of late payments, being disorganized with your money, or letting things slip through the cracks, then you’re going to have a more difficult time getting a loan.

Amazing credit score not required

You don’t necessarily need to have the most amazing credit score, but your track record with money thus far will speak volumes about how you’re going to handle the money loaned from Earnest. That’s what they will be the most concerned about.

What makes you looks responsible?

Baig gives a better picture, stating, “We are focused on offering better loan alternatives to financially responsible people. We believe the vast majority of people are financially responsible and that reviewing applications based strictly on credit history never shows the full picture. One example would be saving money in a 401k or IRA. That would not appear on your credit history, but is a great signal to us that someone is financially responsible.”

Conclusion

Overall, it’s very clear that Earnest wants to help their borrowers as much as possible. Throughout their website, they take time to explain everything involved with the loan process. Their priority is educating their borrowers.

While Earnest does have a nice starting APR at 4.25%, remember to take advantage of the other lenders out there and shop around. You are never obligated to take a loan once you receive a quote, and it’s important to do your due diligence and make sure you’re getting the best rates out there. If you do find better rates, be sure to notify Earnest. Otherwise, compare rates with as many lenders as possible.

Shopping around within the span of 45 days isn’t going to make a huge dent in your credit; the bureaus understand you’re doing what you need to do to secure the best loan possible. Just make sure you’re not applying to different lenders once a month, and your credit will be okay.

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Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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Featured

Get The Highest Credit Score Possible: New Credit Card Study Reveals the Key

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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Getting a high credit score can make it easier for consumers to save on life’s biggest purchases. But many Americans who are stuck with average or below average credit may find it difficult to move up the credit score ladder.

In a new study, MagnifyMoney, a leading financial comparison and education website, partnered with  VantageScore Solutions to see how much credit consumers are using — and how that impacts their credit score.

In the study, VantageScore delved into the credit score profiles of U.S. consumers who are using credit cards in 2017. Scores analyzed were on a 300 – 850 scale, using the VantageScore 3.0 score model.

We decided to home in on utilization — that’s how much credit people are using compared to how much credit they have available to them. Then, we looked at how their credit utilization corresponded to their credit score.

What we found is that people with excellent credit share one main trait in common: They have incredibly low utilization rates.

If you want the highest score, you need to make sure you haven’t missed any payments in the past and don’t have any public records, collection items or judgments. However, what this data shows is that even if you have a perfect payment history, low utilization is critical to get the highest score.

Key findings include…

  • The best scores have 16x the credit limit of the worst scores: People with the best scores (above 800) have available credit of $46,735, 16x that of the $2,816 of those with the worst scores (below 450), but their outstanding balances are about the same at $2,231 (above 800) vs $2,653 (below 450)
  • People with scores 601-650 have the biggest credit card bills: People with scores between 601 and 650 carry the biggest balances, at over $10k, or nearly 2x the average of all consumers.
  • The average credit card holder has $29,197 in credit lines. With an average balance of $5,720, the average holder is using 20% of available credit.
  • Getting above 700 is the biggest hurdle. People with scores 701-750 have average utilization of 27% vs 47% for those with scores 651-700, the biggest utilization gap of any score band. Average balances for people with scores 651-700 are about $3,000 higher than those with scores in the 701-750 range.

The Power of the Utilization Rate

One of the most influential metrics in credit scoring is called “revolving utilization.” This metric, informally referred to as the debt-to-limit ratio, calculates just how leveraged your credit cards are at any given time by comparing your balances to your credit limits. According to VantageScore, and using data provided by the three credit reporting agencies, people with credit scores above 800 have an average debt-to-limit ratio of just 5%.

To calculate the debt-to-limit ratio you must do a little math. The first thing you’ll do is add up the balances on all of your credit cards, which includes retail store and gas credit cards. Now add up the credit limits of those same cards and any other unused credit cards. Now you’re ready to do the math. Divide the total credit card balance by the total credit limit, and then multiple that number by 100 and you’ll get your percentage.

NOTE: Do NOT include any balances or original loan amounts from installment loans like mortgages, student loans, or auto loans. Revolving utilization is only calculated from your revolving credit card accounts.

Inside the Wallet of Someone With Perfect Credit

As you can see from the chart below, those of you with VantageScore credit scores over 800 have an average debt-to-limit ratio of just 5%. The math it took to get to 5% looks something like this: you have an average total balance of $2,231 and an average total credit limit of $46,735. When you divide $2,231 by $46,735 you get 5% — 5% is a fantastic debt-to-limit ratio. This is where you want to be!

Inside the Wallet of Someone With Bad Credit

On the other end of the score range — those of you with the lowest possible scores, 450 and below — you have an average debt-to-limit ratio of 94%, which is very high and very poor. Your average total balance is $2,653 and an average total credit limit of $2,816. When you divide $2,653 by $2,816 you get 94%. Ninety-four percent is simply too high and a significant reason why your scores are so low. This is not where you want to be!

 

It is important to point out that the debt-to-limit ratio is just that, a ratio. It’s all about the relationship between the balance and credit limit, not so much how large or how small your balances are or how large or how small your credit limits are. In fact, the people whose scores are the very lowest don’t have that much more average credit card debt than the people with the highest scores — $2,231 for the high scorers and $2,653 for the low scorers.

The significant difference between the two populations is in the credit limits. The folks with the highest scores have the largest total credit limit, $46,735 as compared to $2,816 for the people with the lowest scores.

You can see just how problematic it is to have lower limits as it makes even modest credit card balances very problematic for your credit scores as they take up a considerable portion of your available credit. You get too close to maxing out your available credit too quickly.

Use These Findings to Boost Your Credit Score

Here are MagnifyMoney’s tips on improving a low credit score:

Step 1: Get a line of credit

In order to establish credit history, you need to have a form of credit. The simplest way for you to begin will be to open a credit card. If your score is low or non-existent, then you’ll need to apply for a secured card or a store card.

  • Secured Card:  You’ll use your own money as collateral by putting down a deposit of a few hundred dollars with the bank. Typically, that amount will then be your credit limit. Once you prove you’re responsible, you can get back your deposit and upgrade to a regular credit card. [Read more here]

  • Store Card: People with a low credit score can often still get store cards because banks are more likely to approve users who apply through the store. The catch is that the interest rates are often very high if you can’t make your payments. [Read more here]

Step 2: Keep your utilization rate low

Utilization is the amount of your credit limit you spend each month. For example, if you have a $500 credit limit and spend $50 in a month, you’re utilization will be 10%. Your utilization is part of what determines your credit score.

Your goal should be to never exceed 30% of your credit limit. Ideally, you should be even lower than 30% because the lower your utilization rate, the better your score will be.

We recommend you make one small purchase (hello, pack of gum) a month to keep your utilization low and help increase your credit score at a faster rate.

Step 3: Pay in full, and on time, each month

The easiest way to prove you’re responsible is to only charge what you can afford. Never use your credit card to buy an item you won’t be able to pay off on time and in full each month.

Being late on your payments has a huge, negative impact on your credit score.

There is also no advantage to only paying the minimum amount due on your card. That will only result in you paying interest and does nothing to help your credit score. So just save yourself money and pay your entire bill.

Step 4: Avoid credit card debt

This goes hand-and-hand with step three. By only purchasing what you can pay off in full, you’ll never accumulate credit card debt.

If you’re already in debt from the misuse of credit cards, then make sure you continue to pay at least the minimum due on time each month. Paying on time is the number one indicator of a responsible borrower. You should consider applying for a personal loan, and using the money from the loan to pay off your credit card debt. Personal loan companies have interest rates that start as low as 4.25%, and they are approving people with credit scores as low as 550. You can shop around for a personal loan without hurting your score, because the lenders will approve you using a soft pull (which doesn’t impact your score). A recent study by Lending Club showed that people who paid off their credit card debt with a personal loan saw their score increase by 31% on average, right away. You can look for the best personal loans using this personal loan tool. After you pay off your credit cards with the proceeds on the loan, do not build up your debt again. Instead, just make one purchase each month and pay it off in full.

Once you pay off your cards, resist the urge to close them. Closing your cards will not only lower your utilization but remove history which damages your score in the “length of history” category.

Step 5: As your score improves, so do your options for better credit cards

You’ll start to get credit card offers as you begin to build your credit history and improve your score. Credit card companies still love sending snail mail.

Beware of any offers, especially for cash back cards, while your score is below 650. These cards typically provide little value and can smack you with high interest rates if you fail to follow step three.

Not sure if an offer is a good deal? Try checking it out in our cashback reward cards page. Our Magnify Transparency Score will let you know if it’s the real deal.

Once you get your credit score above 680, the good credit card offers will start rolling in. You can have your pick of the top-tier reward credit cards and start using your regular spending to get cash back or rack up points for travel.

Step 6: Protect your score

Once you’ve achieved a higher credit score, but sure to protect it by following these simple steps:

  • Always pay on time – late or missed payments will cost you dearly

  • Try to keep your credit used below 30% of your available credit

  • If you apply for a store card to increase your credit then immediately put in the freezer (literally if you have to) and avoid spending

  • Be sure to check your credit reports for accuracy and signs of fraud – you’re entitled to one free report per year from each of the three credit bureaus

If you have any questions or just want a helping hand, please reach out to us at info@magnifymoney.com or tweet us @Magnify_Money.

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Credit Cards

What Everyone Should Know About the New VantageScore 4.0 Credit Score

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In the world of consumer credit reporting and credit scoring moves at glacial speed. Every few years credit scoring systems are rebuilt or, more formally, redeveloped.  But, it’s rare that the newer versions of credit scoring systems are meaningfully different than their predecessors.

However, today VantageScore Solutions announced the release of the 4th generation of their VantageScore credit score which will become available from the three credit reporting agencies in the Fall of 2017, and it’s a game changer.

What is the VantageScore Credit Score

VantageScore Solutions was created by the three credit reporting agencies in 2006. The VantageScore credit score is a tri-bureau credit scoring model, meaning it is available for purchase and use from all three of the credit reporting agencies. The score is scaled 300 to 850, and the higher the score the better you look to lenders. According to VantageScore some 8 billion of their scores were used during the 12-month period between July 2015 and June 2016.

How is VantageScore 4.0 Different Than Prior Versions

VantageScore 4.0 is the only credit scoring system that considers your “trended” credit data.

What trended data says about the consumer is whether they’re paying their credit card balances in full each month, or if they’re just paying a small amount and revolving some or most of the balances to the next month. In the older form of credit reporting, prior to trended data, there was no way to distinguish between someone who paid in full each month from someone who paid a small amount and rolled the remaining unpaid balance to the next month.

Several years ago the credit reporting agencies began maintaining and reporting the historical balances and payments made on your credit card accounts. So rather than just reporting what your balance was last month, all three credit bureaus now report the historical balances and the amount you paid going back 24 months. This information is being called “Trended Data.”  You can see your trended data by looking at your credit reports via www.annualcreditreport.com.

Why does trending data matter?

In short, people who do not pay their cards in full each month are riskier than people who do pay them off in full each month.

That’s not anecdotal. TransUnion performed an analysis comparing the risk between transactors and revolvers and the results were staggering. People who do NOT pay their cards off in full each month are 3 to 5 times riskier than people who do pay in full each month. But until VantageScore 4.0, there was no difference in credit scores for someone pays in full each month versus not doing so. That’s why this is a big deal for lenders…it’s a materially better scoring model.

When Will Lenders Start Using the New Score?

This is the million dollar question…when? Converting to a new credit score is expensive and time consuming, and not mandatory.  Because of that, the industry tends to take a very long time fully adopting new scoring systems. Even FICO 9, the most current version of FICO’s credit score, doesn’t have a critical mass of users and it has been commercially available since late 2014. But, the features of VantageScore 4.0 are very compelling so it’s reasonable to expect lenders to be very interested as soon as the model goes live at the credit bureaus.

Having said that, VantageScore has partnerships with a variety of websites, like Credit Karma and Credit Sesame, that give their scores away to the sites’ registered users. Converting to newer score version is much easier for these websites because they don’t have the same barriers that lenders have. VantageScore 4.0 will likely be live and available from one or more of these websites not long after it goes live in the Fall of 2017.

What does this mean for you?

  1. It will become more important to pay your bill in full each month.

For you, this new model underscores the importance of paying your card in full each month. The average interest rate on a credit card is about 16% so it’s expensive to revolve balances. Notwithstanding the fact that you’re paying interest on the unpaid balance, now by not paying your balance in full your VantageScore 4.0 score is likely to be lower because you’re a riskier consumer. Conversely, those of you who do make it a practice to pay your cards in full each month, your VantageScore 4.0 score is likely to be higher because you’re a less risky consumer…and you’re not paying interest.

  1. Liens and judgments won’t hurt your score quite as much.

On or about July 1, 2017 the credit reporting agencies will remove most of the judgments and about ½ of the tax liens from credit reports. VantageScore 4.0 has been engineered to be less reliant on liens and judgments because, not surprisingly, there will be considerably fewer incidents where those public records find their way to credit reports. This isn’t really a big deal for consumers but it is a very big deal for lenders that will rely on the new score.

  1. Medical collections less than six months old won’t hurt your score at all.

Further, VantageScore 4.0 will ignore medical collections that are less than six months old, as in they won’t hurt your score at all. And the credit bureaus, as part of the NCAP, will remove medical collections that are paid or are being paid by an insurance company. The hypothesis, which makes perfect sense, is to avoid any unfair score impact caused by the inefficient insurance claim process. And for those medical collections that are older than six months and are not paid by insurance, which will remain on credit reports, VantageScore 4.0 will discount them so they don’t have as much of a negative impact as non-medical collections.

The Bottom Line: The VantageScore 4.0 is better for consumers and better for lenders.

The changes that were made benefit consumers who pay their cards off each month, and/or have medical collections. The changes benefit lenders because the score is considerably more powerful because of the consideration of the trended data information. It’s rare that a new scoring system is a true win-win for consumers and lenders…and VantageScore 4.0 is just that.

John Ulzheimer
John Ulzheimer |

John Ulzheimer is a writer at MagnifyMoney. You can email John here

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Building Credit, Featured

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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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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View Your Free FICO Score for all 3 Credit Bureaus

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There are lots of free credit scores floating around, but most of them are not the true FICO score that lenders subscribe to and use as part of their decision.

However FICO is working to change that by allowing banks and credit unions to give you free ongoing access to the real score they use to make lending decisions as long as you are an account holder.

The easiest place for anyone to get their free FICO is via the Discover Credit Scorecard. You do not need to be a customer of Discover – anyone can register and get their official FICO score for free. The data is from the Experian credit bureau.

You can also get a free Experian FICO 8 score at FreeCreditScore.com. While that site used to require you to enter your credit card to get information, your FICO score and Experian report are now completely free with no credit card information needed.

To find out where to get your FICO score from the other credit bureaus, read on.

Every bank chooses at least one of three credit bureaus to calculate a FICO score: Equifax, Experian, and Transunion. The FICO score one bank uses can be different than another depending on which credit bureau they pulled a report from.

The good news is, you can now see your real, free FICO score from all three credit bureaus depending on which banks hold your accounts. FICO itself charges almost $60 for you to see those scores, though they also throw in full copies of your credit reports, which the free bank scores do not.

Here’s where to find your real, free FICO scores from banks or credit unions anyone can join:

Equifax Scores

Citibank

  • Available With: Any Citibank branded credit card. This does not include Citibank cards with other brands like the American AAdvantage or Hilton HHonors cards.
  • Where to Find It: On your online statement
  • Score updated: Monthly
  • Learn more

DCU Credit Union

  • Available With: Any credit card, or a checking account with direct deposit
  • Where to Find It: Look for an invitation in your online account
  • Score Updated: Monthly
  • Learn more

Huntington Bank

  • Available With: The Huntington Voice credit card – you will get a FICO Bankcard 02 Score from Equifax
  • Where to Find It: Log into your account and you’ll see a link

PenFed

  • Available With: PenFed members with active checking accounts, installment loans, and revolving lines of credit
  • Score Updated: When PenFed refreshes – no set schedule
  • Where to Find it: Login to your account and click ‘Your FICO Score is Ready’
  • Notes: PenFed uses a more advanced ‘Next Gen’ FICO score that has a different scale than traditional FICO scores, with 150 as the lowest score and 950 as the highest score. Most banks use a score with a scale of 300 to 850. Because of this the score you see on PenFed’s site may be higher or lower than what you see from others.
  • Learn more

Experian Scores

Capital One and American Express regularly use Experian’s FICO among others for credit decisions.

American Express

  • Available With: Any American Express credit card
  • Score Updated: Monthly
  • Where to Find It: On your online account

Chase

  • Available With: Chase Slate credit card accounts
  • Score Updated: Monthly
  • Learn more

Discover

  • If you have a Discover credit card already, you will see your FICO score on your statement and online. It is updated monthly.
  • If you are not a Discover customer, you can sign up to get your FICO score for free by visiting CreditScoreCard.com.

First National Bank of Omaha

  • Available With: Any credit card account
  • Score Updated: Monthly
  • Where to Find It: On your online account
  • Learn more

Please note: a previous version of this blog post noted that USAA provides a free FICO credit score. USAA actually provides a free VantageScore.

Transunion Scores

Bank of America

  • Available With: Select credit card accounts
  • Score Updated: Monthly, with history
  • Where to Find It: Link available on your account summary page under the ‘Tools and Investing’ section

Barclaycard

  • Available With: Any credit card account
  • Score Updated: Monthly
  • Where to Find It: Link available on your account summary page
  • Learn more

Walmart / Sam’s Club

  • Available With: A Walmart Credit Card, Walmart MasterCard, or Sam’s Club Credit Card
  • Score Updated: Monthly
  • Where to Find It: At Walmart.com/creditlogin, only if you enroll in online delivery of monthly statements
  • Learn more

Unknown Bureau

 State Employees Credit Union of North Carolina

  • Available to all credit card holders

Other, less open to the public free FICO providers include:

  • Ally, for auto loan holders
  • Hyundai and Kia Motor Finance, which offer a quarterly score, but only if you’re a new buyer, recent college grad and bring your diploma to the dealer at the time of purchase.
  • Sallie Mae, which offers a free, quarterly Transunion score if you receive a new Smart Option Student during the 2014-2015 academic year or later.
  • Merrick Bank doesn’t have open applications, but does offer free scores to its cardholders.
  • Some credit unions with limited membership also offer scores, so check yours to see if it provides them.

 

Nick Clements
Nick Clements |

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

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Self Lender Review: Building Credit History with an Installment Loan

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Taking the first step in your journey to building credit isn’t always easy. The dilemma is you need credit to build credit. But companies and financial institutions are hesitant to offer credit unless you’ve already proven yourself. Self Lender is a platform that seeks to solve this dilemma.

Self Lender provides resources you can use to monitor your credit history and score. Beyond monitoring, there’s a credit-building aspect of the platform as well. In partnership with Austin Capital Bank, Self Lender offers a credit-builder account to help you improve your credit history.

The credit-builder account is a CD-secured installment loan. This works similar to a secured credit card in the sense that your certificate of deposit (CD) is providing collateral against your loan. Since the loan is secured by a CD the qualifying criteria is less stringent than a typical personal loan. After getting approved, you’re given a small loan that’s held in the CD account until you repay it.

The purpose is to build credit history by making loan payments. In this post, we’ll discuss what the Self Lender service is and whether what it offers is a viable method for you to build credit. Read on for:

  • How Self Lender works
  • How much Self Lender costs and the terms
  • The pros and cons
  • Other methods of building credit

How Self Lender Works

Signing up on the Self Lender site gives you access to credit monitoring and credit score tracking resources via TransUnion for free. The credit-builder account is an optional service you can sign up for within the Self Lender platform.

The credit-builder account is a small loan with fixed payments. There are three loan amount options, and each loan term is 12 months. Austin Capital Bank will lend you $550, $1,100, or $2,200.

Interest on the loan is 10.57% or up to 14.77% APR. The fixed payment for each loan amount is:

  • $550 — $48.50 monthly payment
  • $1,100 — $97 monthly payment
  • $2,200 — $194 monthly payment

Once you pay off the loan, you get the original amount of the loan ($550, $1,100, or $2,200) plus interest earned. The APY (annual percentage yield) on the CD is 0.10%. Here’s how much each CD should earn in interest by the end of the loan term:

  • $550 — $0.55
  • $1,100 — $1.10
  • $2,200 — $2.20

Self Lender Costs and Account Terms

Self Lender allows you to have only one credit-building account open at a time. Starting a credit-builder account doesn’t require a hard inquiry on your credit report. You don’t get access to cash from the loan while it’s in the CD account, so this product won’t be useful if you need money right away. You can, however, pay the loan back early without penalty.

Now, let’s talk about costs. The basic Self Lender service, including credit monitoring and credit score tracking, is free. However, the credit-builder account has a $12 administrative fee on top of the installment loan interest.

If you make a payment over 15 days late, the late fee is 5% of the payment due. A payment over 30 days late will be reported to the credit bureaus. If this happens, it will defeat the purpose of opening an account to build your credit. Fortunately, there’s an automatic payment feature to help you avoid making late payments.

Pros and Cons

Pro: Self Lender can help your credit score. Making on-time loan payments will help you build a positive payment history, which is the most important component of your credit score. An installment loan also adds account diversity to your credit report and can have a positive impact on the credit mix aspect of your credit score. Applying for an account doesn’t require a hard pull, so as a bonus, Self Lender won’t hurt your score either.

Con: The cost. The cost of this service is a red flag. Let’s take the $550 credit-building account for example. You make 12 monthly payments of $48.50, which equals $582 and makes the total cost of the loan $32. Add the $12 administrative fee and you’re spending $44 for credit building.

Pro: The cash windfall at the end. You do get a lump sum of cash from the account when you complete the loan term. If you have trouble staying disciplined enough to save, the money you get back could be used to start an emergency fund or to meet other financial goals. (Although, on the flip side, you can make scheduled payments to yourself without this product or its fees by setting up automatic transfers into a savings account each month. You can compare savings accounts here.)

Con: It encourages you to take out a loan you may not need. Building credit isn’t a good enough reason to take out an unnecessary loan. This loan isn’t free, and there are other ways you can build credit without it costing you.

Pro: Credit monitoring. Besides the CD-secured installment loan for building credit, Self Lender offers basic credit monitoring through TransUnion. Credit monitoring and score tracking are always worthwhile to have for free.

Other Ways to Build Credit

Here are a few other methods you can use to build credit from scratch:

Secured credit cards are credit cards that require an initial deposit for your credit line. You can find secured credit cards that require a deposit as low as $50. This does mean you need to fork over cash upfront, but the benefit is you can find a secured card with no fees, and the deposit is refundable (if you pay the credit card bill).

You can also avoid interest altogether on a card by paying off your balance in full each statement period. The credit card issuer usually sends you the deposit back after a set amount of time. You may even get a credit line increase after you prove your creditworthiness. Compare secured cards here.
Finding a co-signer is another option that can help if you can’t qualify for a credit line on your own. Since the co-signer takes on some responsibility for the debt, a financial institution or company may be more willing to approve your application. Eventually, your co-signer may be able to apply for a co-signer release if the account is in good standing, and you can get approved for other credit on your own.
Credit piggybacking is a credit history building shortcut you may be able to use if you know someone who has credit cards in excellent standing. Credit piggybacking is when you become an authorized user on someone else’s account. As an authorized user, the account shows up on your credit report to improve and lengthen your history.

Who Will Benefit the Most from Self Lender

Self Lender shouldn’t be the very first tactic you use to build credit because it’s not free and it makes you take out a loan. There are other free methods, including the ones above, that can help you build credit instead.

The most important aspect of your credit history and score is paying your bills on time. Before taking on a new debt payment, you should focus on keeping up with current bills first (rent, cable, utilities, etc.) to establish a payment routine. Afterward, a secured credit card could be a more affordable and less cumbersome way to build credit on your own.

Taylor Gordon
Taylor Gordon |

Taylor Gordon is a writer at MagnifyMoney. You can email Taylor at taylor@magnifymoney.com

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Building Credit

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

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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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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Building Credit, Credit Cards, Earning Cashback

The new Discover it Secured Card wins: No fee, Free FICO and up to 2% cash back

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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Discover it Secured Credit Card Review

Updated June 1, 2017

Discover has just launched a new product, the Discover it® Secured Card – No Annual Fee . Secured credit cards are an excellent way to build your credit with responsible use. With this product launch, Discover has created one of the best secured cards on the market. You do need to make a security deposit of $200 or more to establish your credit line (up to the amount that Discover can approve). If you are unable to afford the $200 deposit, you should consider the Capital One Secured MasterCard, which only requires a $49 deposit. But if you can afford the $200 deposit, this new card is clearly one of the best no fee secured credit cards available.

Learn More

Key Product Features

Here are the key product features:

No annual fee: There is no annual fee on this card. You do need to make a security deposit of at least $200. If you want a bigger limit, you will have to make a bigger deposit.

Automatic monthly reviews starting at 8 months: After just eight months, Discover will start monthly automatic reviews of your account to see if you can be transitioned to an account with no security deposit. With an 8-month review, Discover has one of the best upgrade policies in the market.

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 combined purchases 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:

LearnMore

How to Use a Secured Credit Card

A secured credit card is an excellent way to build or rebuild your credit history. In order to gain the most number of points in the shortest amount of time, you need to have a strategy. We recommend the following strategy (and describe how it helped someone build an excellent score in one year here):

  1. Avoid spending more than 10% – 15% of your available credit limit. Yes, that means if your credit limit is only $200, you should not spend more than $20 – $30 a month. Utilization is a very important part of your credit score. To calculate utilization, divide your statement balance by your available credit. People with the best credit scores have utilization well below 20%. Because you want to build an excellent credit score, you should keep your utilization low.
  2. Pay your statement balance on time and in full every month. To ensure your payments are made on time every month, you should consider automating the monthly payments. At the Discover website, you can sign up to have your monthly payment debited automatically from your checking account.
  3. Just continue to repeat Step #1 and Step #2. Your credit score should improve over time, which will help you qualify for a standard credit card.

If you have less than perfect credit and need to borrow money, you should consider shopping for a personal loan.

Who is Eligible to Apply?

According to disclosures on the Discover website, you are eligible to apply if:

  • You are at least 18 years old.
  • You have a Social Security Number.
  • You have an address in the United States.
  • You have a bank account in the United States. Note: You will need to provide your routing number and account number when you apply. If your account is overdrawn, it is highly unlikely that you will be approved.

Your credit history will be reviewed, and not all applications will be approved. The card is best for those with no credit, or scores of 670 or less.

The Application Process

You can apply online and Discover usually provides a decision instantly. You will need to make your security deposit as part of the application, which is why Discover asks for the routing number and account number of your bank.

Please remember that when you apply for the secured credit card, you will have an inquiry on your credit report just like an application for a normal credit card.

Alternate Secured Credit Cards

Discover it has one of the strongest offerings in the market. However, it might not be right for everyone. Here are some other good options.

If you cannot afford the $200 minimum deposit, you should consider the Capital One Secured MasterCard. There is no annual fee and a minimum deposit of $49. You will also be able to receive your FICO score for free. Capital One is known for accepting people with more adverse credit histories. So, if you are rejected by Discover, you might want to consider trying Capital One instead.

Capital One Secured MasterCard

Go to site

You should also consider a secured credit card from your local credit union. MagnifyMoney has a list of some of the best no fee secured credit cards offered by credit unions here.

Build Your Score, Not Your Balance

Secured credit cards are a great way to build your credit score. And, with this product launch, Discover has created an excellent tool. Just make sure you don’t use your credit card to build a balance and borrow money. Keep your balance well below 20% of your available credit, and pay your statement balance on time and in full every month. If you do that, you should start to see real improvement in your score.

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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Won’t impact your credit score