Tag: CREDIT SCORE

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Average Credit Score in America Reaches New Peak at 700

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.

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® Score rose to its highest point ever, 700.2

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® Scores are up 14 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 VantageScores® in the Deep South are 21 points lower than the national average (652 vs. 673).6
  5. Millennials’ average VantageScore® (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: 7008

Average VantageScore®: 6739

Percent with prime credit score (Equifax Risk Score >720): 51%10

Percent with subprime credit score (Equifax Risk Score <660): 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

Debt delinquency

Percent severely delinquent debt: 3.37%15

Percent severely delinquent debt excluding mortgages: 6.9%16

States with the best and worst credit scores

What is a credit score?

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.

The Big 3 credit scores

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

  • FICO® Score 8 (used for underwriting mortgages)
  • VantageScore® 3.0 (widely available to consumers)
  • 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:

  • Payment history
  • Revolving debt levels (or revolving debt utilization ratios)
  • Length of credit history
  • Number of recent credit inquires
  • 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 VantageScore® or an Equifax Risk Score. For example, a VantageScore® does not count paid items in collections against you. However, a FICO® Score counts all collections items against you, even if you’ve paid them. Additionally, the VantageScore® counts outstanding debt against you, but the FICO® Score only considers how much credit card debt you have relative to your available credit.

American credit scores over time

Average FICO® Scores in America are on the rise for the eighth straight year. The average credit score in America is now 700.

On top of that, consumers with “super prime” credit (FICO® Scores above 800) outnumber consumers with deep subprime credit (FICO® Scores below 600).

We’re also seeing healthy increases in prime credit scores, defined as Equifax Risk Scores 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

A major driver of increased scores is the decreased proportion of consumers with collection items on their credit report. A credit item that falls into collections will stay on a person’s credit report for seven years. People caught in the latter end of the real estate foreclosure crisis of 2006-2011 may still have a collections item on their report today.

In the first quarter of 2013, 14.64% of all consumers had at least one item in collections. Today, just 12.61% of consumers have collections items on their credit report. Overall collections rates are approaching 2005-2006 average rates.40

Credit scores and loan originations

Following the 2007-2008 implosion of the housing market, banks saw mortgage borrowers defaulting at 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 June 2017, banks rejected 81.4% of all credit applications from people with Equifax Risk Scores below 680. By contrast, banks rejected 9.11% 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 10th 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. New 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, and 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 VantageScore® 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 VantageScores® 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 their 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 July 23, 2017.
  2. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  3. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 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 VantageScore®, Experian. Accessed May 24, 2017.
  7. 2016 State of Credit Report” National 2016 Average VantageScore®, Experian. Accessed May 24, 2017.
  8. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  9. 2016 State of Credit Report” National 2016 Average VantageScore®, Experian. Accessed July 23, 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 July 23, 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 July 23, 2017.
  12. 2016 State of Credit Report” National 2016 90+ Days Past Due, Experian. Accessed July 23, 2017.
  13. 2016 State of Credit Report” National 2016 Average Late Payments, Experian. Accessed July 23, 2017.
  14. 2016 State of Credit Report” National 2016 Average Revolving Credit Utilization Ratio, Experian. Accessed July 23, 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 July 23, 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 July 23, 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 VantageScore®, Experian. Accessed July 23, 2017.
  18. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  19. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 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 July 23, 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 July 23, 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 July 23, 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 July 23, 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 July 23, 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 July 23, 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 July 23, 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 July 23, 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 July 23, 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 July 23, 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 July 23, 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 July 23, 2017.
  34. 2016 State of Credit Report” State 2016 Average VantageScore®, Experian. Accessed July 23, 2017.
  35. 2016 State of Credit Report” State 2016 Average VantageScore®, Experian. Accessed July 23, 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 July 23, 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 July 23, 2017.
  38. 2016 State of Credit Report” National 2016 VantageScore®, Experian. Accessed July 23, 2017.
  39. Andrew Jennings, “FICO® Score High Achievers: Is Age the Only Factor?” Fair Isaac Corporation. Accessed July 23, 2017.
  40. Quarterly Report on Household Debt and Credit May 2017” Third-Party Collections (Percent of Consumers with Collections), from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  41. Quarterly Report on Household Debt and Credit May 2017” Third-Party Collections (Percent of Consumers with Collections), from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
Hannah Rounds
Hannah Rounds |

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

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Building Credit

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

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.

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

Updated August 16, 2017

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, typically the 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. 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.

Even with these caveats, checking to see if you are pre-qualified is a great way to shop for a credit card without hurting your score.

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

Most (but not all) banks have pre-qualification tools. In addition, some websites (like CreditCards.com) have tools that let you check across multiple banks at once. Here is a current list of tools that are functioning:

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

Capital One

Chase

Citibank

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

Discover

U.S. Bank

Below are credit card issuers that do not always have the pre-qualification tool live:

American Express – We have reports that this does not work for everyone. To find the pre-qualification page, click on “CARDS” in the menu bar. Then click on “View All Personal Charge & Credit Cards.” At the bottom of the page you will find a section called “Do More with American Express” – and you can click on “Pre-Qualified Credit Card Offers.”

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

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.

We recommend starting your personal loan shopping experience at LendingTree. With one quick application, dozens of lenders will compete for your business. LendingTree uses a soft credit pull, and within minutes you will be able to see how much you qualify for – and the interest rate – without any harm to your credit score. (Note: MagnifyMoney is owned by LendingTree)

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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Investing, Personal Loans

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

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.

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

Updated August 4, 2017

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 12.99%. 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

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 2.81% to 6.46% (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

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 3.35%, 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.

Customize your personal loan offers with Magnify tools

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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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Building Credit, Credit Cards, Earning Cashback

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

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.

Discover it Secured Credit Card Review

Updated August 1, 2017

Discover offers the Discover it® Secured Card – No Annual Fee for people who are looking to build credit and establish good credit history. Secured credit cards are an excellent way to build your credit with responsible use. With this product, 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 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.

Monitor Your Social Security Number: Discover will monitor your Social Security Number and alert you if they find your Social Security Number on any of thousands of risky websites. Activate for FREE. This is a great feature that will help alert you of possible fraud.

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

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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, 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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Earning Cashback

Citi Double Cash Review: Twice The Cash, No Limits

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.

Citi Double Cash offers the highest no-fee flat-rate cash back credit card on the market. If you pay your balance in full and on time every month, you can earn up to double cash back on everything you spend. You earn 1% cash back when you spend, and then 1% cash back when you pay. If you pay your statement balance in full and deposit the cash back into your checking account, you will have earned a nice 2%.

There is no cap on the cash back you can earn, and there are no rotating categories or requirements to opt into every quarter. If you are looking to earn a lot of cash back without a lot of work, this card could be right for you.

Citi® Double Cash Card

APPLY NOW Secured

on Citibank’s secure website

Citi® Double Cash Card

Annual fee
$0 For First Year
$0 Ongoing
Cashback Rate
1% when you buy, 1% when you pay
APR
14.49%-24.49%

Variable

Credit required
good-credit

Good

How the Citi Double Cash Card works

To get double cash back, you must emulate the habits of the savviest credit card holders: use your card, and pay it off in full each month. Do anything else, and you won’t get the full benefit of the double cash back reward.

With the Citi Double Cash Card, you receive your first 1% when you purchase something, but Citi holds onto the second 1% cash back reward until you pay them back. So you get 1% cash back for every dollar you spend, and another 1% cash back for each dollar you pay off on your balance — on time — each month.

To get the maximum double cash back quickly, you should pay off your entire balance. However, as long as you pay the minimum each month, you’ll eventually receive the double cash back, although you’ll pay a lot more than 1% in interest each month.

How to redeem cash back with Citi

When your balance reaches $25, you can choose to redeem your cash reward through a gift card, check, direct deposit, or statement credit to your Citi account. Beware: if you redeem with a statement credit, you won’t get exactly double cash back, but just shy of it depending on the size of the reward.

If you redeem via gift card, you’ll select from retail, restaurant, entertainment, and electronic gift cards in Citi’s gift card marketplace. Choosing the direct deposit option will allow you to transfer your cash back directly to your bank account whether it’s a Citi account or not. If you redeem via check, you should receive a paper check at the address you have on file in 7 to 10 business days.

You can also redeem with a statement credit, but you might notice you don’t get quite double cash back. Since a $25 credit on your statement reduces the amount you’d need to pay back by some amount, you technically get a little less than 2% cash back.

For example, if you redeem $1,000 in cash back for the year, you’ll be shorted about $10 if you redeem your rewards with a statement credit. Assuming you paid off your balance each month, your cash back is reduced to about 1.98%. If you don’t want to miss out on that gap, redeem via check or direct deposit. Also, remember Citi does not count a statement credit as a payment, so you still need to make at least your minimum monthly payment by the due date or you’ll be charged a late fee.

For more details on how to get your cash back, check out this article, where we show you step-by-step how to redeem your cash back with Citi.

Disclaimer: Your rewards will expire if you don’t use your card for 12 months, so be sure to swipe at lease once a year, or redeem your cash before it expires.

How to qualify for the Citi Double Cash Card

Borrowers with good or excellent credit scores are likely to get approved for the Citi Double Cash Card. That means you can still get approved with a few marks on your credit report. That’s unusual as rewards cards with a 0% introductory balance transfer offer like the Citi Double Cash Card are rare for those who lack excellent credit.

Overview of card benefits

The Citi Double Cash Card offers the following benefits and protections to cardholders:

  • No penalty for your first missed payment. Citi won’t charge you a late fee on a first missed payment. This benefit forgives those who usually pay on time, but may miss a payment by accident. Careful, you WILL be charged a fee if you miss a second payment.
  • Citi Private Pass. Citi customers get special access to purchase presale tickets and VIP packages to events such as concerts, sporting events, dining experiences, and complimentary movie screenings.
  • Citi Price Rewind. If you notice a price drop on the big-ticket item you just bought, Citi may have already refunded you the difference. Citi Price Rewind will look for a lower price on any registered items you purchase for 60 days. If the system finds a lower price, you may be refunded the difference.
  • Chip-enabled card. Just one warning: this is a chip and signature card (and not a chip and pin card). While that should be fine for all of your spending in America, it might make using the card overseas a bit more difficult when only chip-and-pin is accepted.
  • Citi Concierge. Citi Concierge sets you up with trained experts to help you plan your travel, shopping, dining, entertainment, and other parts of your next trip.
  • Protection against interrupted trips. If your travel plans are interrupted for some reason, Citi will reimburse you for part of your hassle. The bank will reimburse any nonrefundable travel expenses such as change fees if you paid for the ticket with your Citi Double Cash Card.
  • Car rental and collision insurance. You can skip paying extra for the rental company’s collision loss and damage insurance if you use your Citi Double Cash Card. Citi will cover you against any theft or damage done to the rental as long as you used your Citi card to pay for it.
  • Zero liability protection. You won’t be held responsible for unauthorized charges made with your card or account information. This is a fairly common credit card benefit.
  • Purchase protection covers repairs or refunds for your new purchases in case of damage or theft within 120 days of your making the purchase.
  • Lost wallet service. If you happen to lose your wallet and everything in it, take some comfort in knowing your Citi card, at least, will be replaced within 24 hours. Citi can also give you emergency cash up to your available cash advance limit to help out between losing your card and receiving a new one.

Why we like the Citi Double Cash Card

It has the highest no-fee flat rate reward in the market.

The clearest advantage of the Citi Double Cash Card is that it offers the highest flat rate cash rewards program without an annual fee on the market. The card’s double cash back feature can be a valuable feature for those known to make most everyday purchases on a credit card, and pay the card balance off each month.

The flat rate on all purchases keeps earning rewards simple.

If you like things simple, the card’s flat rate on everything will make keeping up with rewards a breeze. You’ll earn 1% on everything you buy, so there won’t be any need for you to fumble through a stack of credit cards for a specific cash back card at the grocery store. It also eliminates stressing over when or by how much rewards categories might change on your current go-to card each quarter.

It’s a good balance transfer card, too.

The card’s 18-month introductory 0% balance transfer offer makes it a good choice for those seeking to consolidate debt, too. The cash back rewards won’t apply to your balance transfer, but you’ll get 18 billing cycles to pay off the balance interest-free before the card’s higher ongoing interest rate kicks in.

It comes with other great cardholder benefits.

The Citi Double Cash Card’s other benefits aren’t bad either. The card also grants you free access to view your Equifax FICO® Score, and the Citi Price Rewind benefit automatically reimburses you the difference on purchases made with your card if the price changes within 60 days.

What to watch out for with the Citi Double Cash Card

You have to pay off your balance in full to reap the full reward.

You could pay the minimum each month and eventually see you’ve redeemed your cash back. However, the reward really only benefits you if you pay your balance in full each month. If you don’t, the full interest you’ll be charged on your purchases will eclipse the double cash back benefit.

It charges a 3% balance transfer fee.

Although the balance transfer isn’t the main perk the card has, it’s important to note Citi charges you a 3% fee to transfer your balance. Granted, the charge isn’t much compared to the 16% on average you’d be charged in interest on your balance each month if you don’t transfer, but there are many, no-fee balance transfer alternatives (like the Discover it or Chase Slate cards) you could qualify for instead.

You get charged 3% to use it overseas.

You’ll pay to use this card overseas, and the fee isn’t worth it if you can avoid doing so. The 3% foreign transaction fee you’ll be charged to swipe makes the potential double cash back you’d receive on the purchase trivial.

It doesn’t come with a sign-on bonus.

With the Citi Double Cash Card, you won’t get a sign-on bonus like you’d get with other competing cash back cards like Fidelity’s Rewards Visa Signature ($100) or the Capital One Quicksilver card. It’s not a huge pitfall among the card’s best-in-class cash back offer and other perks, but it’s something to consider when weighing your options.

Your rewards will eventually expire.

Take care to redeem your cash back before you stop using the card! If you don’t earn cash back on rewards with your Citi Double Cash Card for 12 months, your rewards will expire. If you plan to stop using the card — maybe you accepted the offer for a specific purchase, or simply for the balance transfer offer — make sure to redeem your cash back before adding it to your credit card graveyard.

Alternatives to the Citi Double Cash Card

The Citi Double Cash Card has the highest no-fee flat rate cash back reward on the market, but it might not be the best cash back card for you, depending on your spending habits.

Cards that only earn cash back in certain categories, for example, may work better for you. You might find you spend most of your income in a category such as groceries or gas, so you’d earn a greater reward with a card that earns cash back only in specific spending categories or enjoy keeping up with rotating categories.

Next we compare how the Citi Double Cash Card compares to four other cash back credit cards:

  • Fidelity’s Rewards Visa Signature – the other 2% cash back credit card
  • Alliant Cashback Visa Signature – the 2.5%-3% cash back credit card with a fee
  • Chase Freedom — the rotating category alternative
  • Blue Cash Preferred Card from American Express — the bonus category alternative

Fidelity Rewards Visa Signature

Fidelity’s Rewards Visa Signature card earns cardholders 2% cash back on all purchases with no annual fee. The card is best for existing Fidelity customers, as the funds you earn must be deposited into a Fidelity account.

Borrowers with “good” credit need not apply for this card. Your credit score has to be above 700 to get approved for a line of credit with the Fidelity Visa. Even then, you may be disappointed if you’re not a big Fidelity customer as Fidelity bases its credit limits on the total amount of assets it’s managing on your behalf.

Alliant Cashback Visa Signature

If you don’t mind paying an annual fee, the Alliant Cashback Visa Signature card could be a viable alternative to the Citi Double Cash Card.

Alliant’s Cashback Visa Signature card offers an unlimited 3% on all purchases in the first year and 2.5% cash back on all purchases in the years following. You’ll also forgo a foreign transaction fee if you use the card overseas. The catch is, cardholders pay a $59 annual fee to hold the card. Only those with excellent credit and high income will qualify for this rewards offer.

Chase Freedom — the rotating category alternative

With Chase Freedom, you’ll automatically earn 1% back on all purchases, 5% on purchases you make in the categories you’ve activated. The card also offers a $150 signing bonus when you spend $500 on purchases in the first three months the account is open.

The Chase Freedom card rotates rewards categories each quarter, so you’ll need to look out for changes and opt in to the quarter’s categories before you can start earning rewards in them. You also won’t be charged interest on purchases or balance transfers made in the first 15 months. You can also earn a $25 bonus when you add an authorized user and make your first purchase within the first three months.

If you qualify for the Citi Double Cash Back Card, you have a good chance of qualifying for Chase Freedom, too. Borrowers with good or excellent credit scores have the best shot at getting approved for the Chase Freedom card.

Blue Cash Preferred Card from American Express — the bonus category alternative

With a card like the Blue Cash Preferred Card from American Express, you’ll earn a larger amount of cash back, but only in one fixed category. The card awards holders 6% cash back at all supermarkets, on up to $6,000 worth of spending. You also get 3% cash back on gas station spending. So, if your household spends big on gas and groceries, the rewards you’d earn with a card like the Blue Cash Preferred Card will likely be greater that what you could earn with the Citi Double Cash Card.

The Blue Cash Preferred Card also awards a $250 sign-on bonus to cardholders who spend $1,000 within the first three months of opening the account, and you won’t be charged interest on your first 12 months of purchases, boosting your rewards in the first year. You won’t be charged any interest on a balance transfer for the first year either, but you will be charged 3% to transfer your balance over in the first place. The main downside to this card’s offerings is that it charges a $95 annual fee, so unless the cash back you’d earn makes that amount negligible, you should steer clear of this card.

Try using this tool to figure out which cash back card has the best ongoing program for your needs. Fill in how much you tend to spend each month in each spending category, and the system will generate recommendations based on your spending habits.

Who benefits the most from the Citi Double Cash Card

Overall, cash back cards can be a great way to put some extra money in your pocket, as long as you remember to pay your statement balance in full each month. Interest and late fees can eclipse your cash back earnings pretty quickly.

The Citi Double Cash Card is best for borrowers with good or excellent credit, who make everyday purchases with a credit card and have great payment habits. The double cash back feature is great if you already have the discipline to pay your statement balances off in full each month, and it’s the only way the card’s reward offer is valuable. If you don’t think you can consistently pay off your card each month, it’s best to get the habit set in stone before trying a rewards credit card.

If you’ve never had a rewards card, the Citi Double Cash Card’s simple terms and flat rate cash back rewards make for a great starter rewards card and — so long as you pay your balance off each month — it can be a great way to earn extra pocket change without going into debt.

Citi Double Cash Card FAQs

You’ll get up to double cash back on all of your purchases, which is the logic behind advertising the card as “Double Cash” and not “2% Cash.” You’ll earn your first 1% on all purchases, then another 1% when you pay off the purchase, but if you choose to redeem your cash back via statement credit on your account, you’re technically getting just shy of 2% cash back.

Yes, the cash back on the Citi Double Cash expires if you haven’t used your card for 12 months.

Anything over 1.5% cash back is a good deal. There are some cards that offer more — as much as 5% or 6% cash back on purchases. But sometimes those offers are too good to be true. Banks don’t like to lose money and will pepper the fine print with all sorts of limitations. For example, they may offer 5% cash back on only purchases at certain types of retailers and only for certain periods of time. And those categories may change every quarter, which can make it hard to keep track.

Don’t let those cash back promises pressure you into spending more than you can afford. If you don’t pay your statement balance in full each month, you could get slapped with sky-high interest charges. That would totally negate any benefit you might get from earning cash back. Cash back cards are only valuable if you can pay your bill in full and capture the entirety of your cash back rewards.

It depends on the card. Some cards allow you to redeem cash back dollar for dollar as a statement credit, which can help lower your total balance. Just keep in mind that applying cash back to your card statement does not count as a monthly payment. Other cards will increase the value of your cash back if you spend on certain categories, like travel. Review your terms carefully to be sure you’re getting the most bang for your buck.

Find the card that fits your day-to-day spending needs best, beyond the flashy sign-up bonus offers and cash back promises. Pay your bill in full each month (spend only what you can afford to pay off).

Brittney Laryea
Brittney Laryea |

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

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Building Credit, Credit Cards

A Guide to Getting Your Free Credit Score

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.

As a consumer of financial products it is important to monitor your credit score on a regular basis. This will ensure that you know where you stand in the credit landscape when it comes time to apply for a new credit card, loan, mortgage, or other product. Monitoring your credit score regularly can also help notify you of any unexpected changes to your credit history such as fraud.

There are numerous free credit scores available for you to access; however, not all scores are considered equal. Credit lenders will often pull specific scores, depending on the product you are applying for. Therefore, we have created a simple chart for you to see where you can get specific credit scores from the top two companies — FICO® and VantageScore. The best part is, it’s all for free!

Read on for details on important aspects that make up your credit score and which score suits your individual needs.

 

Finding the Right Credit Score

Where to Access Your Credit Score for Free

The below chart lists some of the various versions of credit scores and where you can access them for free from a variety of banks, credit card companies, and personal finance websites.

FICO® Score vs. VantageScore

You may be wondering which score is better — FICO® score or VantageScore? We’re going to break down what the different versions of the two scores are best for in the next section, but for now here are several differences between the two major types of credit scores.

Find the Best Credit Score for Your Needs:

The credit score that you are looking for varies, depending on what type of credit you are looking to apply for. Each credit score version has different benefits, and lenders pull certain scores in accordance with your application.

Credit Score Monitoring

The best options: All VantageScores and FICO® scores

If you’re simply looking to monitor your credit score and stay on top of your credit, either VantageScore or FICO® score will suffice.

New Credit Card

The best options: FICO® Bankcard Scores or FICO® Score 8 primarily; FICO® Score 3

Where to get them: Get your FICO® Score 8 from Credit Scorecard by Discover or freecreditscore.com

When applying for a new credit card, these scores are most likely to be pulled by credit card issuers. Lenders may pull your score from one or all three bureaus.

Mortgage Loans and Mortgage ReFis

The best options: FICO® Scores 2, 4, 5

Where to get them: myFICO for $59.85

These scores are used in the majority of mortgage-related credit evaluations, with lenders pulling your score from all three bureaus. However, these scores are not free and can only be purchased at myFICO.

Auto Loans

The best options: FICO® Auto Scores 2, 4, 5, 8, 9

Where to get them: myFICO for $59.85

Auto scores are industry-specific and used in the majority of auto-financing credit evaluations. Lenders may pull your score from one or all three bureaus. Unfortunately, these scores are not free and need to be purchased at myFICO.

Personal Loans, Student Loans, and Retail Credit

The best option: FICO® Score 8

Where to get it: Credit Scorecard by Discover or freecreditscore.com

For other financial products such as personal loans, student loans, and retail credit, FICO® Score 8 is best. This is the credit score most widely used by lenders, and they may pull your score from one or all three bureaus when making a decision.

Other Scores and Their Value

FICO® Score 9 is the newest model and not widely used yet. It is also not available for free at this time. The benefits of this score are that it doesn’t penalize you for paid collections and reduces the ding you get from unpaid medical collections. See our review for more information.

The FICO® NextGen score is used to assess credit risk, but only a small number of lenders use it due to its 150-950 scoring range and older model.

Credit Score Basics

What are the three credit bureaus?

There are three credit bureaus that report your credit score to financial institutions and personal finance websites. The bureaus are TransUnion, Experian, and Equifax. They collect credit information from a plethora of lenders and data providers and then consolidate it into a credit file, with your credit score being the key piece of information. You can’t get your credit score directly from the bureaus, but earlier in this article we discussed numerous resources where you can access your credit score — for free.

What is a FICO® score?

A FICO® score is a number that predicts how likely you are to pay back a loan or other credit products in a timely manner. FICO® scores range from 300 to 850. The higher your score, the more likely you are to be approved for credit cards, loans, mortgages, and other financial products. FICO® scores are the most widely used credit scores — influencing over 90% of U.S. lending decisions.

How is a FICO® score calculated?

FICO® scores are calculated from data in your credit reports and made up of the following five key factors:

Source: ficoscore.com
  1. Payment history (35%):
    Your payment history is simply a record of your on-time or missed payments. It’s the largest component of your FICO score — and therefore the most important aspect to focus on if you want to improve it.
  2. Amounts owed — aka utilization (30%):
    Utilization is the amount of your credit limit you use. It is ideal to have a utilization below 20%. If you have two credit cards, one with a $10,000 limit and the other $5,000, then your total credit limit is $15,000. If you have a combined $3,000 debt across both cards, then your utilization would be 20%.
  3. Length of credit history (15%):
    The total length of time that you’ve had credit across all products you have. For example, expect your credit score to be slightly lower if you have had credit for six months versus six years.
  4. New credit (10%):
    Frequency of credit inquiries and new account openings. When you open a new account, your credit score will take a slight dip for about six months, then it will rise — as long as you’re responsible in the other four factors mentioned.
  5. Credit mix (10%):
    This is the different types of credit you have. This includes credit cards, retail accounts, installment loans, and other financial products. The more variety of credit you’re responsible with, the better your score will be.

What is a VantageScore?

A VantageScore is also a number that measures your credit risk. These scores typically range from 300 to 850 (501-990 for earlier models) and are used by 20 of the 25 largest financial institutions. VantageScores are in line with FICO® — the higher your score, the better. VantageScores are more widely available for free from online resources than FICO® scores; however, a majority of lenders pull your FICO® score when making decisions.

How is a VantageScore calculated?

VantageScores are calculated from data in your credit reports and influenced by the following six key factors:

Source: your.vantagescore.com

FAQ

Credit scores are typically updated every 30 days. Depending on your activity, your score may remain the same or fluctuate.

No, checking your score will not do any damage to your score.

Your credit scores differ based on the information that each bureau pulls. Most information is the same, but one bureau may use unique information that another bureau doesn’t have, creating a difference in scores. Also, if you compare your FICO® scores and VantageScores, they will differ because they use different criteria when pulling your score.

A FAKO score is a non-FICO score that is known as an “equivalency score” or “educational score.” FAKO scores give you a general picture of where you stand, but aren’t used by lenders when making a credit decision and therefore aren’t accurate in predicting if you’ll be approved.

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Alexandria White is a writer at MagnifyMoney. You can email Alexandria at alexandria@magnifymoney.com

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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.

(This post was originally published on March 15, 2017.)

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

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

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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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What Everyone Should Know About the New VantageScore 4.0 Credit Score

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View Your Free FICO Score for all 3 Credit Bureaus

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

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