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Building Credit, Credit Cards

A Guide to Getting Your Free Credit Score

Wednesday, July 5, 2017

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Alexandria WhiteAlexandria White

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

FICO® Score vs. VantageScore

Find the Best Credit Score for Your Needs:

Other Scores and Their Value

Credit Score Basics

What are the three credit bureaus?

What is a FICO® score?

How is a FICO® score calculated?

What is a VantageScore?

How is a VantageScore calculated?

FAQ

 

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.

 

VantageScore 3.0

-

-

-

-

-

Disclosure: LendingTree is the parent company of MagnifyMoney

-

-

-

-

-

-

-

-

-

-

-

-

FICO 5

-

-

FICO 8

-

-

-

FICO 9

-

-

FICO Bankcard
Score 8

-

-

FICO NextGen
Score

-

-

-

-

Unknown FICO
Model

-

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.

Below we will go over the best credit scores for various financial products — and where you can get them. Refer to our chart above to see if you can access the credit score for free, as not all scores are available for free.

 

Credit Score Monitoring


Credit Cards

Mortgage Loans & Mortgage ReFis

Auto Loans

Personal Loans, Student Loans, Retail Credit

The Best Option

All Vantage- Scores & FICO® scores

FICO® Bankcard Scores & FICO® Score 8 primarily; FICO® Score 3

FICO® Scores 2, 4, 5

FICO® Auto Scores 2, 4, 5, 8, 9

FICO® Score 8

Where to Find Them

Plenty of free options. See our chart above.

FICO® Score 8 only:-Credit Scorecard by Discover -freecreditscore.com

myFICO for $59.85

myFICO for $59.85

Credit Scorecard by Discover -freecreditscore.com

Additional Info

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

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.

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 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.

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.

Credit Score Monitoring

The best options: All VantageScores and FICO® scores

Where to get them: See our chart

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.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Alexandria White
Alexandria White |

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

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Best Travel Credit Cards With No Annual Fee

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Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

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Building Credit

New to the U.S.? Tips for Noncitizens to Build Credit

Thursday, October 11, 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Shen LuShen Lu
iStock

Many new immigrants to the United States may be dumbfounded by a cosign requirement to lease an apartment lease, or difficulties in getting a loan or rejections when they apply for a credit card. The reason these things happen? Because they don’t have a credit history in this country.

If you plan to build a life and a career in the U.S., building that three-digit credit score should be a high priority once you enter the country. Without a credit history, you will face tremendous obstacles, financial and logistical alike, in your new life. Unfortunately, you cannot transfer your credit file from your home country to the U.S.

Good credit is critical throughout your financial life in America, from buying a car to leasing an apartment or obtaining personal loans. The better your credit score, the easier it is for you to access credit and the less a loan will cost you.

How do you build your credit without a credit history in America? Let us fill you in.

What’s a credit score?

Before we discuss the specifics of building credit, let’s first learn the very basics of a credit score.

There are several types of credit scores out there, and most scoring models agree on a score range of 300-850. FICO is the most widely used scoring model, provided by the Fair Isaac Corporation — its scores are used by 90% of U.S. financial institutions.

Depending on your specific score, the quality of your score falls into one of five tiers of credit. The higher your score, the better.

A “poor” score typically falls between 300 and 579. “Fair” credit scores are in the range between 580 and 669. “Good” scores are between 670 and 739. “Very good” ones are between 740 and 799. And “excellent” scores fall between 800 and 850.

Credit Category

Score Range

Excellent800-850
Very Good740-799
Good670-739
Fair580-669
PoorLess than 580

How does a credit score work?

Your creditors report your borrowing, repayment history and other financial behaviors to three major credit reporting bureaus: Equifax, Experian and TransUnion. These bureaus generate your credit report; credit scoring agencies such as FICO then use the information in your credit report to assign you a credit score.

Your score indicates how likely you will default on debt. In the eyes of lenders, the higher your score, the less likely you will default on your loans. Banks, credit card issuers and other lenders make lending decisions based on a borrower’s creditworthiness. They offer lower rates to borrowers with higher scores.

Your FICO credit score is calculated by five factors, each of which carries a certain weight:

  • Your payment history: 35%
  • The amount of debt you owe: 30%
  • The length of your credit history: 15%
  • New credit inquiries: 10%
  • Types of credit you have: 10%

Note: LendingTree is the parent company of MagnifyMoney.

How to build credit from scratch

You can definitely build your credit from scratch by working to improve the factors that go into your score — except for the length of credit history. It’s impossible to travel back in time to open a credit account, so improving this factor just takes patience. Luckily, the length of your credit history isn’t the most important thing that determines your score.

Your credit history starts from the moment you open your first credit account. Make it work in your favor by following healthy financial habits and avoid common missteps, which we will detail below.

Dos

Apply for a secured credit card

Without a credit score to start with, you may not qualify for a regular credit card. What you can do is to open a secured credit card by providing the bank with a deposit as collateral. A secured card is a way to prove to a lender that you are responsible and a minimal risk.

The bank will keep the deposit, which is typically $200 or more, and give you a credit limit equal to your deposit. Your credit limit, balance and payment information are reported to the three major credit bureaus. If you fail to pay your credit card on time, the bank can take your deposit and apply it toward the debt.

Make on-time payments

Payment history is the largest component of your credit score. Making your credit card or loan payments on time is crucial in establishing your credit and maintaining a good score in the future. Payments that are more than 30 days late will start to hurt your score. At the very least, be sure to pay your bills no later than 30 days after the due date.

If you are concerned that you may be late on payments or miss them entirely, set up payment reminders or autopay.

Keep your credit utilization at or below 30%

The amount of debt you owe makes up 30% of your score, so you should be careful not to use too much of your available credit. Using a high percentage of your available credit could indicate that you are overextended and may be more likely to miss payments.

A good rule of thumb here is to keep your credit utilization ratio (the percentage of your available credit being used at one time) at or below 30%. That means a credit balance of lower than $3,000 balance for a $10,000 credit limit.

Keep close tabs on your credit

Once you have established credit, check your credit report regularly to watch your progress and make sure nothing has been mistakenly reported. Negative marks hurt your score and you should dispute the ones that are untrue to get them off your report.

The best place to get your credit report is at AnnualCreditReport.com, where you can access one free report from each of the three credit bureaus every year.

Make your rent count

Some property management companies and landlords use electronic payment services that report payment information from tenants to credit agencies. If your landlord offers such a service, opt in to have your rent payment history reported to one or all of the credit agencies.

If you make on-time payments, your credit score may go up. Of course, the opposite can happen, too: Your score may slip if you miss a rent payment. Learn more about how to report your rent payments to credit bureaus.

Work toward a 760 credit score

You don’t have to earn a perfect credit score of 850 to be considered successful or qualify for the lowest interest on loans. A more optimal credit score to work toward is 760. Anyone with a score of 760 and above will likely get desirable rates offered by lenders. A history of credit, on-time payments and decreasing the amount you owe will help you work toward this goal.

Don’ts

Don’t open new accounts frequently

Try to stick with your very first credit card before you open other credit accounts. While it’s important to have a number of different accounts, it’s not wise to apply for a bunch of new credit cards in a relatively brief time period.

More new accounts generally pose more risk to lenders, and will also reduce the average age of your credit accounts. In addition, once you apply for a new account, the lender will check your credit score, which triggers a hard inquiry. A hard inquiry will cause your score to drop a few points.

Don’t close your first credit card

Keep the first secured credit card you received, even if you don’t use it later. This card will establish the length of your credit history. Most people choose a no-fee rewards card or a bank credit card as their first credit account, so it doesn’t cost anything to keep the card for the length of your history. You can see a list of good no-fee rewards cards here.

Don’t obsess over your credit score

As you build your credit, it’s gratifying to see your progress. Keep tabs on your score, but it’s not wise to obsess over it. Give it time; your score will increase as long as you follow the steps we discussed above. A difference of 10 or 20 points is not usually going to significantly change the rates you get or loans you qualify for.

Don’t plan on paying interest

Nothing in the scoring models suggest that carrying credit card debt month to month is beneficial. It is totally possible to establish a good credit score by paying off your credit card on time and in full every month. Don’t plan to pay interest — in other words, don’t pay just the minimum payment — to build your credit score. It won’t help with your score, and it will cost you a staggering interest payment.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

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Best of, Building Credit

The Best Options for Rebuilding Your Credit Score – October 2018

Monday, October 1, 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Erin LowryErin Lowry

The Best Options for Rebuilding Your Credit Score

A strong credit score is a vital part of your overall financial health. But rebuilding a damaged (or non-existent) credit score can feel impossible. Don’t despair. There are plenty of avenues you can take in order to rehabilitate your credit score and it all begins with identifying your starting point.

In this post, we’ll discuss:

How Bad is Your Bad Credit Score

Rehabilitating a Bad Credit Score (579 and under)

Rebuilding from a Fair Credit Score (580 – 669)

Who You Need to Avoid

How Bad is Your Bad Credit Score?

Before you start to panic about rehabilitating your bad credit score, let’s determine if it’s even bad. Where do you fall in the range of FICO® credit scores? Below you’ll find what your credit score is considered, with ranges from Experian.

  • Above 740: Excellent Credit
  • 670 – 739: Good Credit
  • 580 – 669: Fair Credit
  • Below 579: Bad Credit or No Credit Score/Thin File

Your credit score isn’t the only thing that will keep you from being approved for credit. These factors are common reasons for being declined.

  • Your debt-to-income ratio is above 50%
  • You have no credit score
  • You have been building up a lot of debt recently
  • You are unemployed

In order to focus on rehabilitating your credit score, you’ll need to start with getting a line of credit. This may sound impossible because you’re constantly getting declined. Fortunately, there are options tailored specifically for people looking to re-establish credit.

[Read more about bad credit scores here.]

Rehabilitating a Bad Credit Score (579 and under)

Get a Secured Card

You’ll use your own money as collateral by putting down a deposit, which is often about $150 – $250. Typically, the amount of your deposit will then be your credit limit. You should make one small purchase each month and then pay it off on time and in full. Once you prove you’re responsible, you can get back your deposit and upgrade to a regular credit card. Read more about secured cards here.

Check out two of our favorite secured cards below, and our secured credit card database here.

Discover it® Secured

Discover it® Secured

Annual fee

$0

Minimum Deposit

$200

Regular APR

24.99% Variable

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

Perhaps our favorite secured card, Discover it® Secured, has numerous benefits for those looking to rebound from a bad credit score. There is a $200 minimum security deposit that will become your line of credit, which is typical of secured credit cards. Your deposit is equal to your credit line, with a maximum deposit of $2,500. Additional perks include a rewards program (very rare for secured cards) that offers 2% cash back at restaurants or gas stations on up to $1,000 in combined purchases each quarter, plus 1% cash back on all other credit card purchases.

This card has another great feature: Discover will automatically review your account, starting at month eight, to see if your account is eligible to transition to an unsecured card. Discover will decide if you’re eligible based on a variety of credit factors, and if you are, you will receive notification and get your security deposit back.

Capital One® Secured Mastercard®

Capital One® Secured Mastercard®

Annual fee

$0

Minimum Deposit

$49

Regular Purchase APR

24.99% (Variable)

APPLY NOW Secured

on Capital One’s secure website

The Capital One® Secured Mastercard® is another option for those who want to strengthen their credit score. This card offers a potentially lower minimum security deposit than other cards, starting as low as $49, based on creditworthiness. Be aware the lower deposit is not guaranteed and you may be required to deposit $99 or $200. You can deposit more before your account opens and get a maximum credit limit of $1,000.

There is a feature that will assist your transition from a secured to an unsecured card. Capital One automatically reviews your account for on time payments and will inform you if you’re eligible for an upgrade. However, there is no set time period when they will review your account — it depends on several credit activities. If you receive notification that you’re eligible, you will be refunded your security deposit and will receive an unsecured card.

Rebuilding from a Fair Credit Score (580 – 669)

Apply for a Store Credit Card

You might be used to checking out at a store and being asked if you’d like to open a credit card. While these credit cards come with really high interest rates and are great tools to tempt you into buying items you don’t need, there is a big perk to store credit cards: they’re more likely to approve people with low credit scores. Just be sure to only use the card to make one small purchase a month and then pay it off on time and in full. Unsubscribe to emails about deals and don’t even carry it around everyday in your wallet if you can’t resist the desire to spend. Read more here. 

Find all the details about how to improve your score here.

Those unable to get a store credit card should apply for a secured card to build credit. With proper credit behavior, you can see your score rise and then you may qualify for a store card.

Here are our picks for two store credit cards:

Walmart Credit Card®

Walmart Credit Card®

Annual fee

$0 For First Year

$0 Ongoing

Cashback Rate

3% cash back on on Walmart.com purchases including Grocery Pickup

Regular Purchase APR

24.65%

Variable

APPLY NOW Secured

on Walmart’s secure website

The Walmart® Credit Card offers a three-tiered cashback program to benefit avid Walmart shoppers. You receive 3% cash back on Walmart.com purchases (including purchases made on the Walmart app), 2% back on fuel purchases made at Walmart or Murphy USA (excluding Murphy Express) gas stations and 1% at Walmart & anywhere your card is accepted. Your cash back will be issued monthly as a statement credit for all earnings during that period. Note: This card can only be used at Walmart Stores, Walmart Supercenters, Neighborhood Markets, Walmart.com, Walmart and Murphy USA Gas Stations and Sam’s Clubs.

Target REDcard™ Credit Card

Target REDcard™ Credit Card

Annual fee

$0 For First Year

$0 Ongoing

Cashback Rate

5% at Target & Target.com

Regular Purchase APR

24.65%

Variable

APPLY NOW Secured

on Target’s secure website

The Target REDcard™ Credit Card offers great perks that are sure to please frequent Target shoppers. You receive 5% off every eligible transaction made at Target and Target.com. The discount automatically comes off your purchase — no redemption needed. Other benefits include free shipping on most items, early access to sales and exclusive extras like special items, offers, and 10% off coupon as a gift on your REDcard anniversary each year.* Recently, cardholders received early access to Black Friday deals. Reminder: This card can only be used at Target and on Target.com.

Check If You Pre-Qualify

If you’re on the higher end of the spectrum, you may want to consider checking to see if you’re pre-qualified for any cards. This will help minimize your chance of rejection upon applying because pre-qualification performs a soft pull on your credit. This doesn’t harm your credit score.

Your goal in this credit range should be to use no more than 20% of your total available credit. Pay your bills on time and in full. And keep pumping that positive information onto your credit report until you reach the 700+ category. 

Who You Need to Avoid

Access to credit and loans may come easier than you expect, but that should also be a danger sign. There are several lenders who are willing to provide lines of credits or loans to people with poor credit. These options are often very predatory. If you’re simply trying to rebuild your credit history and improve your credit score, then there is no need to take this offers. If you’re in desperate need of a line of credit for an emergency, but have bad credit, please email us at info@magnifymoney.com for a tailored response.

Here are the options you need to avoid when trying to rebuild credit:

1. Payday and Title Loan Lenders – There is never a need to take out a payday or title loan if you’re trying to merely rebuild or establish credit history. Most of these lenders don’t report to the bureaus and you’ll likely end up in a painful vicious cycle of borrowing and being unable to pay it down.

[How to get out of the payday loan trap.]

2. First Premier – The bank claims to want to offer people a second chance when it comes to their finances, but its fee structure and fine print prove the exact opposite. First Premier charges you a $95 processing fee just to apply for a credit card. Then it levies a $75 annual fee on the credit cards and most cards only come with a $300 limit. You’re paying $170 for a $300 credit line! The APR is a painful 36%. In year two the annual fee reduces to $45, but then you’re charged a monthly servicing fee of $6.25. And to top it all off, you’ll be charged a 25% fee if your credit limit is increased. Stay away from this card! Use the $170 it would take to open the card and get a secured card instead.

[Read more about First Premier here.]

3. Credit One – Credit One does an excellent job of confusing consumers into thinking they’re applying for a Capital One card. The logos are eerily similar and easily confused.

Creditone

Capital one

While Credit One is not as predatory as First Premier or payday loans, there is really no need to be using it to rebuild your credit score. Credit One makes it a bit tricky to get to its terms and conditions without either going through the pre-qualification process or accepting a direct mail offer. You’ll see this when clicking to look at its credit card option.

Screen Shot 2015-08-17 at 4.34.54 PM

A quick Google search yielded this terms and conditions sheet, which may be slightly different than the one you’d receive if you applied for a card. According to the one we found, Credit One charges an annual membership fee from $0 to $99. Credit line minimums are between $300 and $500. So you could be paying $99 for a $300 credit limit. APR is relatively standard, but on the high side, with variable 19.15% to 25.24%. Given the high annual fees, we recommend saving your money and using a secured card with no annual fee to begin rebuilding your credit score.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Erin Lowry
Erin Lowry |

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

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Featured Accounts from our PartnersAD

Recommended by

This Cash Back Number May Surprise You

This Cash Back Number May Surprise You

Best Travel Credit Cards With No Annual Fee

Best Travel Credit Cards With No Annual Fee

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

Getting Approved For 1 Of These Credit Cards Means You Have Excellent Credit

2 Credit Cards Charging 0% Interest until 2019

2 Credit Cards Charging 0% Interest until 2019

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Advertiser Disclosure

Building Credit

Build Your Credit Score: 6 Secured Cards With No Annual Fees – October 2018

Monday, October 1, 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Alexandria WhiteAlexandria White

Secured cards are a great way to build or improve credit. When you open a secured card, you submit a security deposit that typically becomes your credit limit. This deposit acts as collateral if you default on your account, but you can get it back if you close your account after paying off your balance. As long as you use a secured card responsibly — for example, make on-time payments and use little of your available credit — you may see improvements in your credit score. Unfortunately, in addition to the upfront deposit, this credit-building tool can have extra costs, like an annual fee.

You can avoid that expense with one of these six no annual fee secured cards, which have a variety of uses:

In this guide, we’ll cover:

Rewards

Low deposit

Average deposit

Low APR

Unrestricted low APR

Unrestricted federal credit union

Cards to consider

Rewards

Discover it® Secured

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

Discover it® Secured

Annual fee
$0
Minimum Deposit
$200
Regular APR
24.99% Variable
The Discover it® Secured is a standout secured card that provides cardholders the opportunity to earn cash back while building credit. A cashback program is hard to find with secured cards, and the Discover it® Secured offers 2% cash back at restaurants & gas stations on up to $1,000 in combined purchases each quarter. Plus, 1% cash back on all your other purchases. In addition, there is a new cardmember offer where Discover will match ALL the cash back earned at the end of your first year, automatically. This is a great way to get a lot of rewards without needing to do any extra work.

In addition to a cashback program, this card provides valuable credit resources such as free access to your FICO® Score and a Credit Resource Center — just note these services are available whether you’re a cardholder or not. Discover also takes the guesswork out of wondering when you’re ready for an unsecured card (aka a regular credit card) by performing automatic monthly account reviews, starting at eight months of card membership.

What to look out for: There is a high 24.99% Variable APR for this card, so you could end up paying a lot more than purchase prices if you carry a balance. Try not to overspend and make it a goal to pay each statement in full so you avoid interest charges.

Low deposit

Capital One® Secured Mastercard®

APPLY NOW Secured

on Capital One’s secure website

Capital One® Secured Mastercard®

Annual fee
$0
Minimum Deposit
$49, $99, or $200
Regular Purchase APR
24.99% (Variable)
The Capital One® Secured Mastercard® offers qualifying cardholders a lower security deposit compared to other secured cards. You will get an initial $200 credit line after making a security deposit of $49, $99, or $200, determined based on your creditworthiness. Typical secured cards require you to deposit an amount equal to your credit limit, so this card has added perks for people who qualify for the lower deposits.

You can also receive a credit limit increase without making an additional deposit after making your first five monthly payments on time. This is beneficial for people who need a higher credit limit and don’t want to (or can’t) tie up their money in a deposit. Also, this card comes with a credit resource center — which is available to everyone — and Platinum Mastercard® benefits that include travel accident insurance and price protection.

What to look out for: The $49 and $99 security deposits are not guaranteed and depend on your creditworthiness — that means you may still have to deposit $200. Also, it’s not a good idea A carry a balance on this card because it has one of the highest APRs at 24.99% (Variable).

Average deposit

Citi® Secured MasterCard®

APPLY NOW Secured

on Citibank’s secure website

Citi® Secured MasterCard®

Annual fee
$0
Minimum Deposit
$200
Regular Purchase APR
24.49%* (Variable)
The Citi® Secured Mastercard® requires a $200 security deposit, which is typical of secured cards and a good amount to establish your credit line. You can deposit more money if you want to receive a higher credit line, but if you don’t have a lot of money available to deposit, coming up with $200 is manageable. This card doesn’t have any additional card benefits like rewards or insurances, but you can access Citi’s Credit Knowledge Center for financial management tips.

What to look out for: This card has a high 24.49%* (Variable) APR which isn’t ideal for people who may carry a balance. We recommend paying every statement in full so you don’t incur interest, but if you think you may carry a balance check out secured cards with low APRs.

Low APR

Visa® Secured Card from MidSouth Community FCU

APPLY NOW Secured

on MidSouth Community FCU’s secure website

Visa® Secured Card from MidSouth Community FCU

Annual fee
$0
Minimum Deposit
$200
Regular Purchase APR
10.90% Variable
Because MidSouth Community is a federal credit union, you need to be a member to qualify for this card. Membership is limited to people who work, live, worship, or attend school in the following Middle Georgia counties: Bibb, Baldwin, Crawford, Hancock, Houston, Jones, Monroe, Peach, Pulaski, Putnam, Twiggs, Washington, and Wilkinson. If you qualify, you may be able to get a secured card with an APR as low as 10.90% Variable.

What to look out for: This card is very restricted, therefore few people will be able to qualify for this low APR secured card.

Unrestricted low APR

Affinity Secured Visa® Credit Card

APPLY NOW Secured

on Affinity Federal Credit Union’s secure website

Affinity Secured Visa® Credit Card

Annual fee
$0
Minimum Deposit
$250
Regular Purchase APR
12.35% Variable
The Affinity Secured Visa® Credit Card requires cardholders to join the Affinity FCU. You may qualify through participating organizations, but if you don’t, anyone can join the New Jersey Coalition for Financial Education by making a $5 donation when you fill out your online application. This card has an 12.35% Variable APR, which is one of the lowest rates available for a no annual fee secured card and is nearly half the amount major issuers charge. This is a good rate if you may carry a balance — but try to pay each statement in full.

What to look out for: There may be a membership fee associated with this card if you don’t qualify through participating organizations. The fee you may have to pay is low at $5, but it may be an issue for people who don’t want to pay anything to open a secured card.

Unrestricted federal credit union

Savings Secured Visa Platinum Card from State Department Federal

APPLY NOW Secured

on State Department Federal Credit Union’s secure website

Savings Secured Visa Platinum Card from State Department Federal

Annual fee
$0
Minimum Deposit
$250
Regular Purchase APR
13.99% Variable
The State Department FCU Savings Secured Visa Platinum Card is open to anyone, regardless of residence. If you aren’t eligible through select methods including employees of the U.S. Department of State or members of select organizations, you can join the American Consumer Council during the application process. There is no fee associated with joining since State Department FCU pays the $5 on your behalf. There is a rewards program with this card where you earn Flexpoints, which can be redeemed for a variety of options like gift cards and travel. The APR can be as low as 13.99% Variable, which is reasonable considering many secured cards from major issuers are above 23%.

What to look out for: If you decide to take out this card and become a member of the SDFCU by joining the American Consumer Council, make sure you do not go to the ACC’s website and submit a $5 donation. That fee is waived by the SDFCU when you fill out your credit application. Simply select “I do not qualify to join through any of these other methods:” and select the ACC from the menu to avoid the $5 fee.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Alexandria White
Alexandria White |

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

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Building Credit

View Your Free FICO Score for all 3 Credit Bureaus

Monday, October 1, 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication. This site may be compensated through a credit card partnership.

Nick ClementsNick Clements

View Your Free FICO Score for all 3 Credit Bureaus

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

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

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

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

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


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

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

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

Equifax Scores

Citibank

  • Available with: Any Citibank branded credit card. This does not include Citibank cards with other brands like the American AAdvantage or Hilton HHonors cards.
  • Score updated: Monthly
  • Where to find it: On your online account or the Citi app
  • Learn more

DCU Credit Union

  • Available with: Any credit card, or a checking account with direct deposit
  • Score updated: Monthly
  • Where to find it: Look for an invitation in your online account
  • Learn more

Huntington Bank

  • Available with: The Huntington Voice credit card – you will get a FICO® Bankcard Score 2 from Equifax
  • Where to find it: Log into your account and you’ll see a link

PenFed

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

Experian Scores

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

American Express

  • Available with: Any American Express credit card
  • Score updated: Monthly
  • Where to find it: On your online account

Chase

  • Available with: Chase Slate®* accounts
  • Score updated: Monthly
  • Learn more

Discover

  • Available with: All Discover cards and if you are not a Discover cardholder, you can sign up to get your FICO® score for free by visiting creditscorecard.com.
  • Score updated: Monthly
  • Where to find it: On your statement and online

First National Bank of Omaha

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: On your online account
  • Learn more

Wells Fargo

  • Available with: Any Wells Fargo credit card
  • Score updated: Monthly
  • Where to find it: On your online account

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

TransUnion Scores

Bank of America

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

Barclays

  • Available with: Any credit card account
  • Score updated: Monthly
  • Where to find it: Link available on your account summary page

Walmart / Sam’s Club

  • Available with: Walmart Credit Card, Walmart MasterCard, or Sam’s Club Credit Card
  • Score updated: Monthly
  • Where to find it: At Walmart.com/creditlogin, only if you enroll in online delivery of monthly statements
  • Learn more

Unknown Bureau

 State Employees Credit Union of North Carolina

  • Available to all credit card holders

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

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

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.

Below we will go over the best credit scores for various financial products — and where you can get them. Refer to our list above to see if you can access the credit score for free, as not all scores are available for free.

Credit Score Monitoring

The best options: All VantageScores and FICO® scores

Where to get them: See above

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.

LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.

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.

*The information related to the Chase Slate® has been collected by CompareCards and has not been reviewed or provided by the issuer of this card prior to publication.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

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

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By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

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Building Credit, Life Events

How Do Student Loans Affect Your Credit Score?

Thursday, September 6, 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Louis DeNicolaLouis DeNicola

Many college students, graduates and parents (or grandparents) of students have taken out student loans to help pay for educational expenses. These loans are generally reported to the three national consumer credit reporting agencies — Equifax, Experian and TransUnion — and could impact the borrower’s credit score.

Building credit can be important for your financial and personal life. A high score can make qualifying for new loans or credit cards easier, may save you money with lower interest rates or insurance premiums and could even help you rent an apartment or home.

Because so many people have student loans — and for many new college students, the loans may be the first time they use credit — understanding how student loans can affect your credit is important.

So, how exactly do student loans affect your credit score?

In this article we’ll cover:

Student loans can hurt or help your credit score

Protecting your credit while repaying student loans

Can shopping for student loans impact your credit?

Can refinancing student loans help or hurt your credit?

Student loans can hurt or help your credit score

As with other types of installment loans, such as a personal loan or auto loan, your student debt can help or hurt your credit score depending on how you manage your loans and your overall credit profile.

But student loans have a few features, such as deferment or forbearance, that may not be as common with other types of installment loans. Understanding these features, how they work and the impact they could have on your credit can help you manage your student loans with confidence.

If you want to see where you stand with your credit, you may be able to check your credit reports and scores for free through a variety of financial institutions and online tools. For example, LendingTree, the parent company of MagnifyMoney, gives you free access to your TransUnion VantageScore 3.0.

How student loans can hurt your credit

Opening new accounts can lower your score

Whether you take out a student loan or something else, a new credit account can lead to a dip in your credit score for several reasons.

For one thing, the new account could decrease the average age of accounts on your credit reports — a higher average age is generally better for your score. Additionally, if you applied for a private student loan, the application could lead to the lender reviewing your credit history. A record of this, known as a “hard inquiry” or “hard credit check,” remains on your report and may hurt your score a little.

Your student loans will also increase your current debt load. While the amount you owe on installment loans may not be as important as outstanding credit card debt, it could still negatively impact your score.

Credit scores aside, lenders may consider your debt-to-income ratio when you apply for a new credit account. Having a large amount of student loan debt could make it more difficult to qualify for a loan or credit line later, even if you have a good credit score.

You might wind up opening many student loan accounts

Often, students who take out student loans will have their new loan or part of the loan disbursed near the start of each term. Each disbursement could count as its own loan on your credit reports. So even if you only send one payment to your servicer every month, the servicer allocates the payments among each individual loan.

Each of these student loans could impact your age of accounts and overall debt balance. Also, if you’re repeatedly applying for private student loans, each application could lead to a hard inquiry.

You might fall behind on your payments

Your payment history is one of the most important factors in determining a credit score. Being 30 or more days past due could lead to a negative mark on your credit reports that can hurt your credit score.

And even before the 30-day point, your loan servicer may charge you a late fee if you don’t pay your bill by the due date, although some servicers give borrowers a grace period, often for 15 days.

If you’re repaying multiple student loans, missing a single payment to your loan servicer could lead to a late payment on each of your student loan accounts. Falling further behind could lead to a larger negative impact on your score, as your loan servicer reports your payments 60-, 90-, 120-, 150- and then 180-days past due.

Unless you bring your accounts current, they could be sent to collections, which could be indicated on your credit reports and hurt your score more.

Getting too far behind on student loan payments could also end up putting you in default, and you’ll immediately owe the entire outstanding balance rather than being able to use a repayment plan. The lender may also be able to sue you to take money directly from your paycheck or, in some cases, your tax return or bank account.

Federal Direct and Federal Family Education Loans go into default after 270 days of nonpayment. Other student loans may default sooner.

It can be more difficult to pay other bills

Even if you can stay on track with your student loans, having to make the monthly payment could cause trouble keeping up with other bills.

Missing a credit card, auto loan or mortgage payment could hurt your credit, as could rolling over a large amount of credit card debt, even if you’re consistently making minimum payments on time.

How student loans can help your credit

Student loans can establish credit

A student loan may be some borrowers’ first foray into the world of credit, and it could help them establish a credit history.

Credit-scoring models require a minimum amount of data to generate a score, and having a student loan on your credit reports could help make you scorable rather than “credit invisible.”

A student loan can diversify your credit mix

Showing that you can manage different types of accounts, such as installment loans and revolving accounts (credit cards, lines of credit, etc.), could help your credit score.

If the only debt you’ve had is a credit card, adding an installment loan in the form of a student loan can increase your mix of accounts and help your score. Likewise, if your only credit account is a student loan, opening a credit card might help your score.

Making on-time payments can help your score

Since your credit history is one of the most important credit-scoring factors, try to always make on-time payments as you repay your student loans. Doing so could help you build a solid credit history, which can lead to a higher score.

If you’re having trouble affording your student loan payments, consider your options (discussed below), and look for a way to lower or temporarily stop your payments before you miss one.

The loans can help build a lengthy credit history

Although it’s not one of the most important credit-scoring factors, the length of your credit history and the average age of your accounts can impact your credit score.

If you take out a student loan during your first term at school, you may wind up with years’ worth of credit history before graduating.

Continuing to take out new student loans each term could lower your average age of accounts. But your average age of accounts will still increase as you repay your loans.

One common point of confusion is whether closed accounts can still impact your credit history.

They can.

For example, if you take out a student loan as a freshman, then defer the payments for four years and repay the loan using the 10-year standard repayment plan, the account will be closed once it’s repaid.

But the account will still stay on your credit reports for up to 10 years from when it was closed, and it could impact your credit history and average age of accounts during that period.

Protecting your credit while repaying student loans

Once you take out student loans, you may be able to defer making full (or any) payments until after you leave school. But once you start repaying the loans, a misstep could lower your credit score. Here are a few ways you could keep your student loans from hurting your credit.

Don’t miss your first payment

Many student loans offer an in-school deferment period, which lets you put off loan payments until six months after you leave school. In-school deferment lets you focus on your schoolwork and makes student loans affordable, as many students might not have enough income to afford monthly payments.

But don’t forget about your loans and miss your first payment. Doing so could hurt your credit score.

To avoid missing the first — and subsequent — payments, you may want to enroll in an auto payment program with your student loan servicer. Many lenders and loan servicers will even offer you an interest rate discount as long as you’re enrolled in autopay.

Compare repayment plans

You may be able to choose from several federal student loan repayment options. The main options include the standard, extended, graduated and income-driven plans.

 

Federal student loan repayment plans
Federal student loan repayment plans

Choosing an extended, graduated or income-driven plan, rather than the standard plan, could lower your monthly payments.

If you choose an income-driven plan, be sure to renew your repayment plan every year and send your loan servicer updated documentation to remain eligible.

Although the nonstandard plans could wind up costing you more in interest overall, the lower payments could make managing all your bills easier, which can be important for maintaining and building credit.

Contact your lender if you’re struggling to afford your payments

If you do find yourself struggling to make payments, be sure to reach out to your loan servicer. With federal student loans, you may be able to switch repayment plans, or temporarily place your loans into deferment or forbearance to stop making payments.

Private student loans aren’t eligible for the federal repayment plans, but private student loan lenders may offer similar deferment or forbearance options. Some may also have other hardship options, such as temporarily reduced payment amounts or interest rates.

Your credit score won’t be affected by placing your loans into deferment, forbearance or using a hardship option, as long as you make at least the required monthly payment on time. But interest may still accrue on your loans if you’re not making payments, and the accumulated interest could be added to your loan principal once you resume your full monthly payments.

Learn about federal student loan default rehabilitation

If one or more of your federal student loans has gone into default, there are two ways that you could potentially “rehabilitate” the loan and get back on a repayment plan:

  • You could consolidation the loans with a federal Direct Consolidation Loan. The Department of Education will issue you a new loan and use the money to pay off your existing loans. If you include your defaulted loan, that loan will be paid off, and your new consolidation loan will be current. To be eligible, you must agree to either repay the consolidation loan with an income-driven repayment plan or to make three monthly payments on your defaulted loan before applying for consolidation.
  • Alternatively, you could contact your loan servicer and agree to make nine monthly payments within 10 consecutive months. The servicer will determine your monthly payment amount, which should be “reasonable and affordable” based on your discretionary income. Once you complete the payments, your loan will be taken out of default.

If you use the second method — and this if the first time you rehabilitated the student loan — the default associated with the loan will also be removed from your credit reports. Although the late payments associated with the loan will remain for up to seven years from the date of your first late payment, having the default removed could help your score.

With the first method, the default won’t be removed.

Private student loan companies may also offer you a way to rehabilitate a private student loan that’s in default. If you use the program, you may be able to request the removal of the default from your credit reports by contacting the lender, but the late payments on the account could remain.

Can shopping for student loans impact your credit?

Comparing student loan lenders and loan types won’t impact your credit score unless you submit an application for a private student loan. When you submit a private student loan application, the resulting hard inquiry could have a minor negative impact on your score.

Shopping for a private student loan, comparing the pros and cons of different lenders, and submitting multiple applications so you can accept the loan with the best terms is generally a good idea. Hard inquiries usually only have a small impact on credit scores, and scores often return to their pre-inquiry level within a few months, as long as no new negative information winds up on your credit reports.

While multiple hard inquiries can increase score drops, particularly for those who are new to credit, credit-scoring agencies recognize the importance of rate shopping. As a result, multiple inquiries for student loans that occur with a 14- to 45-day window (depending on the type of credit score) only count as a single inquiry when your score is being calculated.

Can refinancing student loans help or hurt your credit?

If you already have a good-to-excellent credit score and a low debt-to-income ratio, you may want to consider refinancing your student loans. When you refinance your loans, you take out a new credit-based private student loan and use the money to pay off some or all of your current loans. (The lender will generally send the money directly to your loan servicers.)

Refinancing can save you money if you qualify for a lower interest rate than your loans currently have, and combining multiple loans into one could make managing your debt easier.

When it comes to credit scores, refinancing student loans is a bit like taking out a new loan. You’ll need to apply for the loan, which could lead to a hard inquiry. Shopping around and submitting applications during a short period could help you get the best rate while limiting the negative impact of the inquiries.

After getting approved for refinancing, the new loan may be reported to the credit bureaus, which could lower your average age of accounts. Your other loans will be paid off, but they could stay on your credit reports for up to 10 more years. Your overall installment-loan debt will stay the same, and as long as you continue to make on-time payments, your score may improve over time.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Louis DeNicola
Louis DeNicola |

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

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Building Credit

Best First Credit Card for Teenagers

Thursday, August 23, 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Alexandria WhiteAlexandria White

If you’re the parent of a teenager, you might wonder if now is the right time to help them open a credit card. It can be hard to decide if they’re ready to take on the responsibility that comes with having a credit card since you need to trust that your teen has the restraint to limit spending and pay on time. Generally, we recommend introducing your teen to credit as soon as you can since credit is such a large part of life as an adult — you need credit to take out loans, apply for a mortgage and even make certain purchases. Plus, it’s important for your teenager to learn how to manage credit responsibly so they can build good credit.

That doesn’t mean they have to go at it alone.

Typically, you have to cosign a credit card if your teen is under the age of 21, unless they can provide proof of income on their own. You may be hesitant to take on the added risk of cosigning, but there are alternative options such as adding your teen as an authorized user to your credit card.

In this post, we’ll discuss three ways your teenager can establish credit:

3 ways for teens to establish credit

Bottom line

    3 ways for teens to establish credit

    When you’ve decided it’s time for your teen to start building credit, you have three options: add your child as an authorized user, open a secured credit card or open a student credit card. Below, we’ll describe each of your options and include potential risks associated with each option.

    Add your child as an authorized user

    If you’re hesitant for your teen to open their own credit card, adding them as an authorized user on your credit card account may be the best option. You can easily monitor their spending through statements and online banking. While they piggyback off your credit, you can continue to benefit from the same perks your card offers and even earn rewards on their purchases — if you have a rewards card.

    How it works: You can add your teen as an authorized user to your account by logging in to your online account or calling the number on the back of your card. The information required typically includes their name, birthday and SSN. After adding your teen as an authorized user, they will receive their own card that is linked to your account. They can use their card to make purchases just like you would.

    Risks: When you add your teen as an authorized user on your account, you’re 100% liable for all charges they make. That means if they overspend, you have to be able to pay the bill when it comes. And, if you’re unable to pay the bill, both your credit score and your teen’s will suffer.

    Read our complete guide to adding an authorized user to your credit card, which includes the benefits and drawbacks, plus how you can go about adding your teen as an authorized user with the major credit card issuers.

    Open a secured credit card

    If your teen is ready for their own card, a secured credit card is a good place to start.  A secured card is similar to a traditional “unsecured” card, except it requires a security deposit to access credit. Your teen can build credit by charging a small amount each month to their secured card and paying it off in full and on time each month. They can eventually upgrade to an unsecured card, and we’ll explain how below.

    How it works: Once you choose the secured card you prefer, you’ll open an account under your child’s name. If your teen is approved, the bank will ask for a security deposit. Most secured cards require deposits of at least $200, but there are secured cards with security deposits as low as $49. That deposit typically becomes their line of credit. For example, if the minimum security deposit is $200, the line of credit will also be $200.

    The deposit is refundable if the account is paid off and closed, or transitioned to an unsecured card. There are also some cards that allow cardholders to access a higher credit limit without depositing more money, if consistent bill payments are made.

    Besides the security deposit, a secured card is just like a regular credit card. Purchases and payments your teen makes with their secured card are reported to the three credit bureaus — TransUnion, Equifax and Experian. You can check that your teen’s credit activity is reported to the bureaus by requesting a copy of their free credit report at annualcreditreport.com. You can request one report from each bureau every 12 months, and we recommend spacing them out over the course of a year — so requesting one copy every four months.

    Risks: While a secured card can be a great way for your teen to build credit, there are a few potential risks. If your teen misses a payment or pays late, they will incur a late payment fee. Plus, they will also be charged interest on any balances that remain after their statement due date. That’s why it’s key to inform your teen of good credit practices, such as paying on time and in full each billing cycle. Autopay is a great feature that can help your teen avoid missed payments and interest charges.

    Transitioning from a secured to an unsecured credit card: The transition from an unsecured card to a secured card is fairly simple for the cards mentioned below, with many conducting periodic reviews of your account to evaluate if you can move to an unsecured card. And, when you’re transitioned to an unsecured card, you’ll receive your security deposit back. Another way to be refunded the deposit is by paying off any balances and closing the card — though we don’t recommend closing the account since that jeopardizes your credit score.

    We recommend the following three secured cards that can offer your teen various benefits beyond building credit — they may be able to earn cash back, make a low security deposit or have a low APR.

    Earn cash back

    Discover it® Secured

    APPLY NOW Secured

    on Discover Bank’s secure website

    Rates & Fees

    Discover it® Secured

    Regular APR
    24.99% Variable
    Annual fee
    $0
    Minimum Deposit
    $200
    The Discover it® Secured isn’t like most secured cards — it offers a cashback program and a simple transition to an unsecured card. Starting at eight months from account opening, Discover will conduct automatic monthly account reviews to see if your security deposit can be returned while you still use your card. Unlike most secured cards that lack rewards, this card offers 2% cash back at restaurants and gas stations on up to $1,000 in combined purchases each quarter. Plus, 1% cash back on all your other purchases. And, Discover will match ALL the cash back you’ve earned at the end of your first year, automatically. There’s no signing up. And no limit to how much is matched. This is a great added perk while you work on building credit.

    Low deposit secured card

    Capital One® Secured Mastercard®

    APPLY NOW Secured

    on Capital One’s secure website

    Capital One® Secured Mastercard®

    Regular Purchase APR
    24.99% (Variable)
    Annual fee
    $0
    Minimum Deposit
    $49, $99, or $200
    The Capital One® Secured Mastercard® is great for people who may not have the cash available for a $200 security deposit. The minimum security deposit is $49, $99 or $200, based on your creditworthiness. If you qualify for the $49 or $99 deposit, you will still receive a $200 credit limit. This is a great feature, plus you can get access to a higher credit line after making your five monthly payments on time — without needing to deposit more money. This card also comes with Platinum Mastercard benefits that include auto rental and travel accident insurance, 24-hour travel assistance services and more.

    Low APR secured card

    Savings Secured Visa Platinum Card from State Department Federal

    APPLY NOW Secured

    on State Department Federal Credit Union’s secure website

    Savings Secured Visa Platinum Card from State Department Federal

    Regular Purchase APR
    13.99% Variable
    Annual fee
    $0
    Minimum Deposit
    $250
    While the Savings Secured Visa Platinum Card from State Department Federal CU has a slightly higher security deposit at $250, it does have one of the lowest APRs of a secured card at 13.99% Variable. This may come in handy if you find yourself carrying a balance month to month — but we strongly encourage you to pay each bill on time and in full to avoid interest charges. This card is available to everyone regardless of residence by joining the American Consumer Council for free during the application process.

    Read our roundup of the best secured cards with no annual fee.

    Open a student credit card

    When your teen goes to college, they’ll need a convenient way to pay for purchases. While cash and debit cards can be used, both of those options don’t help your teen build credit like a student credit card does. Your teen can build credit by using a student credit card to make purchases and paying their statements on time and in full each month.

    How it works: A student credit card is the same as a regular credit card but typically has a lower credit limit. The lower limit is due to the smaller income students have compared with adults. Your teen can use their student card just like you’d use your card. However, student cards tend to have higher interest rates than non-student cards — making it all the more important for your teen to pay on time and in full each month.

    Some student cards offer incentives for students to practice responsible credit behavior, or even maintain good grades. And, when your teen graduates college, most student cards automatically upgrade to the non-student version of the same card. So, they can continue to benefit from the same perks.

    Risks: Overall, a student card can be a great asset for your teen to have in college, but there are a few risks to beware of. If your teen overspends so much that they max out their credit limit, they risk harming their utilization rate — which is the amount of credit they use divided by their total credit limit. For example, if your teen has a $500 credit limit and uses $400, their utilization rate would be 80% ($400/$500). That’s very high, and we recommend keeping utilization below 30%.

    Another risk is that student cards don’t require a cosigner, so your teen is fully responsible for the card — meaning you, as the parent, don’t have control over their actions. The best you can do is advise them on the proper way to use a credit card and hope they are responsible.

    The following three student credit card offer numerous benefits for your teen that extend further than simply building credit — all cards have a rewards program and your teenager may receive additional rewards for good grades or paying on time.

    Earn cash back and be rewarded for good grades

    Discover it® Student Cash Back

    APPLY NOW Secured

    on Discover Bank’s secure website

    Rates & Fees

    Read Full Review

    Discover it® Student Cash Back

    Regular APR
    14.99% - 23.99% Variable
    Intro Purchase APR
    0% for 6 Months
    Annual fee
    $0
    Rewards Rate
    5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com, or wholesale clubs up to the quarterly maximum each time you activate. 1% unlimited cash back automatically on all other purchases.
    Credit required
    fair-credit
    Fair Credit

    The Discover it® Student Cash Back is our top pick for a student card since it has a wide range of benefits. There is a cashback program where you can earn 5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com or wholesale clubs up to the quarterly maximum each time you activate, plus 1% unlimited cash back automatically on all other purchases. Plus, new cardmembers can benefit from Discover automatically matching all the cash back you earn at the end of your first year. Another unique perk is the good Grades Reward: Receive a $20 statement credit each school year that your GPA is 3.0 or higher, for up to five consecutive years.

    Simple cashback program with an incentive to pay on time

    Journey® Student Rewards from Capital One®

    APPLY NOW Secured

    on Capital One’s secure website

    Read Full Review

    Journey® Student Rewards from Capital One®

    Regular Purchase APR
    24.99% (Variable)
    Annual fee
    $0
    Rewards Rate
    1% Cash Back on all purchases; 0.25% Cash Back bonus on the cash back you earn each month you pay on time
    Credit required
    bad-credit
    Average/Fair/Limited

    The Journey® Student Rewards from Capital One® has a straightforward cashback program, ideal if you don’t want to deal with rotating categories or activation. Earn 1% cash back on all purchases; 0.25% cash back bonus on the cash back you earn each month you pay on time. The bonus you receive is a great incentive to pay on time each month, which you should be doing regardless of rewards. If you receive a low credit limit, the Credit Steps program allows you to get access to a higher credit line after making your first five monthly payments on time.

    Student card for studying or traveling abroad

    Bank of America® Travel Rewards Credit Card for Students

    APPLY NOW Secured

    on Bank Of America’s secure website

    Bank of America® Travel Rewards Credit Card for Students

    Regular Purchase APR
    16.99% - 24.99% Variable
    Intro Purchase APR
    0% Introductory APR for the first 12 Statement Closing Dates following the opening of your account.
    Annual fee
    $0
    Rewards Rate
    Earn unlimited 1.5 points for every $1 you spend on all purchases everywhere, every time and no expiration on points.
    Credit required
    good-credit
    Excellent/Good

    The Bank of America® Travel Rewards Credit Card for Students allows you to earn unlimited 1.5 points for every $1 you spend on all purchases everywhere, every time and no expiration on points. This is a simple flat-rate card that doesn’t require activation or paying on time to earn the full amount of points per dollar, like the other two cards mentioned above. If you plan to do a semester abroad or often travel outside the U.S., this card is a good choice since there is no foreign transaction fee. Students with a Bank of America® checking or savings account can experience the most benefits with this card since you receive a 10% customer points bonus when points are redeemed into a Bank of America® checking or savings account. And, Preferred Rewards clients can increase that bonus 25%-75%.Read our roundup of the best student credit cards.

    Bottom line

    Introducing your teenager to credit as soon as possible is a great way to get them prepared for all the future credit products they’re bound to encounter in life. Practicing responsible credit behavior with a credit card or even as an authorized user can help your teen establish credit, which is necessary for taking out student loans, mortgages and other credit products. Plus, having a good credit score is key to getting the best rates and terms for credit products.

    Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

    Alexandria White
    Alexandria White |

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

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    Building Credit

    What Factors Affect Your Credit Score?

    Thursday, April 5, 2018

    Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

    Nick ClementsNick Clements
    The 5 factors that determine your FICO score

    There are a lot of myths out there about credit scoring – hopefully we can help you understand FICO scoring, so you can take action to build your score. There are five major components FICO uses to determine a credit score. Fortunately, understanding the secret sauce can help you build a strong score and healthy credit report. Both a 700+ score and healthy credit report will help keep the rest of your financial life cheaper by enabling you to get lower interest rates on loans and approved for top-tier financial products.

    35%: Payment History

    This is the single most important part of your credit score. Quite simply, this looks at how many on-time payments that you make. You will:

    • Get rewarded for on-time payments
    • Be punished for missed payments: Not all late payments are created equally. If you are fewer than 30 days late, your missed payment will likely not be reported to the bureau (although you still will be subject to late fees and potential risk-based re-pricing, which can be very expensive). Once you are 30 days late, you will be reported to the credit bureau. The longer you go without paying, the bigger the impact on your score, ie: 60 days late is worse than 30 days late. A single missed payment (of 30 days or more) can still have a big impact on your score. It can take anywhere from 60 to 110 points off your score.

    If you don’t pay a medical bill or a cell phone bill, your account may be referred to a collection agency. Once it is with an agency, they can register that debt with the credit bureau, which can have a big negative impact on your score. Most negative information will stay on your credit bureau for 7 years. Positive information will stay on your credit bureau forever, so long as you keep the account open. If you close an account with positive information, then it will typically stay on your report for about 10 years, until that account completely disappears from your credit bureau and score. If you don’t use your credit card (and therefore no payment is due), your score will not improve. You have to use credit in order to get a good score.

    However, there is a big myth that you have to borrow money and pay interest to get a good score. That is completely false! So long as you use your credit card (it can even be a small $1 charge) and then pay that statement balance in full, your score will benefit. You do not need to pay interest on a credit card to improve your score. Remember: your goal is to have as much positive information as possible, with very little negative information. That means you should be as focused on adding positive information to your credit report as you are at avoiding negative information.

    30%: Amount Owed

    This part of your credit score will look at how much debt you have. Your credit report uses your statement balance. So, even if you pay your credit card statement in full every month (never pay any interest), it would still show as debt on your credit report, because it uses your statement balance. This part of your score will look at a few elements:

    • The total amount of debt that you owe across all of your accounts. On your credit cards, the utilization? If you have a lot of credit card debt, your score can be hit.
    • In addition to the total amount of debt that you have, your utilization is very important.

    To calculate utilization, divide your statement balance (across all of your credit cards) by your available credit (across all of your credit cards). For example, if you have credit limits of $40,000 across 4 credit cards, and you have a total balance of $20,000 – then you have a utilization of 50%.

    To have a good score, you will want your total utilization to be below 20%.

    Why is utilization such an important concept? If you use every bit of credit made available to you, then it looks like you do not have self-restraint. Maxing out all of your credit cards is a big warning sign to lenders.

    If you are able to restrain yourself and have a lot of available credit (that you do not use), then you are showing self-discipline.

    It may sound strange (and, in fact, it is): but the key to having a good credit score is having a lot of available credit and not using it.

    15%: Length of Credit History

    This is the easiest part of the credit score to get right. So long as you don’t close accounts, every day this part of your score improves (because all of your accounts become one day older).

    FICO will look at the age of your oldest account, as well as the average age of accounts.

    10%: Types of Credit in Use

    If you have experience with different types of credit (installment loans, revolving loans, credit cards, etc.) than you will get more points than if you don’t have a variety of experience.

    The most important product is a credit card. If you have a credit card and manage it well, then you will be rewarded in this. Remember: there is no greater temptation than a credit card. If you are able to withstand the temptation of plastic, you get the most points.

    10%: New Credit

    If you open up a lot of new credit in a short period of time, you will be sending a warning signal to the credit bureau. But this part of the credit score has turned into a myth that scares a lot of people. They are afraid to shop for the best deals, because they are afraid of what shopping for credit would do to their credit scores.

    The FICO score will look at credit inquiries from the last 12 months.

    This factor is only 10% of your total score. And, there are a lot of myths. Lets break a few of them now:

    • Checking my own credit report will hurt my score: FALSE! If you check your own credit report at www.annualcreditreport.com, it will not hurt your score
    • If I shop around for a good mortgage or auto loan rate, my score will get crushed: FALSE! Multiple inquiries for a mortgage or auto loan are usually treated as a single inquiry.
    • If I shop around for a balance transfer credit card, my score will get crushed: FALSE! If your score does decline, it probably will not decline by much. You can expect 10-20 points per credit application. But, remember: you apply for a balance transfer to help reduce your balance faster. When you open a new credit card and transfer your balance, then you will be able to:
      • Have a lower overall utilization, because you have new credit available (and of course you will not use it!)
      • Pay off your debt faster, because the interest rate is lower. At the end of 12 months, your score should be even higher than when you applied for the balance transfer or personal loan.

    Quick Steps to Building and Keeping a Good Credit Score

    • Use your credit card every month, but keep your utilization well below 20%. In other words, never charge more than 20% of your available credit. You can reduce your utilization by (a) paying down your debt and (b) increasing the credit that you have available
    • Make your payments on time every month If you repeat these two things over time, you will eventually have a score above 700. However, if your score is below 700 and you want to improve it, you need to focus on:
    • Putting more positive information into the credit bureau
    • Getting your utilization below 20%
    • Dealing with the negative information

    Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

    Nick Clements
    Nick Clements |

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

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    Building Credit

    Do Credit Builder Loans Actually Work?

    Tuesday, February 6, 2018

    Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

    Marty MinchinMarty Minchin

    If you have no credit or bad credit, getting a loan may seem impossible.

    That’s because when lenders are considering a loan application, their main concern is whether the applicant can pay the loan back. They look at an applicant’s credit history, which shows an one’s debt and payment history, to determine how likely the applicant can pay off a loan in the future.

    If an application has no debt — and therefore no loan repayment history, or a spotty record of late payments or loan defaults, a lender likely will determine that lending to the applicant would be too risky.

    A credit builder loan is one way you can start building a strong credit history that will eventually qualify you for other loans.

    In this review, we’ll cover:

    What is a credit builder loan?

    How a credit builder loan works

    Learn more:

    Why your credit score matters

    Other ways to build credit

    What is a credit builder loan?

    Building good credit, whether you are starting from scratch or repairing a bad credit history, requires patience. You’ll need time to show lenders that you are a consistently reliable borrower who makes on-time debt payments.

    A credit builder loan is a great way to begin establishing a good credit history. Here’s how it works:

    A financial institution such as a credit union, which typically issues credit builder loans, deposits a small amount of money into a secured savings account for the applicant. The borrower then pays the money back in small monthly installments — with interest — over a set period of time. At the end of the loan’s term, which typically ranges from six to 24 months, the borrower receives the total amount of the credit builder loan in a lump sum, plus any interest earned if the lender offers interest.

    Borrowers who make all of their payments on time will benefit significantly. Lenders report the payments to credit reporting companies, which helps the borrower begin build a solid credit history.

    LendingTree
    APR

    5.99%
    To
    35.99%

    Credit Req.

    Minimum 500 FICO

    Minimum Credit Score

    Terms

    24 to 60

    months

    Origination Fee

    Varies

    SEE OFFERS Secured

    on LendingTree’s secure website

    LendingTree is our parent company

    LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.

    How a credit builder helps boost credit

    A credit builder loan helps consumers build their credit by providing an opportunity for them to make small monthly payments. As the lender reports regular loan payments to credit reporting agencies, your credit history will show that you can make regular, on-time loan payments over the life of a loan.

    Most credit builder loans are small, ranging from $300 to $1,000, which means they have also small monthly payments. Interest rates vary by bank, so be sure you compare all your options to get the best rate. We found rates ranging from low as 5% all the way up to 16% at various banks.

    To apply for a credit builder loan, consumers can visit a local lender’s branch or apply online. Because the borrower won’t receive any money until the loan is paid in full, credit builder loans typically are easy to qualify for.

    What to watch out for

    Credit builder loans are not free, so be sure to ask about fees and interest rates. Some lenders may charge an application fee, and interest rates vary widely among lenders. While some offer rates in the single digits, other lenders’ rates may be significantly higher.

    Where to get a credit builder loan

    Here are examples of a few types of credit builder loans.

    Credit unions

    Many credit unions, which offer credit builder loans as a way to help clients establish good credit, list details of the loans online and provide an online application.

    1st Financial Federal Credit Union, for example, offers these terms:

    • Minimum Loan Amount: $500
    • Maximum Loan Amount: $1,000
    • Loan Term: 12 months
    • Interest Rate: 12%
    • Payment history reported to credit bureaus
    • 50% of interest refunded back with on-time payments

    Banks

    Some regional or local banks, like credit unions, offer credit builder loans with the intention of helping clients build a good credit score as they work toward good financial health.

    The Sunrise Banks Credit Builders Program, for example, places loan funds into a Certificate of Deposit (CD) for the borrower. The CD earns interest as the borrower repays the loan, which can be withdrawn when it’s paid in full. Consumers can borrow $500, $1,000 or $1,500, and they are assigned a repayment schedule of monthly principal and interest payments. Payments are reported to Experian, Transunion and Equifax.

    Self Lender

    Self Lender, based in Austin, Texas, is designed to help consumers increase their financial health. Working in partnership with multiple banks, Self Lender offers a credit-builder account that is essentially a CD-backed installment loan. In other words, you open a CD with the bank and they extend a line of credit to you for the same amount. When you make payments, they report it to the credit bureaus.

    The money you put in the CD itself is what secures the loan.

    Self Lender offers four loan amounts, each with 12- or 24-month terms. Borrowers can receive loans of $525, $545, $1,000, or $2,200 with interest rates up to 15.65% APR. These terms and rates are current as of Jan. 31, 2018.

    Self Lender reviews rate the services as 4.8 out of 5 stars, with many reviewers noting that their credit score increased after paying off their Self Lender loan and praising the platform’s easy and simple process.

    Pros of credit builder loans

    • A credit builder loan forces you to save money, as you are essentially making payments into a savings account.
    • Credit builder loans are secured by the money the bank has deposited for you, so they are typically easy to apply for.
    • When the loan is paid off, you will receive a payment in the amount of the loan. Some lenders also pay you dividends or refund a portion of your interest.
    • You will develop good savings habits through a credit builder loan, which requires you to set aside money every month for a loan payment.
    • As you make payments on time every month, you will develop financial discipline that you apply to bigger loans.

    Cons of credit building loans

    • Late or missed payments will be reported to credit reporting agencies, which could hurt your credit score.
    • They aren’t all free. Self Lender charges a $9 to $15 administrative fee, which is included in the APR.

    Learn more:

    Why your credit score matters

    Credit scores are calculated from your credit report, which is a record of your credit activity that includes the status of your credit accounts and your history of loan payments. Many financial institutions use credit scores to determine whether an applicant can get a mortgage, auto loan, credit card or other type of credit as well as the interest rate and terms of the credit. Applicants with higher credit scores, which indicate a better credit history, typically qualify for larger loans with lower interest rates and better terms.

    Three federal credit bureaus, Equifax, Experian and Transunion, collect information from data providers and lenders, and use it to calculate your credit score. These credit reporting agencies report credit scores to lenders and personal finance websites.

    Consumers typically have multiple credit scores, which differ due to the way they are calculated, the information that the credit bureau uses in the calculation and the time that they are calculated. The two major scores are FICO and Vantage.

    Here are more details about each one.

    FICO scores

    FICO scores show the likelihood of a borrower paying back a loan on time, and scores range from 300 to 850. More than 90% of lending decisions in the U.S. are influenced by an applicant’s FICO score.

    Five factors determine a consumer’s FICO score:

    • Payment history (35%)This is a record of your loan payment and notes whether they were on time, late or missed.
    • Amounts owed (30%)Also known as utilization, amounts owed is how much you use your credit limit. For example, if you have a credit card with a $15,000 limit and you have a debt $3,000 on the card, your utilization is 20%.Ideally, your utilization should be less than 30% on all debts combined.
    • Length of credit history (15%)This measures the length of time that you’ve had credit. If you opened your first credit card 20 years ago when you were a college student, for example, your credit history likely would be slightly higher than someone who took out their first loan one year ago.
    • New credit (10%)New credit looks at how frequently you’ve inquired about your credit and opened new accounts. For example, when you open a new credit card, your credit score could be slightly lower for six months before going back up.

    Vantage scores

    Vantage scores, which also measure your credit risk, are used by 20 of the 25 largest financial institutions. Like FICO scores, higher scores lead to better loan opportunities. Vanguard scores range from 300 to 850, and are available for free online.

    Vantage scores, which are calculated using data from a consumer’s credit report, take six factors into account.

    Extremely influential

    • Payment history

    Highly influential

    • Your age and type of credit (maintaining a mix of accounts over a long time is beneficial)
    • Percentage of your credit limit used (utilization)

    Moderately influential

    • Your total debt balance

    Less influential

    • Recent credit inquiries and credit behavior (don’t open a lot of new accounts at one time)
    • Available credit

    How do I get my credit score?

    There are numerous ways to get your FICO and VantageScore for free. Check out our guide on Ways to Get Your Free FICO Score.

    Other ways to build credit

    Credit builder loans aren’t the only way to establish a good credit score. Here are some other options if you don’t want to take out a loan.

    Secured credit cards

    Like credit builder loans, secured credit cards are an easy way to build or rebuild credit history. The application process is the same, but secured credit cards require a deposit between $50 and $300 into a separate account. The bank then issues a line of credit that is typically equal to the deposit, allowing you to build a credit history without putting the lender at risk.

    Many secured credit cards allow you to “graduate” and move to a traditional credit card after you’ve proven that you can make payments consistently. Lenders will report your payments to credit reporting bureaus, and some offer autopay, online payments and alerts to make sure you pay your monthly bill on time.

    Secured credit cards are not always free. Some require annual fees and have APRs as high as 25%.

    Unsecured personal loans

    Unsecured personal loans can be easy to qualify for and can help you build credit. These loans typically range from between $2,000 and $50,000, and some lenders will offer them to borrowers with lower credit scores.

    The borrower will receive the money in a lump sum upfront, and a disciplined consumer who is focused on building credit can use the money to repay the loan.

    Using an unsecured personal loan to build credit, however, can be risky. Many unsecured personal loans come with origination fees and interest rates can be as high as 36%, which can make the loan an expensive way to build credit.

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    The bottom line

    While credit building loans can be a key step in establishing a strong credit history, it’s imperative that you make all of your payments in full and on time. When you are committed to building a strong financial future with personal budgeting and spending discipline, successfully paying off a credit builder loan can lead to approval for good rates and terms on mortgages, auto loans and other loans in the future.

    Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

    Marty Minchin
    Marty Minchin |

    Marty Minchin is a writer at MagnifyMoney. You can email Marty here

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    I Got My First Credit Card One Year Ago – Here’s How I Already Have a Good FICO Score

    Monday, October 2, 2017

    Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

    Shen LuShen Lu
    iStock

    When I moved to the U.S. from my hometown, Hangzhou, an eastern Chinese city, in 2012 to pursue my undergraduate degree, the thought of establishing a credit history wasn’t even on my radar. I was, after all, an international student from China, where day-to-day credit card use has only recently caught on.  

    It wasn’t until I returned to the U.S. a few years later to pursue my master’s in Chicago that I realized I’d need to establish credit if I planned to launch my career in the States.  

    It’s been only a year since I opened my first card last September, and I already have a solid FICO score – 720, the last time I checked.  That’s not a perfect score by any means, but it lands me safely in the “good” credit range, meaning I probably won’t have trouble getting approved for new credit in the future. I still have work to do if I want to get into the “very good” credit category, which starts at 740, according to MyFICO, but for a credit card newbie I’m not disappointed in my progress so far. 

    Here’s how I did it:  

    I selected the right card for my needs
     

    I wish I could say I diligently researched credit cards to choose the best offer and best terms, but honestly, I just got lucky: 

    Shortly before graduate school started, I visited friends in Iowa. When we were about to split the bill after dinner at a Japanese restaurant, I noticed that all my friends had a Discover card with a shimmering pink or blue cover. The Discover it® Student Cash Back was known for its high approval rate for student applicants, and had been popular among international students. 

    I thought, “Oh, maybe I should get this one, too.”  

    One of the friends sent me a referral link that very night. I applied and got approved quickly. We both received a $50 cash-back bonus after I made my first purchase — an iPhone — using the card through Discover’s special rewards program. I even received 5 percent cash back from the purchase.  

    Besides imposing no annual fee, the card has other perks, like rewarding me with a $20 statement credit when I reported a good GPA (up to 5 consecutive years), letting me earn 5 percent cash back on purchases in rotating categories, and matching the cash-back bonus I earned over the first 12 months with my account. For me, it was a great starter card, but there are plenty of other options out there.

    Check out our guide on the best credit cards for students. 

    I also could have explored other options of establishing credit, like opening a secured card, for example, which would have been a smart option if I hadn’t been able to qualify for the Discover it student card.

    I never missed a payment

    Despite my very limited financial literacy at the time, I attribute my current stellar credit score to the old, deeply ingrained Chinese mentality about saving and not owing. 

    I never missed payments, and I always paid off my balance in full each month, instead of just making the $35 minimum payment. I didn’t want to pay a penny of interest. 

    Credit cards carry high interest rates across the board, but student credit cards generally have some of the highest APRs. This is because lenders see students like me — consumers without much credit history — to be risky borrowers, and they charge a higher interest rate to offset that  risk. 

    Best Student Credit Cards October 2018

    It wasn’t until much later when I learned that payment history is critical to credit establishment. In fact, it is the biggest factor there is. It accounts for as much as 35 percent of my FICO score. Naturally, I felt like I dodged a bullet! 

    A Guide to Getting Your Free Credit Score 

    I was careful not to use too much of my available credit

    My friends with more experience advised me to use as little of my available credit as possible. They warned me that overuse had hurt their credit scores in the past. This didn’t much sense to me, but I followed their advice, for the most part diligently.. 

    I later learned this is almost as important as paying bills on time each month. Your utilization rate is another 30 percent of the FICO score. Credit experts urge cardholders to keep their credit utilization ratio below 30 percent.  

    That means if you have three credit cards with a total available limit of $10,000, you should try never to carry a total balance exceeding about $3,000. 

    A Guide to Build and Maintain Healthy Credit 

    I beefed up my score with on-time rent payments  

    Keeping in mind the importance of not maxing out my credit card, I never considered paying my rent with the card. In fact, some landlords charge credit card fees for tenants who try to pay with plastic.  

    But I did find a way to establish credit by paying rent using my checking account. 

    I paid rent to my Chicago landlord through RentPayment, an online service. RentPayment gave me the option of having my payments reported to TransUnion, one of the three major credit-reporting agencies. Because I knew I’d always pay bills on time, I signed up for the program.  

    This likely helped me improve my credit mix, another key factor influencing one’s credit score. The more types of accounts you show on your report, the better your score can be — providing you make all your payments on time.  

    Yes, I made mistakes. This was my biggest one.

    My first foray into the world of credit wasn’t completely blip-free.  

    The only thing that hurt my credit, besides my short credit history, was that I had tried signing up for a Chase credit card and other ways to finance my iPhone just a few days before I applied for my Discover card.  

    None of the other banks approved my applications, and my score went down from the very beginning due to the number of “hard inquiries” against my report. Hard inquiries occur when lenders check your credit report before they make lending decisions, and having too many inquiries in a short period of time can result in several dings to your credit score. 

    I’ve learned my lesson, though. And I haven’t applied for a new credit card since. Today, as I said, my FICO score is a healthy 720, and I am on the lookout for a second credit card now that I’ve graduated and gotten a job. 

    Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

    Shen Lu
    Shen Lu |

    Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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