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Building Credit

Do I Really Have Bad Credit?

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

credit score

“Do I have bad credit?” The answer to this question can determine whether or not you will be approved for mortgages, auto loans or credit cards. It will also determine how much you will have to pay for those products if you are approved.

Different Types of Credit Scores

The traditional measure of your credit worthiness is a credit score. And the original credit score was FICO. This score is still used in nearly 90% of all lending decisions, and is particularly important in the mortgage market. It is fairly easy to get your FICO score for free. We tell you where you can find a free FICO score here.

FICO measures how successfully you have managed consumer debt in the past. The most important factor in the score is on-time payment history. The score also looks at how much debt you have (the less debt and the lower utilization the better) and how long you’ve had credit. In addition to missed payments, negative items like collections, judgements and foreclosures can have a big impact on your score. Based upon your behavior, you will receive a score between 300 – 850.

The three credit bureaus, tired of FICO’s monopoly, created VantageScore. It looks at many of the same attributes, and it uses the same scale. That is why it is often referred to as the FAKO. Most of the free credit score websites provide you with a VantageScore.

The scale on FICO and VantageScore is similar. You can see what those scores mean here:

  • Above 750: Excellent Credit
  • 680 – 749: Good Credit
  • 620 – 679: “Near Prime” or Acceptable Credit
  • 550 – 619: Sub-prime
  • Below 550: Bad Credit

With Excellent or Good credit, you will likely be approved for almost any credit product. Near-prime customers are seeing more options every day, as banks and finance companies expand their product offerings. Sub-prime borrowers will have fewer options available, and they will all be very expensive.

People with Bad Credit have a score below 550. If your score is this low, it will be very difficult to obtain any financial product. Your focus should be on improving your score, which we explain in our Debt Guide.

There is no difference between having no score and having a bad score. If you have no credit history, you should start building it with a secured credit card.

Screen Shot 2015-03-23 at 5.17.29 PM

Is My Credit Score Enough?

Your credit score is a good indication of whether or not you will be approved, but it is not enough.

Credit card decisions are largely automated and score-driven. However, in addition to your credit score your debt burden is extremely important. Your credit score does not know how much money you make. $20,000 of debt can be a lot (if you make $40,000 a year), or not much at all (if you make $500,000 a year). Your debt burden looks at your monthly expenditure and compares it to your monthly income. Usually, only expenditures reported are the credit bureau are included. That means things like your mortgage, car payment, credit card payments and any other form of unsecured debt. If your debt burden is above 50%, you are typically considered a bad credit risk and would be declined by most lenders. Excellent Credit means a debt burden below 30%. And there are debates about everything in between.

In addition, most banks will look at how rapidly you have been building up debt. If you have been accumulating a lot of debt recently, the bank will likely consider you a high risk, and you will have fewer opportunities to borrow at a good interest rate.

For products like mortgages and auto loans, your down payment and income are also extremely important when the bank considers your level of risk. The lower the down payment, the higher the risk.

Especially for mortgages, you will probably have your income and employment verified. Banks like people with steady jobs and a long history of employment. If you have highly volatile income, you are considered riskier and may be rejected. Or, the bank may not consider all of your income, given its volatility.

So, What Is Bad Credit, Really?

When people talk about their “credit,” they are really talking about their likelihood of being accepted. To have bad credit means that you have a low chance of being approved. And here are the main reasons you find it impossible to get any form of credit approved:

  • Your score is below 550
  • Your debt burden is above 50%
  • You have no credit score
  • You have been building up a lot of debt recently
  • You are unemployed

The only way to improve your debt burden is to pay down your debt or increase your earnings. If you are starting from no credit score, you can build a good one very quickly. Improving a damaged score takes more time, but it can be done. In a worst case scenario, every negative item will disappear from your credit score in seven years. But most people, with focus, can have a dramatically better score in 12 to 18 months.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers 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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What Factors Affect Your Credit Score?

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

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 card offers that appear on this site are 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 card companies or all card offers 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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The Best Options for Rebuilding Your Credit Score – April 2018

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

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.

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<sup>®</sup> Secured Card - No Annual Fee

Annual fee

$0

Minimum Deposit

$200

Regular APR

24.49% Variable

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

Perhaps our favorite secured card, Discover it® Secured Card - No Annual Fee, 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<sup>®</sup> Secured Mastercard<sup>®</sup>

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®

Annual fee

$0 For First Year

$0 Ongoing

Cashback Rate

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

Regular Purchase APR

24.15%

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

Annual fee

$0 For First Year

$0 Ongoing

Cashback Rate

5% at Target & Target.com

Regular Purchase APR

24.15%

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 card offers that appear on this site are 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 card companies or all card offers 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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Building Credit

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

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

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:

Cards to consider

Rewards

Discover it<sup>®</sup> Secured Card - No Annual Fee

Annual fee

$0

Minimum Deposit

$200

Regular APR

24.49% Variable

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

The Discover it® Secured Card - No Annual Fee 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 Card - No Annual Fee 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 24.49% 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<sup>®</sup> Secured Mastercard<sup>®</sup>

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® 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<sup>®</sup> Secured MasterCard<sup>®</sup>

Annual fee

$0

Minimum Deposit

$200

Regular Purchase APR

23.99%* (Variable)

APPLY NOW Secured

on Citibank’s secure website

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.

Low APR

Visa<sup>®</sup> Secured Card from MidSouth Community FCU

Annual fee

$0 For First Year

$0 Ongoing

Minimum Deposit

$200

Regular Purchase APR

10.40%

Variable

APPLY NOW Secured

on MidSouth Community FCU’s secure website

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 10.15% 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<sup>®</sup> Credit Card

Annual fee

$0 For First Year

$0 Ongoing

Minimum Deposit

$250

Regular Purchase APR

12.10%

Variable

APPLY NOW Secured

on Affinity Federal Credit Union’s secure website

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 11.85% 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

Annual fee

$0 For First Year

$0 Ongoing

Minimum Deposit

$250

Regular Purchase APR

13.49%

Variable

APPLY NOW Secured

on State Department FCU’s secure website

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 13.49% 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 card offers that appear on this site are 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 card companies or all card offers 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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View Your Free FICO Score for all 3 Credit Bureaus

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities. This site may be compensated through a credit card partnership.

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

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

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

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

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

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

Equifax Scores

Citibank

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

DCU Credit Union

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

Huntington Bank

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

PenFed

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

Experian Scores

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

American Express

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

Chase

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

Discover

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

First National Bank of Omaha

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

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

Barclaycard

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

Walmart / Sam’s Club

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

Unknown Bureau

 State Employees Credit Union of North Carolina

  • Available to all credit card holders

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

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

 

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

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Building Credit

Do Credit Builder Loans Actually Work?

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

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.

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.

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.

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 card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

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

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Building Credit, College Students and Recent Grads, Credit Cards, Earning Cashback

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

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

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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 for Students card 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 cash-back bonus when I reported a good GPA, 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 2017 

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 payment 

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 card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

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Average Credit Score in America Reaches New Peak at 700

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In late 2016, American consumers hit an important milestone. For the first time in a decade, over half of American consumers (51%) recorded prime credit scores. On the other side of the scale, less than a third of consumers (32%) suffered from subprime scores.1 As a nation, our average FICO® Score rose to its highest point ever, 700.2

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

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

Key insights

  1. National average FICO® Scores are up 14 points since October 2009.3
  2. 51% of consumers have prime credit scores, up from 48.1% in 2007.4
  3. One-third of customers have at least one severely delinquent (90+ days past due) account on their credit report.5
  4. Average VantageScores® in the Deep South are 21 points lower than the national average (652 vs. 673).6
  5. Millennials’ average VantageScore® (634) underperformed the national average by 39 points. Only Gen Z has a lower average score (631).7

Credit scores in America

Average FICO® Score: 7008

Average VantageScore®: 6739

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

Percent with subprime credit score (Equifax Risk Score <660): 32%11

Credit score factors

Percent with at least one delinquency: 32%12

Average number of late payments per month: .3513

Average credit utilization ratio: 30%14

Debt delinquency

Percent severely delinquent debt: 3.37%15

Percent severely delinquent debt excluding mortgages: 6.9%16

States with the best and worst credit scores

What is a credit score?

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

The Big 3 credit scores

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

  • FICO® Score 8 (used for underwriting mortgages)
  • VantageScore® 3.0 (widely available to consumers)
  • Equifax Consumer Risk Credit Score (used by the Federal Reserve Bank of New York)

Each of these credit scores ranks risk on a scale of 300-850. In all three models, prime credit is any score above 720. Subprime credit is any score below 660. All three models consider similar data when they create credit risk profiles. The most common factors include:

  • Payment history
  • Revolving debt levels (or revolving debt utilization ratios)
  • Length of credit history
  • Number of recent credit inquires
  • Variety of credit (installment and revolving)

However, each model weights the information differently. This means that a FICO® Score cannot be compared directly to a VantageScore® or an Equifax Risk Score. For example, a VantageScore® does not count paid items in collections against you. However, a FICO® Score counts all collections items against you, even if you’ve paid them. Additionally, the VantageScore® counts outstanding debt against you, but the FICO® Score only considers how much credit card debt you have relative to your available credit.

American credit scores over time

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

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

We’re also seeing healthy increases in prime credit scores, defined as Equifax Risk Scores above 720. According to the Federal Reserve Bank of New York, 51% of all Americans have prime credit scores as measured by the Equifax Risk Score. Following the housing market crash in 2010, just 48.4% of Americans had prime credit scores.20

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

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

Credit scores and loan originations

Following the 2007-2008 implosion of the housing market, banks saw mortgage borrowers defaulting at higher rates than ever before. In addition to higher mortgage default rates, the market downturn led to higher default rates across all types of consumer loans. To maintain profitability banks began tightening lending practices. More stringent lending standards made it tough for anyone with poor credit to get a loan at a reasonable rate. Although banks have loosened lending somewhat in the last two years, people with subprime credit will continue to struggle to get loans. In June 2017, banks rejected 81.4% of all credit applications from people with Equifax Risk Scores below 680. By contrast, banks rejected 9.11% of credit applications from those with credit scores above 760.22

Credit scores and mortgage origination

Before 2008, the median homebuyer had an Equifax Risk Score of 720. In 2017, the median score was 764, a full 44 points higher than the pre-bubble scores. The bottom 10th of buyers had a score of 657, a massive 65 point growth over the pre-recession average.23

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

Credit scores and auto loan origination

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

In the case of auto loans, the lower median risk profile hasn’t paid off for banks. In the first quarter of 2017, $8.27 billion dollars of auto loans fell into severely delinquent status. New auto delinquencies are now as bad as they were in 2008.28

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

Credit scores for credit cards

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

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

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

State level credit scores

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

States in the upper Midwest outperform the nation as a whole. These states had average VantageScores® of 689.

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

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

Credit score by age

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

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

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

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

Sources

  1. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  2. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  3. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  4. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  5. 2016 State of Credit Report” National 2016 90+ Days Past Due, Experian. Accessed May 24, 2017
  6. 2016 State of Credit Report” State 2016 Average VantageScore®, Experian. Accessed May 24, 2017.
  7. 2016 State of Credit Report” National 2016 Average VantageScore®, Experian. Accessed May 24, 2017.
  8. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  9. 2016 State of Credit Report” National 2016 Average VantageScore®, Experian. Accessed July 23, 2017.
  10. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  11. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  12. 2016 State of Credit Report” National 2016 90+ Days Past Due, Experian. Accessed July 23, 2017.
  13. 2016 State of Credit Report” National 2016 Average Late Payments, Experian. Accessed July 23, 2017.
  14. 2016 State of Credit Report” National 2016 Average Revolving Credit Utilization Ratio, Experian. Accessed July 23, 2017.
  15. Quarterly Report on Household Debt and Credit May 2017” Percent of Balance 90+ Days Delinquent by Loan Type, All Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  16. Calculated metric using data from “Quarterly Report on Household Debt and Credit May 2017” Percent of Balance 90+ Days Delinquent by Loan Type and Total Debt Balance and Its Composition. All Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017. Multiply all debt balances by percent of balance 90 days delinquent for Q1 2017, and summarize all delinquent balances. Total delinquent balance for non-mortgage debt = $284 billion. Total non-mortgage debt balance = $4.1 trillion$284 billion /$4.1 trillion = 6.9%.
  17. 2016 State of Credit Report” State 2016 Average VantageScore®, Experian. Accessed July 23, 2017.
  18. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  19. Ethan Dornhelm, “US Average FICO Score Hits 700: A Milestone for Consumers,” Fair Isaac Corporation. Accessed July 23, 2017.
  20. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  21. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  22. Survey of Consumer Expectations, © 2013-2017 Federal Reserve Bank of New York (FRBNY). The SCE data are available without charge at http://www.newyorkfed.org/microeconomics/sce and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.
  23. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  24. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Mortgages, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  25. Quarterly Report on Household Debt and Credit May 2017” Number of Consumers with New Foreclosures and Bankruptcies, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  26. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed May 24, 2017.
  27. Quarterly Report on Household Debt and Credit May 2017” Credit Score at Origination: Auto Loans, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  28. Quarterly Report on Household Debt and Credit May 2017” Flow into Severe Delinquency (90+) by Loan Type, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  29. Quarterly Report on Household Debt and Credit May 2017” Flow into Severe Delinquency (90+) by Loan Type, from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  30. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed July 23, 2017.
  31. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed July 23, 2017.
  32. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed July 23, 2017.
  33. Graham Campbell, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klauuw, “Just Released: Recent Developments in Consumer Credit Card Borrowing,” Federal Reserve Bank of New York Liberty Street Economics (blog), August 9, 2016. Accessed July 23, 2017.
  34. 2016 State of Credit Report” State 2016 Average VantageScore®, Experian. Accessed July 23, 2017.
  35. 2016 State of Credit Report” State 2016 Average VantageScore®, Experian. Accessed July 23, 2017.
  36. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  37. Community Credit: A New Perspective on America’s Communities Credit Quality and Inclusion” from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  38. 2016 State of Credit Report” National 2016 VantageScore®, Experian. Accessed July 23, 2017.
  39. Andrew Jennings, “FICO® Score High Achievers: Is Age the Only Factor?” Fair Isaac Corporation. Accessed July 23, 2017.
  40. Quarterly Report on Household Debt and Credit May 2017” Third-Party Collections (Percent of Consumers with Collections), from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.
  41. Quarterly Report on Household Debt and Credit May 2017” Third-Party Collections (Percent of Consumers with Collections), from the Federal Reserve Bank of New York and Equifax Consumer Credit Panel. Accessed July 23, 2017.

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Hannah Rounds
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Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

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Building Credit

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

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

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

Updated October 2, 2017

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

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

What does pre-qualified mean?

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

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

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

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

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

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

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

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

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

Bank of America,

Citibank

Credit One – a credit card company targeting people with less than perfect credit

Discover,

U.S. Bank

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

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

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

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

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

LendingTree

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Not pre-qualified but still want to apply?

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

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

How We Can Help

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

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

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

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

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Building Credit, Credit Cards, Reviews

Discover it® Secured Card Review: Rebuild and Establish Credit

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

Secured cards are great if you have little to no credit history or have poor credit history. With proper credit behavior they are a great way to build credit. The Discover it® Secured Card - No Annual Fee is an excellent secured card that lets you build credit while also earning cash back. There is no annual fee associated with this card, making it easier to put your money where it’s needed.

Discover it<sup>®</sup> Secured Card - No Annual Fee

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Rates & Fees

Discover it® Secured Card - No Annual Fee

Annual fee
$0
Minimum Deposit
$200
Regular APR
24.49%

Variable

Credit required
bad-credit
Bad

How the card works

The Discover it® Secured Card - No Annual Fee is meant to help you rebuild or establish credit. You need to make a $200 security deposit that will become your credit line. If you want a credit limit that is higher than $200, you will need to put down a larger security deposit.

Discover reviews your account monthly starting at eight months to see if you can be transitioned to an unsecured card. This is a feature that makes the Discover it® Secured Card - No Annual Fee unique. If you have responsible credit management, you may benefit from this feature and be transitioned to an unsecured card. If moved to an unsecured card, you will receive your security deposit back. This is hassle free and another reason the Discover it® Secured Card - No Annual Fee is a great option.

This card offers 2% cash back at restaurants or gas stations on up to $1,000 in combined purchases each quarter and 1% cash back on all other purchases. This is a great bonus, but the main goal of a secured card is not to earn rewards, but to be responsible and build credit. Don’t let the prospect of cash back lead you to overspending. That will only defeat the purpose of this card.

To get the most benefit from your secured card, keep a low utilization rate and pay your statements in full and on time every month. Utilization is the amount of your total credit limit you use. It is calculated by dividing your statement balance by your available credit. A low utilization is not spending more than 20% of your credit limit. So if you have a credit limit of $200, that means don’t spend more than $40.

By following these two practices, you will begin to see your credit score rise. You can even build credit with $10 a month using a secured card.

How to qualify

To qualify for the Discover it® Secured Card - No Annual Fee, you need to be at least 18 years old, have a Social Security number, U.S address, and U.S bank account and provide all the required information in the online application. Be sure to have your bank routing number and account number ready when you apply as they will be needed for the $200 security deposit. Don’t worry if your credit history is nonexistent or unfavorable — this card is great for people who are new to credit or are looking to rebuild credit.

What we like about the card

Earn cash back

You will earn 2% cash back at restaurants or gas stations on up to $1,000 in combined purchases each quarter and 1% cash back on all other purchases. This is a great added bonus that most secured cards do not offer. Discover will automatically match all of the cash back you earned at the end of your first year as a cardholder.

Automatic monthly reviews after 8 months

Discover takes the guessing out of wondering when you will qualify for an unsecured card by reviewing your account monthly starting at eight months. If you have responsible credit management across all of your credit cards, you may be transitioned to an unsecured card. This is hassle free and another reason the Discover it® Secured Card - No Annual Fee is a great option.

Free FICO Score

It is important to monitor your credit score and each month you will receive your FICO Score for free. If you practice proper credit behavior, you will see your score increase.

What we don’t like about the card

High APR

This card, like most secured credit cards, has a high APR of 24.49% Variable. If you pay your statement balance in full and on time every month, the APR will not matter (because no interest will be charged). And if you do that every month, your credit score will improve over time — making it cheaper to borrow money (if you need to) in the future.

Who the card is best for

This Discover it® Secured Card - No Annual Fee is best for people looking to rebuild or establish credit. In addition to an easy transition to an unsecured card when the time is right, the Discover it® Secured Card - No Annual Fee provides a cash back program and has a $0 annual fee. By using this card coupled with proper credit behavior you can see a boost in your credit score.

Alternatives

If you want a smaller security deposit

Capital One<sup>®</sup> Secured Mastercard<sup>®</sup>

Annual fee

$0

Minimum Deposit

$49

Regular Purchase APR

24.99% (Variable)

The Capital One® Secured Mastercard® is made for people who want to rebuild credit. There are lower security deposit options than the Discover it® Secured Card - No Annual Fee, making it a good alternative if you can’t afford a large security deposit. However, it’s important to note that the lower security deposit is not guaranteed. This card also has a $0 annual fee and offers your free credit score; however, there are no rewards. Just remember: A lower security deposit also means a lower credit limit.

An unsecured card from a credit union

Visa<sup>®</sup> Classic from Georgia's Own Credit Union

Annual fee

$0 For First Year

$0 Ongoing

Cashback Rate

-

Regular Purchase APR

13.49%-18.49%

Fair Variable

The Visa Classic from Georgia’s Own Credit Union offers a competitive APR that is lower than Discover. There is no annual fee associated with this card and no rewards, making this card strictly for rebuilding credit. Keep in mind you will need to join the credit union, and the application process is more complicated compared to Discover. This card is a good alternative if you prefer to have an unsecured card and don’t mind working with a credit union.

FAQ

No, your cash back does not expire as long as your account remains open.

If you pay your balance in full and close your credit card account, your security deposit will be refunded. This can take up to two billing cycles plus 10 days. Also, during Discover’s monthly automatic reviews of your credit card account starting at eight months, they will see if they can return your security deposit while you continue to enjoy your card benefits.

The maximum credit limit is $2,500. This will be determined by your income and ability to pay. Keep in mind your security deposit must equal your credit limit, so you will have to deposit $2,500 if approved for this credit limit.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers 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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Get A Pre-Approved Personal Loan

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