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What Factors Affect Your Credit Score?

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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.

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Guide to Adding an Authorized User to Your Credit Card

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.

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

What is an Authorized User?

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

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

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

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

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

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

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

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

Credit Card Issuer

Age Requirement

American Express

13 or 15 years old, depending on the card

Barclays

13 years old

Bank of America

No minimum age requirement

Capital One

No minimum age requirement

Chase

No minimum age requirement

Citi

No minimum age requirement

Discover

15 years old

U.S. Bank

16 years old

Wells Fargo

No minimum age requirement

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

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

Adding Authorized Users Online

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

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

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

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

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

screen shot 2

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

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

screen shot 6
screen shot 7

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

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

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

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

 

screen shot 14

 

 

screen shot 12

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

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

Who Can Be an Authorized User on My Account?

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

The Fees

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

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

Liability

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

What Can an Authorized User Do?

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

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

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

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

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

Benefits of Adding an Authorized User

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

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

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

Benefits of Becoming an Authorized User

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

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

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

What Could Go Wrong?

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

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

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

Removing an Authorized User from an Account

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

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

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

The Best Way to Manage Shared Credit Access

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

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

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

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

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

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

Recommended Cards

Blue Cash Preferred® Card from American Express

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Blue Cash Preferred® Card from American Express

Regular Purchase APR
14.99%-25.99% Variable
Intro Purchase APR
0% for 12 months
Intro BT APR
0% for 12 months
Annual fee
$95
Rewards Rate
6% cash back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%). 3% cash back at U.S. gas stations, 1% cash back on other purchases.
Balance Transfer Fee
Either $5 or 3% of the amount of each transfer, whichever is greater.
Credit required
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Discover it® Cash Back

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Discover it® Cash Back

Regular APR
13.99% - 24.99% Variable
Intro Purchase APR
0% for 14 months
Intro BT APR
0% for 14 months
Annual fee
$0
Rewards Rate
5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate, 1% unlimited cash back on all other purchases - automatically.
Balance Transfer Fee
3%
Credit required
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Excellent/Good Credit

Chase Freedom®

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Chase Freedom®

Regular Purchase APR
16.99% - 25.74% Variable
Intro Purchase APR
0% Intro APR on Purchases for 15 months
Intro BT APR
0% Intro APR on Balance Transfers for 15 months
Annual fee
$0
Rewards Rate
Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. Enjoy new 5% categories every 3 months. Unlimited 1% cash back on all other purchases.
Balance Transfer Fee
Either $5 or 3% of the amount of each transfer, whichever is greater
Credit required
good-credit

Excellent/Good

Citi® Double Cash Card – 18 month BT offer

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Citi® Double Cash Card – 18 month BT offer

Regular Purchase APR
15.49% - 25.49%* (Variable)
Intro BT APR
0% for 18 months on Balance Transfers*
Annual fee
$0
Rewards Rate
Earn 2% cash back on purchases: 1% when you buy plus 1% as you pay
Balance Transfer Fee
3% of each balance transfer; $5 minimum.
Credit required
good-credit
Excellent, Good

Capital One® Quicksilver® Cash Rewards Credit Card

Capital One® Quicksilver® Cash Rewards Credit Card

Regular Purchase APR
14.74% - 24.74% (Variable)
Intro Purchase APR
0% intro on purchases for 15 months
Intro BT APR
0% intro on balance transfers for 15 months
Annual fee
$0
Rewards Rate
1.5% Cash Back on every purchase, every day
Balance Transfer Fee
3%
Credit required
good-credit
Excellent/Good

Bank of America® Cash Rewards credit card - $200 Cash Rewards Offer

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Bank of America® Cash Rewards credit card - $200 Cash Rewards Offer

Regular Purchase APR
15.24% - 25.24% Variable APR
Intro Purchase APR
0% Introductory APR on purchases for 12 billing cycles
Intro BT APR
0% Intro APR for 12 billing cycles for balance transfers made in the first 60 days
Annual fee
$0
Rewards Rate
3% cash back on gas and 2% at grocery stores and wholesale clubs for the first $2,500 in combined grocery/wholesale club/gas purchases each quarter. 1% cash back on all other purchases
Balance Transfer Fee
Either $10 or 3% of the amount of each transaction, whichever is greater.
Credit required
good-credit
Excellent/Good

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

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Building Credit

Convert a Secured Card to an Unsecured Credit Card

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.

Young couple calculating their domestic bills

A secured credit card is a great way to build your credit history. When no one else will give you a credit card, a secured card offers you the opportunity to improve your credit score in a controlled way. However, at some point the goal is to convert from a secured card to an unsecured card. We will help you decide when is the best time to make that conversion, and how to do it.

When to Make the Switch

The only reason to have a secured credit card is to get a better credit score. Once your score is good enough to get another credit card, you should consider making the switch. Some secured cards, like Capital One, actually show your credit score on your statement every month, which can help you plan.

Once your credit score is 650 or higher, you will have a number of options for a credit card. Once your score is 700, you can pretty much take your pick of any credit card out there.

So, we recommend keeping the secured card for at least a year. After 12 months of positive activity (never spending more than 20% of the available limit and paying on time), you should start looking closely at your score. If it is above 650, you have a very good chance. If your score is above 700, you should definitely switch.

How to Make the Switch

You have 2 options when switching from secured to unsecured:

  1. Your secured card is migrated to a new credit card, or
  2. You apply for a new credit card and close your secured credit card

For the first option, just call your bank directly and ask for a conversion. I helped my wife establish credit with a secured credit card, and I had to pro-actively speak with the bank in order to get the conversion completed. Just make sure you remember to do the following:

  • Ask to be converted to a credit card that does not have an annual fee
  • Ensure that you receive a refund of your original deposit. At Bank of America, I had to chase them a few times before we received our deposit refund
  • Ask to keep the same account number, so that your credit history continues to build

Banks like secured cards, because you are keeping money with them, and they earn interest on that money. They are not always eager to make the conversion for you. If that is the case, then you need to apply for a new card.

If your credit score is less than perfect, you should consider a credit card issued by a department store. For example, Synchrony Bank issues a Walmart Credit Card that has no annual fee and typically approve less than perfect credit scores. You can learn more about that card here.

Store card options:

Walmart Credit Card®

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Walmart Credit Card®

Annual fee
$0
Rewards Rate
Save 3% on Walmart.com purchases including Grocery Pickup, 2% on Murphy USA & Walmart gas, and 1% at Walmart & anywhere your card is accepted.
Regular Purchase APR
24.65% Variable

Target REDcard™ Credit Card

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on Target’s secure website

Target REDcard™ Credit Card

Annual fee
$0
Rewards Rate
5% at Target & Target.com
Regular Purchase APR
24.65% Variable

If your have a good or excellent credit score, find the best cashback credit card for your needs.

Cashback card options:

Blue Cash Preferred® Card from American Express

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on American Express’s secure website

Terms Apply

Rates & Fees

Read Full Review

Blue Cash Preferred® Card from American Express

Regular Purchase APR
14.99%-25.99% Variable
Intro Purchase APR
0% for 12 months
Intro BT APR
0% for 12 months
Annual fee
$95
Rewards Rate
6% cash back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%). 3% cash back at U.S. gas stations, 1% cash back on other purchases.
Balance Transfer Fee
Either $5 or 3% of the amount of each transfer, whichever is greater.
Credit required
good-credit
Excellent/Good

Discover it® Cash Back

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on Discover Bank’s secure website

Rates & Fees

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Discover it® Cash Back

Regular APR
13.99% - 24.99% Variable
Intro Purchase APR
0% for 14 months
Intro BT APR
0% for 14 months
Annual fee
$0
Rewards Rate
5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate, 1% unlimited cash back on all other purchases - automatically.
Balance Transfer Fee
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Credit required
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Excellent/Good Credit

Chase Freedom®

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on Chase Bank’s secure website

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Chase Freedom®

Regular Purchase APR
16.99% - 25.74% Variable
Intro Purchase APR
0% Intro APR on Purchases for 15 months
Intro BT APR
0% Intro APR on Balance Transfers for 15 months
Annual fee
$0
Rewards Rate
Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. Enjoy new 5% categories every 3 months. Unlimited 1% cash back on all other purchases.
Balance Transfer Fee
Either $5 or 3% of the amount of each transfer, whichever is greater
Credit required
good-credit

Excellent/Good

Do not close your secured card until you are approved for a new credit card. Once you are approved for your new credit card, call the bank that issued your secured card. Tell them that you are going to close the account unless they convert you to a secured card. It is always worthwhile trying to get the conversion, and here you will be making a threat that you will keep. Because, if they don’t convert your card, you will close it. That means you will likely end up in retention unit.

If you do close the card, make sure you receive a refund of the deposit. Closed accounts stay on your credit report for 7 years, so you should not worry about your credit score. The other credit card you opened will help to build your score, so long as you continue to use it responsibly.

If the retention office agrees to convert your card, follow the same advice we gave above: get your deposit refunded, switch to a fee-free credit card, and make sure you keep the same account number.

The purpose of a secured credit card is to establish your credit score. Once you have a good score, you shouldn’t continue to pay fees or keep you money tied up in a deposit with the credit card company.

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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How to Dispute Credit Report Errors

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.

checking your credit report
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Your credit reports are maintained by each of the three national credit bureaus: Experian, Equifax and TransUnion. These important documents list how much money you owe on your credit cards and the balances on any auto, student or mortgage loans you might carry. They also list any financial mistakes you’ve made in the recent past, everything from missed and late credit card payments to bankruptcy declarations and foreclosures.

This information makes up your three-digit credit score, the number lenders use to determine if they’ll lend you money or extend you credit. A high score means you’re more likely to qualify for the best credit cards and loans at lower interest rates.

That’s why it’s so important to make sure that the information on your credit reports is accurate. A single mistake on these reports could send your credit score tumbling — and errors aren’t as uncommon as you might think. In fact, a report by the Federal Trade Commission in 2012 found that 26% of participants in a study found at least one potential error on their credit reports. That same study found that 5.2% of the participants who corrected these mistakes saw their credit scores increase enough so that they would be more likely to nab a lower interest rate on a loan.

Fortunately, it is easier today to dispute and correct a mistake on your credit reports. And doing so could help you improve your credit score.

How to dispute errors in your credit report

It’s easier to dispute items on your credit report today, because you can open an inquiry with each credit bureau online.

When you find an error on your credit report, you’ll work directly with the bureau that issued the report. You might have a mistake on your TransUnion credit report while your reports from Experian and Equifax are error-free. In this case, you’d start an online dispute with TransUnion.

Log onto the bureau’s dispute resolution center — using the information listed earlier in this story — and click on the appropriate button to start a new dispute. Doing this will bring up your credit report with an option to dispute each piece of information on the report. Once you locate the incorrect information, whether it is a credit account still listed as open even though you’ve closed it or a late payment that you believe is inaccurate, click on the “dispute” option for that item.

You will then have the option to select a reason for your dispute. If you’ve never paid your auto loan late, but Experian reports that you have, you’d be able to explain using a dropdown box that you never paid that bill late.

Once you’ve selected all the items you want to dispute, you’ll be given the option to upload documents that help prove there is a mistake in your report. Take advantage of this: the more information you can provide, the better your chances of winning your dispute. If Equifax lists a late credit card payment from April 2017, attach the credit card statement from that month showing that you paid your bill on time. If TransUnion lists an auto loan as being open even though you’ve paid it off, upload your title paperwork showing that you own the car free and clear.

After you submit your online dispute, the credit bureau will send you alerts by email confirming that an investigation has been launched. The bureau will also send you emails every time there is new information about your dispute and when the investigation has been concluded.

You can also write a letter to the credit bureau if you’d prefer that method to opening a dispute online. Again, you can contact the bureaus using the information listed earlier in this story.

According to the Federal Trade Commission, your letter should include your complete name and address and should clearly identify each item in your report that is incorrect. Include the reasons why an item is incorrect and request that the offending item be removed or corrected.

The commission recommends sending a copy of your credit report with the incorrect items circled or highlighted. You should send this letter by certified mail, with a return receipt requested. This way, you can be certain that the credit bureau will have received your letter.

The Federal Trade Commission also recommends that you contact the institution that provided the credit bureau with the incorrect information. If the bureau reports a missed payment from your mortgage lender and you are disputing this, contact your mortgage lender, too, to inquire about the mistake.

Sample dispute letters for credit bureaus and creditors

Want to send a dispute letter to one of the three credit bureaus? Here is a sample dispute letter provided by the Federal Trade Commission. Just fill in the blanks when you send it.

The Federal Trade Commission recommends that you also send a dispute letter to the company — bank, lender or credit card provider, usually — that send the information you think is incorrect.

Here is a sample letter, provided by the FTC, for that step in the process:

What happens after you submit a dispute

The credit bureaus are required to investigate your dispute and will usually do so within 30 days, according to the Federal Trade Commission. Once you submit your dispute, either online or by writing, the bureau will forward your information to whatever organization provided it with the information in dispute. If you are disputing a late payment by one of your credit card providers, the credit bureau will send your information to that provider.

If the company does find that the information you are disputing is incorrect, it must then notify all three credit bureaus so that they can correct the information in your reports.

Once the investigation concludes, the credit bureau must provide you the results in writing, along with a free copy of your credit report if the dispute ended with a change. The bureau will also send you a written notice that contains the name, address and phone number of the company that provided the incorrect information.

Where to dispute credit report errors

You can report credit report errors online — however, we recommend doing it both in writing and online. If you do not like the outcome of the dispute, a paper trail will be helpful if you want to continue pressing for a change in your credit report. Plus, a written letter, sent by certified mail, can be more effective.

TransUnion

You can dispute with TransUnion at dispute.transunion.com, or contact the bureau by phone at 1-800-916-8800. You can also dispute information on your TransUnion report in writing at TransUnion, LLC, Consumer Dispute Center, P.O. Box 2000, Chester, PA 19022.

Equifax

You can dispute online with Equifax online at equifax.com/personal/disputes/. If you’d prefer to dispute in writing, you can send a letter to Equifax Information Services LLC, P.O. Box 740256, Atlanta, GA 30374-0256. You can also call Equifax at 1-866-349-5191.

Experian

You can dispute online with Experian at www.experian.com/disputes/. You can dispute in writing at P.O. Box 4500, Allen, TX 75013.

How to check your credit report for errors

The first step to checking your credit reports is to order your free copies. You can order one free credit report from each of the three credit bureaus every year from AnnualCreditReport.com. Be sure to only order your reports from this site. Other sites offering free credit reports might try to sign you up for credit-monitoring services that you might not need.

But once you get your reports, how do you check them for errors? The key is to figure how credit reports are organized and what information they contain.

Your credit reports start with a list of personal information, including items such as:

  • Your full name
  • Current and recent addresses
  • Telephone number
  • Social Security number
  • Date of birth
  • Spouse’s name
  • Current and recent employers

Reports also contain a section for three types of public records: bankruptcies, tax liens and civil judgments. (Credit reports won’t list arrests, misdemeanors or other non-financial records.)

Maybe you failed to pay a tax bill. Your credit report would list the amount of the unpaid taxes and the filing date of a tax lien against you. If you’ve recently declared bankruptcy, your report will list the type of bankruptcy you’ve filed, the filing date of your bankruptcy and the court in which you filed.

You don’t want public records listed on your reports; these will cause your credit score to tumble. Fortunately, these records don’t stay on your reports forever: foreclosures and Chapter 13 bankruptcies fall off your credit report seven years after their filing dates, while Chapter 7 bankruptcies disappear from your report after 10 years.

Another important part of your credit reports is the accounts section. This section lists your credit card accounts and balances, and the balances of installment loans like auto and mortgage loans. Your report will list these accounts as either open, negative or closed.

For instance, your credit reports will list a mortgage loan that you are still paying off as open, including the loan’s current balance, the date you took out the loan and the lender behind the loan. Reports will also list whether you have any late or missed payments on this loan and will list whether the loan is open — meaning you are still paying it off; closed — you’ve finishing paying off the mortgage; or in foreclosure.

This section will list open credit card accounts, too, listing your current balance, the highest your balance has ever been and whether you are late on your payments.

If you are interested in a sample credit report, credit bureau Experian has a good example here.

Common errors in credit reports

Certain errors are more likely to pop up in credit reports. The Consumer Financial Protection Bureau warns consumers to look for:

  • Errors made in your personal information, including reports that list your name incorrectly or contain an incorrect address or phone number.
  • Closed credit card accounts that are still listed as open.
  • Credit card or installment loan payments reported as late, even if you paid them on time.
  • Debt that is listed on your report more than once, possibly with different names for each listing.
  • Reports might say you owe more on your credit cards than you actually do.
  • Reports might list credit limits on your accounts that are too low.

If you spot any of these errors, make sure to correct them. All of them could impact 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.

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Dan Rafter is a writer at MagnifyMoney. You can email Dan here

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

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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® Secured

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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®

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on Capital One’s secure website

Capital One® Secured Mastercard®

Annual fee
$0
Minimum Deposit
$49, $99, or $200
Regular Purchase APR
26.99% (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 26.99% (Variable).

Average deposit

Citi® Secured MasterCard®

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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.

Low APR

Visa® Secured Card from MidSouth Community FCU

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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

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on Affinity Federal Credit Union’s secure website

Affinity Secured Visa® Credit Card

Annual fee
$0
Minimum Deposit
$250
Regular Purchase APR
12.60% 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 12.60% 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

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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 Savings Secured Visa Platinum Card from State Department Federal 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.

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View Your Free FICO Score for all 3 Credit Bureaus

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.

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.

Credit Score Monitoring

The best options: All VantageScores and FICO® scores

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

New Credit Card

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

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

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

Mortgage Loans and Mortgage ReFis

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

Where to get them: myFICO for $59.85

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

Auto Loans

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

Where to get them:myFICO for $59.85

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

Personal Loans, Student Loans, and Retail Credit

The best option: FICO® Score 8

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

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

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.

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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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The Best Options for Rebuilding Your Credit Score – December 2018

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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® 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

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, $99, or $200
Regular Purchase APR
26.99% (Variable)
Credit required
bad-credit
Limited/Bad

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®

APPLY NOW Secured

on Walmart’s secure website

Walmart Credit Card®

Annual fee
$0
Rewards Rate
Save 3% on Walmart.com purchases including Grocery Pickup, 2% on Murphy USA & Walmart gas, and 1% at Walmart & anywhere your card is accepted.
Regular Purchase APR
24.65% Variable
The Walmart Credit Card® offers a three-tiered cashback program to benefit avid Walmart shoppers. Save 3% on Walmart.com purchases including Grocery Pickup, 2% on Murphy USA & Walmart gas, 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

APPLY NOW Secured

on Target’s secure website

Target REDcard™ Credit Card

Annual fee
$0
Rewards Rate
5% at Target & Target.com
Regular Purchase APR
24.65% Variable

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

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FICO Releases Its UltraFICO Score: What You Need to Know

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.

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When you need to borrow money, a lender will consider your credit score when determining how likely you are to repay a debt.

FICO® Scores, from Fair Isaac Corp., are the credit scoring models most commonly used by top lenders. In October 2018, FICO announced a partnership with credit reporting bureau Experian and financial data aggregator Finicity to release the new UltraFICO™ Score.

If you’re wondering how and when UltraFICO could affect your credit score, here’s what you need to know.

What is the UltraFICO Score?

The biggest change with UltraFICO is that it looks beyond borrowing behavior to consider bank account transactions to help generate a credit score.

“It’s not a traditional credit score because traditional credit scores are based on your credit report, which actually doesn’t include deposit account information and includes only information about credit accounts,” said Chi Chi Wu, a staff attorney for the National Consumer Law Center, a nonprofit focused on consumer advocacy.

The UltraFICO Score is also unique in that consumers must opt in to link deposit accounts to their credit profiles, Wu said. Only then can FICO and its UltraFICO partners access and collect bank account transaction data and include it in the scoring process.

How will UltraFICO work?

From initial reports, it appears that the UltraFICO Score will primarily be offered as a second-chance score. For example, “One use case is that a lender would invite a consumer who is in the process of applying for credit to participate in the UltraFICO scoring process,” said David Shellenberger, senior director of scores and predictive analytics at FICO.

A borrower who opts into sharing bank account data might then be able to get an UltraFICO Score that’s higher than a traditional score. That is, they might see a boost in their score if the transactions on their reported accounts demonstrate responsible, low-risk financial behavior.

“The score follows the same framework as the traditional FICO Score and is designed to be scaled the same,” Shellenberger said. This means consumers can use the UltraFICO Score as a stand-in for other credit scores.

Here’s an overview of how different FICO Scores are typically classified by lenders:

Excellent credit scores: 800 and above
Very good credit scores: 740-799
Good credit scores: 670-739
Fair credit scores: 580-669
Poor credit scores: 579 and below

Whose scores could increase with UltraFICO?

The new UltraFICO Score could help boost the scores of millions of U.S. consumers, as well as help lenders provide applicants with a second chance to qualify for credit.

Using UltraFICO in this way “is particularly helpful for consumers that may also have very sparse or inactive credit files and can provide visibility into positive financial behavior that may not be accessible via the traditional credit report,” Shellenberger said.

Here are specific details on who’s likely to see a higher score with the UltraFICO model:

  • Consumers with no credit history or without enough credit information on file to formulate a credit score: More than 15 million Americans who were previously unscored with FICO due to a lack of credit history would be able to get a credit score if they participated in UltraFICO reporting, FICO estimates.
  • Account holders with positive financial management in their bank accounts: 7 in 10 consumers who maintain an average savings balance of at least $400 without overdrawing over three months would have an UltraFICO Score higher than their FICO Score.
  • Consumers who have negative marks on their credit history due to a temporary financial hardship or mistake: UltraFICO could point to strong signs of financial recovery and help boost consumers’ scores.
  • People who have “fair” FICO Scores or whose scores are near or just below a lender’s minimum requirements: The new scoring model could provide additional information that could push their score high enough to access new borrowing opportunities and lower rates.

When will the UltraFICO Score be available?

You might not be able to take advantage of this new credit scoring option for several months. A pilot version of the UltraFICO Score will be out in early 2019, before it’s more widely released in mid-2019.

Not all lenders will use the new UltraFICO Score to assess credit applications. FICO has several different scores for different types of lenders and purposes, and some are more popular than others.

The FICO Score 9 that was developed and released a few years ago, for example, adjusted how medical debt, paid-off collections and rental history are considered in calculating a score. As a result, many consumers scored higher under FICO 9 — but it has yet to be adopted as widely as the more popular FICO Score 8.

Still, creditors and lenders interested in serving consumers that barely miss credit requirements might take a look at adding UltraFICO to their application processes. “I would encourage lenders to consider this because it expands their potential customer base,” Wu said.

Consumers interested in the UltraFICO model will likely have to wait until mid-2019 before they might see it in action.

How to build your UltraFICO Score

The UltraFICO Score works to identify whether a consumer’s bank account transactions demonstrate that they are “positively managing their financial affairs,” Shellenberger said.

Similar to how a traditional credit score factors in different elements of a consumer’s credit account history, the UltraFICO will weigh bank account histories and score a consumer on favorable or risky behavior.

If you understand what UltraFICO looks at, you can start managing your checking, savings and money market accounts to set your score up for a boost.

Here’s what you can do with your bank account to help build your UltraFICO Score:

Maintain long-standing bank accounts

“We see that consumers that demonstrate relatively longer relationships with their checking and savings account providers are less likely to go delinquent or default on a credit obligation,” Shellenberger said.

Use your bank accounts often

“Consumers that have more frequent transactions versus those that rarely use their checking or savings accounts are better credit risks,” he added. Simply put, you want to make sure you have money moving into or out of your accounts on a consistent basis.

Avoid overdrawing your account or bouncing checks

Consumers who keep their account balances in the positive will be scored better by UltraFICO, but that’s not always easy.

“Frankly, there are banks that set tripwires for consumers to trigger overdrafts,” Wu said, pointing to “reordering transactions and being aggressive in getting consumers to opt into debit card overdraft protection.”

The best way to protect yourself from account overdrafts is opting out of overdraft protection and closely tracking account balances, deposits and withdrawals.

Develop a strong savings habit

“As we look at the ratio of money coming into [demand deposits] accounts versus going out, if we see a bit more coming in than going out (indicative of saving), this is correlated with better credit risk,” Shellenberger said.

Get a budget in place that helps you live within your means and spend less than you earn each month. Try to widen the gap between income and spending, too, so you’re saving more each month.

Should you be concerned with your UltraFICO Score?

The UltraFICO Score could be a step toward opening up credit opportunities for millions of Americans who can’t qualify with previous scores.

But consumers should consider whether they are likely to benefit from the UltraFICO Score before agreeing to share their bank account data.

Some people’s UltraFICO Scores could be lower than what they’d score with other models. This might be the case if you have spotty financial behaviors and an unfavorable bank account history. And if you already have an excellent credit score, Wu said, you’re not likely to benefit from the UltraFICO Score.

You should also consider your level of comfort with sharing your financial account information. The UltraFICO is a positive use of such data, Wu said, but other potential applications could be worrying, such as debt collectors accessing this data. And last year’s Equifax data breach proves that consumers should be concerned with how credit reporting agencies collect, store and use personal data.

“Consumers participating in this process have greater control and transparency over the financial information that is being shared with a credit grantor,” Shellenberger clarified when asked about privacy and security concerns. “The consumer has direct access to this data and therefore knows exactly what is being shared.” Finicity, Experian and FICO have also set up extensive information security measures and protections to keep users’ data safe, he added.

The reward of getting a higher UltraFICO Score could be worth it for average-credit consumers who need to borrow money — and meet the requirements to do so. If this is you, focus on building your credit now and keep your eyes open for more new on UltraFICO.

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.

Elyssa Kirkham
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Elyssa Kirkham is a writer at MagnifyMoney. You can email Elyssa here

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Building Credit

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

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.

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

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Building Credit, Life Events

How Do Student Loans Affect Your Credit Score?

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.

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?

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.

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Louis DeNicola
Louis DeNicola |

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

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