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What Is a Perfect Credit Score, and Why Does It Matter?

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A perfect credit score is 850 — specifically, that’s the highest FICO score. FICO is the scoring model most commonly used to determine, in part, how trustworthy you are as a borrower and what kinds of terms lenders could extend to you.

FICO credit scores range from 300 to 850, and your score is based on information in your credit reports. Think of it as your financial report card: The higher your credit score, the more liable you are to find lenders willing to work with you and offer you lower fees. This is true across all kinds of loans, from mortgages to auto loans, credit cards and more.

FICO credit score range: Where do you fall?

The average FICO credit score is 703, according to Experian’s 2019 Consumer Credit Review. The average bottomed at 686 during the housing crisis in 2009, when there was a sharp increase in foreclosures, but since then, the average has steadily risen.

To see where you stand, consider FICO’s credit score range:

FICO score chart
Credit score rangeRating
800-850Exceptional
740-799Very good
670-739Good
580-669Fair
300-579Very poor

Factors that affect your credit score

Your credit score is determined by a number of factors, from your payment history to the types of credit accounts you have open. Here’s a closer look:

  • Payment history (35%): Your track record for making on-time and in-full payments on credit affects a large chunk of your credit score. Late payments, delinquent accounts and debt in collections can adversely affect your credit.
  • Amounts owed (30%): How much money you owe on credit accounts can negatively affect your credit if it appears that your finances are stretched thin. Maxed-out credit cards, for example, can hurt your credit score.
  • Length of credit history (15%): A long credit history can positively affect your credit. On the flip side, a short credit history could be harmful, as there’s less evidence that you can manage credit for long periods of time. Factors assessed for this part of the score include the average ages of all accounts and how long it’s been since you’ve used them.
  • Credit mix (10%): Showing an ability to manage different types of credit products can have a positive influence on your credit score.
  • New credit (10%): Opening several credit accounts at once can be a red flag.

Benefits of a strong credit score

Lower interest rates

If you’ve got strong credit, you may qualify for competitive offers from a wide variety of lenders, whether you need a personal loan, auto loan or a line of credit. In general, a lower interest rate translates to a lower cost of borrowing. Over time, low interest rates can save you hundreds, if not thousands, of dollars on a loan.

Higher loan amounts and credit limits

You may also be able to borrow larger amounts of money compared to borrowers with poor credit. For example, you may be able to get a credit card with a $30,000 credit limit versus a $10,000 limit. You may also qualify for credit cards with low-APR introductory offers and rewards.

Better housing opportunities

Mortgage lenders and landlords want to know that you’re going to be responsible and honor your financial obligations. When it comes to a mortgage, your credit — among other factors — will affect your eligibility as well as the terms you receive.

For renters, many landlords run credit checks to see if you’re current on your accounts and have a positive rental and payment history. A good credit score could land you the rental you want and help you avoid needing to go the extra mile to prove you’d be a reliable renter.

Lower insurance premiums

The higher your credit score, the better chance for lower premiums on insurance, for items like your car or home. That’s because higher credit scores may be associated with a lower rate of filed claims. Insurance providers, meanwhile, may see lower credit scores as representing a higher risk and potential for more filed claims.

Better cell phone deals

Whether you’re hoping to snag the latest cell phone, sign up for a new cell phone plan or score special financing on a gadget, your credit score can affect your eligibility. In general, premium offers may be reserved for those with stronger credit.

Don’t fret if you don’t have the highest credit score

Credit scores are not fixed — they’re constantly fluctuating with everyday actions. Making purchases with your credit card and paying down your credit card balance, for example, affect your credit. Your score is also affected by things you can’t control, such as the age of your accounts.

That said, if you reach that perfect 850 credit score, you may not remain there long. But lenders don’t particularly care whether your score is 850 or 790, noted credit expert John Ulzheimer, who describes a score of 760 or above as “the sweet spot for credit.”

Your credit isn’t the only factor that affects your eligibility for credit. Your income and whether you own your home can also influence your eligibility, for example.

How to get an 850 credit score — or get closer to one

Pay your bills on time

Consumers with pristine credit never miss a payment. They consistently pay their bills on time, while the average American, according to analysis by LendingTree, has about six late payments in their credit history. If you need help paying bills on time, consider setting up autopay or some other system that can work for you.

Reduce your credit card balance

Most experts recommend keeping your credit utilization rate below 30% — though those with at or near-perfect credit scores typically keep that utilization rate below 7%, according to Ulzheimer. So, consider chipping away at those credit card balances and minimizing how much you charge if you want to work toward higher credit.

Apply for credit strategically

You should only apply for credit when it makes financial sense to do so. Opening a bunch of new accounts, especially within a short period of time, may suggest that you’re financially squeezed and taking on more debt than you can handle — a credit score no-no.

Keep unused credit cards open

Keeping old credit cards open — as long as they’re not costing you money in annual fees — is a smart strategy, as closing an account may increase your credit utilization ratio. Owing the same amount but having fewer open accounts may lower your credit score.

However, credit card issuers may close old, unused accounts, so you should periodically make a small purchase on old accounts you want to keep open — just remember to pay them off to avoid interest.

Dispute any inaccuracies in your credit reports

Be sure to check your credit reports regularly at the three major credit bureaus: Experian, Equifax and TransUnion. Inaccuracies and mistakes can — and do — occur, perhaps more often than you realize. If you see errors, dispute the information as soon as possible as they could be dragging down your credit score.

Monitor your credit regularly

Consider credit monitoring to make sure your efforts to achieve credit score perfection are accurately reflected. Credit monitoring services can help you spot inaccuracies, and even possible identity theft. My LendingTree is one service that offers credit monitoring, and can also help you shop for loans.

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How to Get Out of Payday Loan Debt

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Payday loans come with high interest rates and fees, on top of short repayment terms of a few weeks. If you’ve failed to pay off a payday loan debt, you’ve likely rolled the balance into a new payday loan with additional fees. Once you’ve entered a debt cycle – where you use new debt to pay for old debt – it can feel impossible to get out.

There are several strategies to escape payday loan debt, such as debt consolidation and debt counseling. Here’s what you should know about them.

9 ways to get out of payday loan debt

1. Ask for an extended payment plan

Check if your payday lender is a member of the Community Financial Services Association of America (CFSA). If so, they are required by law to offer you an extended payment plan at no cost if you are unable to repay your loan in a single payment. However, you can only apply for an extension once a year, and the length of your extension varies depending on the state where you get the loan.

The benefit of an extended payment plan is getting more time to pay off your loan without racking up additional fees or service charges or ending up dealing with a collections agency.

2. Start a debt avalanche

A debt avalanche is a repayment strategy where you make additional payments on your highest-interest debt. In the meantime, you’ll only make minimum monthly payments on your other debts. The quicker you pay off high interest debts, the less you will pay in interest over time.

3. Sign up for a debt management plan with a nonprofit credit counseling agency

Signing up for free credit counseling services from a nonprofit agency that can help you put together a reasonable plan to pay off debt. You’ll work with a credit counselor who is well-versed in assessing a financial situation and coming up with helpful, clear steps for paying down your debt. Your credit counselor may even recommend a debt management plan.

With a debt management plan, your credit counselor will negotiate with creditors on your behalf to potentially reduce fees and interest rates on your debt, as well as your monthly payments. They can stop collection calls and help you repay your debt, in full, over time. These services, including workshops and educational materials, can come with a monthly fee but may be free depending on your circumstances.

You can look for reputable nonprofit credit counseling agencies through places like your local financial institution or credit union, consumer protection agency, universities, military bases or housing authorities. You can also search by your state of residence on a list of agencies approved by the United States Trustee Program.

4. Refinance your payday loan with a payday alternative loan

Federal credit unions are nonprofit alternatives to banks that could offer a great exit strategy, called a payday alternative loan, or PAL. These loans typically offer amounts between $200 and $1,000, with repayment terms of one to six months. Fees are capped at $20 and interest rates cannot exceed 28%, which is a stark contrast to what you could pay for predatory payday loans.

To get a PAL, you must have been a member of the federal credit union for at least one month. Some offer free financial counseling to their members, as well. You can search for credit unions near you at MyCreditUnion.gov.

5. Refinance with a personal loan

Traditional personal loans are unsecured, meaning they don’t require collateral, and are a common way to refinance or consolidate debt. They are offered by banks, credit unions and online lenders.

If you qualify for a personal loan, it could enable you to pay off your debt at a lower interest rate than what’s on your payday loan. Because personal loans come with longer repayment terms, usually from 12 to 60 months, you’ll also have more time to pay off your debt.

Personal loan lenders typically require fair or better credit to qualify, however. If you don’t qualify – or you’re only seeing high interest rates – you could seek out a secured loan like a secured personal loan or home equity loan. Securing a loan with a tangible asset could get you lower interest rates, saving you money in the long term. However, it can also be riskier as you could lose the asset that you provide as collateral if you default on the loan.

6. Get financial help from family and friends

Asking for help from loved ones can sometimes be difficult. However, if you can’t qualify for a loan from a lender, consider asking a friend or family member for any cash they can spare.

Even if they do decide to charge you interest, their terms could be much more reasonable than what the payday lender is currently charging you. You could pay them back in small amounts and take the time you need to fully relieve your debt without additional penalties.

Remember, though, that borrowing money from friends and family can sour the relationship if you don’t follow through on the terms you set. A February 2020 survey from LendingTree found that about 1 out of 3 family or friend lenders hadn’t been paid back, and another third of respondents said the lending arrangement had negative consequences.

7. Get a side hustle

Consider increasing your income and your ability to pay off your debt more quickly by turning free time into extra cash – at least temporarily. You might get a side hustle that won’t cut into your regular work schedule, such as:

  • Driving or delivering for Uber or a similar ride-sharing service
  • Monetizing valuable skills on Fiverr
  • Running errands on TaskRabbit

Another option is to tap into the sharing economy by renting out your assets online, whether it’s your parking spot or a spare room in your home.

8. Consider debt settlement

Debt settlement could take place in one of two ways. One option is to hire a third-party debt settlement company to negotiate with your creditor and reduce the amount you owe the creditor.

The typical debt settlement process starts with you stopping payments on your existing debts and instead making monthly payments to an account the settlement company creates for you. After anywhere from 90 to 180 days, the debt settlement company will negotiate with your creditors. If there’s an agreement for a payoff amount, the settlement company uses the money in your account to pay.

This method carries significant risks, such as having to pay hefty fees to the settlement company and not reaching a solution with the creditor. In the meantime, you could incur significant damage to your credit rating or even be taken to court. Also, the IRS may consider some of the savings from your settlement as taxable income.

Another way is to try negotiating with your creditor yourself. Explaining your situation won’t cost you anything, but it could help you work out a more manageable repayment plan. You could be pleasantly surprised at your creditor’s willingness to negotiate with you.

9. File for bankruptcy

Although bankruptcy is a way to escape payday loans and other unsecured debts, it should be your last resort. Bankruptcy is a long and arduous process that will damage your credit and should only be sought after in dire circumstances.
If you choose this option, you will first have to get pre-bankruptcy credit counseling to determine whether you need to file for Chapter 7 or Chapter 13.

  • In Chapter 7 bankruptcy, some of your assets may be seized and sold to pay back your creditors. Other assets may be considered safe from liquidation, but this depends on your state.
  • With Chapter 13 bankruptcy, you must agree to pay back your creditors over three to five years with a court-approved repayment plan.

Both types of bankruptcy will fully discharge your debts once the process is completed.

FAQ: Payday loans

In some cases, your lender may be willing to negotiate your repayment terms. Some lenders might offer you an extended repayment plan that could break your loan up into smaller payments.

You cannot simply stop paying a debt to which you have committed, without facing legal consequences. The lender could pass your debt to a collections agency or sue you and demand wage garnishment.

However, you can stop electronic debits from your bank account if you want to change your payment method in one of the following ways:

  • Call the lender to tell them you revoke your authorization to allow them to withdraw from your account.
  • Call your bank and let them know you’ve revoked authorization for the withdrawals.
  • Ask your bank to make a stop payment on the lender’s withdrawal at least three days before the payment date.
  • Keep an eye on your account to make sure the payment doesn’t go through. If it does, contact your bank.

The federal government does not provide payday loan relief. However, the Federal Trade Commission (FTC) could take legal action against payday lenders that employ illegal lending tactics.

If you feel your payday lender has done something illegal, get in touch with your state attorney general and the Consumer Financial Protection Bureau (CFPB) for advice.

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Average U.S. Credit Card Debt

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Credit card balances are at all-time highs, and absent any other relief, the recent rate cuts by the Federal Reserve will do little to slow down growth in total balances that borrowers carry month to month. And while it’s still too early to know for certain, the cash crunch many households are experiencing in 2020 due to the COVID-19 pandemic may mean even greater average monthly balance increases than in recent years.

We’ve updated our statistics on credit card debt in America to illustrate how much consumers are now taking on.

  • Americans paid banks $121 billion in credit card interest in 2019. That’s up 7% from $113 billion in interest paid in 2018, and up 56% since 2014.
  • In February 2020, the average APR on credit card accounts assessed interest was 16.61%. Although the Federal Reserve has cut the key Federal Funds rate by two percentage points since mid-2019, the more recent cuts aren’t yet reflected in lower interest assessed to balances carried from month to month.
  • Total revolving credit balances are $1.05 trillion, as of February 2020. The vast amount of this balance is from spending on credit cards from banks and retailers, while $83 billion comes from revolving balances, such as overdraft lines of credit.
  • Americans carry $687 billion in credit card debt that isn’t paid in full each month. This estimate includes people paying interest, as well as those carrying a balance on a card with a 0% intro rate.
  • 43.2% of credit card accounts aren’t paid in full each month. Those who don’t pay in full tend to have higher balances, which is why the percentage of balances not paid in full (71%) is higher than the percentage of accounts not paid in full (43.2%).
  • The average credit card balance in 2019 was $6,194 for individuals with a credit card. That’s an increase from $6,040 in 2018.

Credit card use

  • Number of Americans who actively use credit cards: 184 million as of 2019, according to TransUnion.
  • Number of Americans who carry credit card debt month to month: 77 million.
    • We estimate 42% of active card users carry debt month to month, based on the Fed’s Survey of Consumer Finances.

Credit card debt

  • Total credit card debt in the U.S. (not paid in full each month): $687 billion
  • Average APR: 16.61% (also excludes those with a 0% promotional rate for a balance transfer or purchases). This estimate comes from the Federal Reserve’s monthly reporting of APRs on accounts assessed interest by banks.

The above estimates only include the credit card balances of those who carry credit card debt from month to month — they exclude balances of those who pay in full each month.

Credit card balances

  • Total credit card balances: $1.05 trillion as of February 2020, an increase of 3.3% from February 2019. This includes credit and retail cards, and a small amount of overdraft line of credit balances.
  • Average number of credit cards per consumer: 3.1, according to Experian. This doesn’t include an average of 2.5 retail credit cards.
  • Average credit card balance: $6,194. The average consumer has $1,155 in balances on retail cards.

The above figures include the credit card statement balances of all credit card users, including those who pay their bill in full each month.

Who pays off their credit card bills?

In 2019, fewer accounts were paid in full than accounts with a balance carried from month to month. According to the American Bankers Association:

  • Revolvers (carry debt month to month): 43.2% of credit card accounts
  • Transactors (use card, but pay in full): 31.1% of credit card accounts
  • Dormant (have a card, but don’t use it actively): 25.6% of credit card accounts

Delinquency rates

Delinquency rates peaked in 2009 at nearly 7%, but in 2019 delinquency rates were 2.6%, historically well below the long-term average.

Credit card debt becomes delinquent when a bank reports a missed payment to the major credit reporting bureaus. Banks typically don’t report a missed payment until a person is at least 30 days late in paying. When a consumer doesn’t pay for at least 90 days, the credit card balance becomes seriously delinquent. Banks are very likely to take a total loss on seriously delinquent balances.

Debt burden by income

Those with the highest credit card debts aren’t necessarily the most financially insecure. According to the 2016 Survey of Consumer Finances (the most recent data available), the top 10% of income earners who carried credit card debt had nearly twice as much debt than the average borrower.

However, people with lower incomes have more burdensome credit card debt loads. Consumers in the lowest earning quintile had an average credit card debt of $2,100. However, their debt-to-income ratio was 13.9%. On the high end, earners in the top decile had an average of $12,500 in credit card debt, though their debt-to-income ratio was just 4.8%.

A look at American incomes and credit card debt

Income percentileMedian incomeAverage credit card debtCredit card debt-to-income ratio
0%-20%$15,100$2,10013.9%
20%-40%$31,400$3,80012.1%
40%-60%$52,700$4,4008.3%
60%-80%$86,100$6,8007.9%
80%-90%$136,000$8,7006.4%
90%-100%$260,200$12,5004.8%

Source: 2016 Survey of Consumer Finances data

Although high-income earners have more manageable credit card debt loads on average, they aren’t taking steps to pay off the debt faster than lower-income debt carriers. If an economic recession leads to job losses at all wage levels, we could see high levels of credit card debt in default.

Generational differences in credit card use

In Q2 2019, Generation X cardholders had the highest credit card balances. The average cardholder from this generation had a balance of $8,215, according to Experian. Baby boomers held an average balance of $6,949, comparatively.

At the other end of the spectrum, millennials — who are often characterized as frivolous spenders — held significantly lower credit card balances, at $4,889. They also carry fewer (3.2) of credit cards in their wallets. Generation X carry 4.3 credit cards and baby boomers have 4.8 credit cards, on average.

How does your state compare?

Using data from Experian, as well as data from the Federal Reserve Bank of New York Consumer Credit Panel and Equifax, you can compare average credit card balances by state.

Differences in credit card debt by generation

In 2019, Generation X had more credit card debt, on average, than baby boomers, as those in their mid-40s typically have the largest amount of expenses relative to both younger and older consumers.

Methodology

In February 2020, MagnifyMoney collected and analyzed credit card data from government and industry sources, including the American Bankers Association, Federal Reserve, the Federal Deposit Insurance Corp., Experian, TransUnion and Equifax, to determine average credit card balances, interest rates, usage and delinquency rates.