If you fail to repay a personal loan, you may incur fees and penalties, damage your credit, have your account sent to collections, and even face a lawsuit.

There are stages for those who can’t make payments, and each stage involves stiffer penalties.

What Happens If I Miss A Payment?

If you fail to make a monthly payment on your loan, you will receive a letter from your lender asking you to catch up on the missed payment. You will usually be charged a late fee.

Your lender will send you an official letter called a “notice of non-payment.” You will find details of your loan, along with terms and conditions that you violated and actions you should take.

At that point, you have what is called delinquency. If you clear the payment and don’t miss any future repayments, your lender won’t take any other action. The late payment will be recorded on your credit report. It’s not the end of the world, but you will see your credit score go down.

If you miss more than one payment, the consequences can be more severe.

Default vs. Delinquency

When you miss a payment, your account is delinquent. When your payment is from 30 to 90 days late, the lender might designate you as “in default.” There is no hard and fast rule about the timing, and it varies by lender.

Each missed payment will be recorded on your credit report, and your credit score will drop.

What If My Loan Goes to a Collection Agency?

When your lender gives up on collecting your debt, the account will be charged off. This is recorded on your credit report and will seriously damage your credit score.

The lender will sell the debt to a collection agency. You are still liable for the debt, but you owe the debt to the collection agency rather than the lender.

Once the debt is owned by a collection agency, it is considered a separate account. The debt is still on your credit report, but the collection account will appear on your credit report under “collections.” A collection account will do even more damage to your credit.

The collection agency will press you as hard as the law permits, and sometimes harder: collection agencies are notorious for going beyond what is legally permissible. Know your rights and learn how to communicate with collection agencies.

A collection agency can sue you for payment. Depending on the outcome of the prosecution, the court may garnish your salary to pay back what you owe.

Can I Go to Jail For Not Paying my Personal Loan?

Being unable to comply with payment obligations can make you anxious and concerned, but you cannot go to jail for not paying a civil debt (you can go to jail for failure to pay taxes or child support).

If a lender or collection agency sues you, though, you need to respond and appear as ordered. You can’t be jailed for not paying a debt, but you can be jailed for contempt of court if you fail to comply with the court’s requirements or instructions.

How Do My Missed Payments Affect My Credit Score?

Payment history is the most important factor influencing your credit rating, accounting for 35% of your FICO rating and 40% of your VantageScore rating.

Failure to pay a personal loan will place a series of negative records on your credit report:

• The original late payment
• Any subsequent late payments
• A charge-off
• A collection account

The damage to your credit score will get larger with each of these steps.

All of these records will remain on your credit report for seven years from the date of the original delinquency, though their impact on your credit score will get lower as they age.

What Should I Do If I Can’t Pay?

As soon as you realize that you won’t be able to make a payment, contact your lenders to explain your situation. Don’t wait until you have missed a payment, and don’t wait for the lender to contact you.

Taking the initiative and making contact early shows your lender that you’re serious about catching up and builds your credibility. This makes it more likely that they will work with you.

Lenders can provide several options to help you. This may include the cancellation of late fees and the ability to delay, adjust or skip certain payments. They can reduce your interest rate or adjust your loan term to reduce your monthly payments.

Deal with the issue by talking to your lender immediately to see what they can do. Not repaying a personal loan can cause severe damage to your credit score, making it more difficult to obtain loans or credit in the future. Default is something you should avoid if at all possible.

The post What Happens If You Don’t Pay Back a Personal Loan? appeared first on FinMasters.

What Is Neighbor.com and How Does It Work?

Neighbor.com is a self-storage company. Think of it as the Airbnb of self-storage. Neighbor.com connects users with storage hosts that advertise free space in their homes, driveway, or elsewhere on their property.

Neighbor.com handles all the financial transactions, directly transferring the renter’s money into the bank account of the listing provider. It uses Stripe to manage its payment processing.

What Types of Storage Can Your Lease or Rent on Neighbor?

Neighbor.com provides a means of listing storage spaces from as small as a closet for a college student to as big as a warehouse.

The most common types of storage areas people list on Neighbour include:

• Sheds
• Carports
• Backyards
• Closets
• Garages
• Attics
• Driveways
• Basements
• Spare bedrooms
• Side yards (good for RV parking)

You can even find warehouses, shipping containers, and parking lots.

The Neighbor.com Customer Journey

The host experience is focused on making space, creating the listing, setting the price, and taking pictures.

Renters search through the listings, which is relatively easy. It is up to the renters to decide if they want to occupy the space. Each listing will display the price, the location, a description, and photographs.

Once renters have made a selection, they contact the host and may exchange some messages. Then they set a date and a time to move their things into the space.

Once a guest has a renter, they will set a date and time to show the tenant the space and put all their things into storage. Owners can inspect the items when they come in or afterward.

The host sets the times when the tenant can visit the private storage unit.

The renter can come to check or take out the items or put more things in storage. But remember that as a renter, you can only visit the space as often as the host authorizes and during times that are convenient for the space owner.

Payments are made each month through the Neighbor.com site.

Additional Features and Services

Neighbor.com services depend on its hosts, but certain features apply to all hosts and renters.

• Insurance Coverage – Neighbor protects from the host’s liability of $1 million and up to 90% of the market value of stolen or damaged items for those who purchase a protection plan.
• Secure Payments – Auto-pay is available for all renters. If the rent is overdue, the host will receive guaranteed payments as long as the space is occupied.
• First-Month Discount – For many storage ads on Neighbor.com, you’ll get a 50% rebate on your first month. However, you need to store for more than a month to get this reduction.

Other functionalities will vary depending on your host. Here is a list of services you can find on Neighbor.com:

• Smoke detectors
• Climate-controlled storage
• Vehicle Storage
• Private entrances
• Security cameras
• Non-smoking storage
• Locked areas

The online listing for any storage space will tell you what features the space includes.

What Security Does Neighbor Provide for Hosts and Renters?

Before accepting a renter, the host can check the renter’s profile and read what they have and would like to store.

Once they have given the green light, the hosts can inspect items stored in their additional space. They also have up to $1,000,000 in liability coverage for Neighbour damage.

Renters guarantee: Neighbor.com places a high priority on renters’ safety. It provides up to $25,000 of rental insurance against theft of your property at no additional cost.

Refunds and Cancellations

Cancellations can occur for both parties and work slightly differently according to the scenario.

For Owners:

• If you are the space owner and must cancel the booking before the renter has stored the property, the renter will receive a full refund.
• However, you may need to cancel after they’ve already stocked their belongings. In that case, you must give your renter at least 30 days’ notice before you take their belongings away.
• If you face a situation where you have to give less than 30 days advance notice, you will be charged for the inconvenience, and the last month’s fee will be refunded.

In contrast, here’s how cancellations work if you’re a renter:

• If you cancel four days before the start date or within 24 hours of your booking approval, you will receive a 100% refund.
• If you cancel within three days of the start date, you will receive a reimbursement of 80%, but won’t get your service charges back.
• Finally, if you cancel after the start date, you will not receive a refund and will pay the full month’s fee.

Prohibited Storage Items

The storage space owner can inspect everything the user stores and refuse any offer. There is also a list of restricted items for everybody, including:

• Firearms
• Fireworks
• Hazardous Chemicals
• Garbage
• Animals
• Toxins
• Drugs
• Explosives
• Pesticides
• Garbage
• Munitions
• Perishables.

Hosts are permitted to inspect the items to be stored to assure that no prohibited items are among them.

Neighbor.com Cost

Prices will vary depending on the location, size, and what your host decides to charge for the space.

Based on Neighbor.com’s data, renting storage space through their site storage space costs around $160 per month on average. In addition, there is a 15% monthly service charge. It’s roughly $20 less than the industry average.

At approximately $30 less than the industry average, you can get a deal similar to what you would do with traditional self-storage leaders like ExtraSpace and CubeSmart.

How to Earn Money On Neighbor

You make money by listing your space and making it appealing to tenants. Here are a couple of tips to help:

• Share the listing with friends, family, and social media contacts to boost the number of potential renters.
• Your description should be reliable, informative, and instructive.
• Use great quality photographs and try to show a clean and spacious interior and the accessibility of the space.
• You should be friendly and accessible and have a schedule that allows you to accommodate renters.
• Increase your ranking on the site by writing a well-thought-out personal biography that encourages people to trust you.

An appealing profile is vital to attracting renters, as is charging a reasonable price for the space.

How Much Can Hosts Earn on Neighbor.com?

Neighbor.com pays its hosts monthly for each month for storage units. Depending on the size of your space, your location, and other factors, hosts can earn between $50 and $600 a month. Neighbor sends the payment by direct deposit through a payment platform that complies with PCI standards.

Neighbor Host Fees

There is no upfront service charge for listing. However, there is a fee for processing the payment for each booking location. The service charge is 4.9% of the rental price plus $0.30 per month. This covers the cost of the payment process, using the website, direct deposits, and security.

Pros & Cons of Neighbor.com

Neighbor.com Alternatives

Here are some similar services:

• Stashbee – Stashbee provides short-term parking, which Neighbour does not. This product allows hosts to receive more reservations and profit more over time. Renters can find a parking spot for the time they need, from a few minutes to a year or more.
• Clutter – This storage company manages the pickup, storage, and removal of stored items. It stores the goods of customers in massive warehouses outside city centers. Clients can manage their storage remotely by visiting the digital catalog to review items and schedule deliveries. 
• Spaceways – For those of you in the UK, SpaceWays offers on-demand storage that does not require clients to transport items from one warehouse to another.

Customer Reviews

Neighbor.com is rated 3.13 out of 5 by reviewers on the Better Business Bureau (BBB) site. There are only 15 reviews, so you’ll have to be aware that the sample size is small.

There are also 24 complaints in the last three years. The Company has replied to all of them and most appear to have satisfactory resolutions.

Positive reviews say the system is simple and effective.

Complaints tend to focus on communication, payment, and refund issues.

Neighbor gets 3.3 of 5 stars from 330 reviews on Trustpilot. 52% of the reviews are 5-star, and 33% are 1-star, indicating fairly polarized experiences.

The main takeaway from the reviews is that when things work well – and they often do – the service is very satisfactory for all concerned. When things go wrong there may be issues that the Company sometimes has problems resolving.

Verdict

Neighbor.com provides a way to make money from space that you’re not using. It also provides access to storage space for less than you’d pay a storage company.

The main drawback, for both renters and tenants, is that you’re dealing with individuals, and they may not be as reliable as you’d like them to be.

If that risk is something you don’t want to take, Neighbor.com may not be something you want to pursue. If you’re willing to take the chance, you could find it a very attractive proposition.

The post Neighbor.com Review 2024: Can You Make Money? appeared first on FinMasters.

What is Trim?

Trim is an online bill negotiation tool. It can save you money by cutting recurring expenses and canceling unwanted subscriptions. It can also help you monitor spending, pay off debts, and automate your savings.

If Trim succeeds in reducing the amount you pay, they will charge 15% of your annual savings. If you don’t save money, there’s no fee.

How Does Trim Work?

When you sign up, you will link Trim to your bank and credit card accounts. Trim uses this data to analyze your spending patterns and look for savings opportunities.

Negotiate Your Bills

Trim can negotiate better deals on your cable, internet, phone, and other utility bills. It works with multiple Internet and cable TV providers, including Comcast, Verizon, and AT&T.

All you need to do is find your supplier on the dashboard or send a picture of your last invoice.

Trim may also find the best offers and promotions, helping you choose the most cost-effective offers. The site says it can reduce your costs by 30%.

Reduce APRs and Bank Fees

Do you have exorbitant interest rates on your credit cards or monthly bank charges? Trim will negotiate with your banks or card providers to lower your APRs. You may be able to get a waiver or refund for bank charges or fees.

Cut Medical Bills

If you’re carrying medical debt, the app does the hard work on your behalf. Just share your invoice across the dashboard, and Trim will contact your medical provider to determine a better rate and payment plan for this medical debt. There is no fee for this service.

Stop Subscriptions

Trim can isolate and cancel subscriptions or memberships that you don’t want. The application will monitor your expenses and identify your frequent or recurring transactions. You will receive a notification about them asking if you want to opt out.

If you want to cancel an unwanted subscription, send a message “Cancel name of service.” Trim will do the rest.

Grow Your Savings

Trim also offers the Simple Savings account, which allows you to automatically shift a fixed amount from your checking account into savings. Trim is not a bank, and accounts are held at Evolve Bank, which is FDIC insured.

As with most savings accounts, there are limits on withdrawals, and per Federal Reserve regulations, you can only make six withdrawals a month.

Other Features

Once you log in, there are more potentially helpful functions. Although they don’t provide direct savings, they can help you make better financial decisions.

Spending Analysis

Trim’s spending analysis function gives you a picture of where your money is going and allows you to compare your expenses month by month, by exact date, and by category.

This makes budgeting easier, helps you track whether you’re following your budget, and lets you identify areas where you may be spending more than you realized.

Expense Monitoring

Trim can send you text notifications whenever certain transactions occur, such as a paycheck deposit, overdraft fees, or late fees. You can also set it to notify you when other parameters are met, such as a minimum checking account balance or a significant transaction.

TrimPay

This service helps you repay your credit card debt by transferring money from your current account to TrimPay and applying the transfer to your credit card bills. The idea is to get the money from your checking account as quickly as possible before you spend it on items other than debt.

TrimPay can help you save on late fees by assuring that you make your credit card payments on time.

Companies that Trim Negotiates With

Trim works with many companies, including ADT, CenturyLink, AT&T, Bright House, Charter, Comcast/Xfinity, Cox, Cricket Wireless, DirecTV, Dish Network, Energy/Utility Providers, Frontier, Mediacom, Time Warner, Optimum, RCN, Sirius XM, Spectrum, Sprint, Suddenlink, T-Mobile, and Verizon.

If you don’t see your supplier in the list, you can email Trim to see if they can help.

Contact Trim at help@asktrim.com.

How to Sign Up with Trim

To signup/register, visit AskTrim.com and select one of the “Get Started” messages. This will take you to a page that allows you to sign up by email or by using your Facebook account.

After you have entered some basic information into Trim’s website, connect your Facebook Messenger account or phone so that Trim can contact you about potential savings.

You will then link your master bank account, credit card account, or both. This will enable the company to recommend savings options tailored to your needs.

Pros & Cons Of Trim

Let’s walk through some of the pros and cons.

Pros

• Trim is a well-constructed application geared toward saving you money. Those who have been using the same credit card or bank account for years can benefit from Trim’s ability to sift through data and find recurrent expenses.
• One of the essential benefits is the cost. There are no costs associated with using Trim. Though the Bill Negotiator is not technically free, it won’t cost you anything if it cannot save you money.
• The company negotiates your Internet service, cable, phone, and other recurring bills and helps you save as much as 30%.
• Trim takes data safety seriously and will only access your financial records in read-only mode. Trim uses 256-bit encryption, two-factor authentication, and other security measures.

Cons

• Although Trim offers some features in addition to its recurring load reduction feature, it is not the most in-depth financial planning application. Trim is probably unnecessary for people who already monitor their expenses closely.
• There is no mobile application.
• You will be asked to link your bank accounts, which may be uncomfortable for some individuals.
• The success fees are charged in advance following a successful negotiation, which can increase your expenses in the current month.
• Trim bills you 15% of the yearly amount he saves for you, but you would have to pay these fees upfront, in a lump sum, before the savings are realized over time. This was upsetting for some users.
• Trim will only work if your bank or credit union links to Plaid.

Is Trim Safe?

Trim requires you to provide access to a large amount of sensitive personal financial information. Whenever you do business with a company that uses your personal information, there is some risk. Trim uses some of the best security to keep your data safe.

Every piece of information the app has access to is protected by 256-bit SSL encryption, which is the industry standard for retail banking. In addition, Trim uses a company called Plaid to receive information from more than 10,000 financial institutions to which it is directly linked.

Plaid will forward all authentication data you provide to Trim to financial institutions for approval. Trim will have read-only access to your data. The company will never receive the credentials themselves, which is why the Plaid system is much safer.

Customer Reviews

Trim gets 3.94 stars out of a possible 5 from 96 customer reviews on the Better Business Bureau (BBB) page. The company is BBB accredited and gets a B+ rating, indicating a good degree of responsiveness to customer complaints.

Trim gets better reviews on Trustpilot, with 4.2 of 5 stars from 1,474 reviews. 69% of the reviews are five-star.

The difference may be partly because the BBB tends to be a place where dissatisfied users go to complain. The number of reviews on the BBB site is relatively small, which in itself could be taken as a positive sign!

Positive reviews consistently state that the service works as advertised and has saved the reviewer a significant amount of money.

Some negative reviews complain that users were charged twice for the same savings or that they were charged for savings they didn’t see. The company responds to all complaints, and the responses generally seem reasonable and credible.

Trim Alternatives

There are many other bill negotiation services. This table summarizes the services and costs of some of Trim’s major competitors.

As with any financial service, it pays to learn more about the best bill negotiating services before making a decision.

Is Trim Worth It?

Trim saves you money if you have recurring charges, unwanted subscriptions, or cable bills that are out of control. You don’t have to make those calls yourself.

Trim can lower your bills by negotiating down your credit card interest rates (APRs). Trim is legit and secure.

It is also easy to use because it communicates with you through SMS or Facebook Messenger chats. (SMS will be billed to your phone bill if you don’t have an unlimited number of SMS.)

Trim charges a percentage of what they save, so there’s no real risk involved. If they don’t save you money you lose nothing. That model also gives them an incentive to find all the savings they can.

Verdict

Given the low risk and low cost, Trim is worth trying. Just make sure you are not paying for things you already do. It is designed for those who don’t keep up with all the small expenses that add up. It is most useful for finding and canceling unwanted subscriptions and renegotiating bills. 

FAQs

The post Trim Review 2024: Pros, Cons & Is It Worth It appeared first on FinMasters.

The basic difference is obvious. Personal loans are for personal use, and business loans are for business use. But is there any overlap? If you’re just starting a business, do you apply for a business loan or a personal loan?

Let’s take a closer look.

Differences Between a Business Loan vs. a Personal Loan

There are important differences between business loans and personal loans.

• Collateral. Both personal and business loans may be unsecured, but business loans are more likely to be secured, while personal loans are more likely to be unsecured.
• Term. Business loans may have extended repayment periods, often up to ten years or more. Personal loans must be paid off more quickly.
• Amount. At least for qualified businesses, business loans are available in much larger amounts than personal loans, often in the millions of dollars.
• Tax Deduction. Interest paid on business loans can be tax deductible under local laws (check with a tax professional). Personal loan interest is not tax deductible.
• Interest Rates. Personal loan rates are generally higher than those for business loans. Business loans have a more rigorous approval process and usually offer less risk to the lender than personal loans.

Those features make a business loan look like a better way to fund a business. There’s a reason for that: it’s what business loans are designed to do. There are still pros and cons to both loan types.

Can I Use a Personal Loan for a Business?

Some lenders will permit you to use a personal loan for business purposes.

However, when you apply to a personal lender, remember that you will need information about how you plan to spend the cash. Your business purpose must meet their lending criteria to qualify.

A personal loan lender will base your creditworthiness on your personal finances, including your credit score and debt-to-income ratio, not the state of your business.

Even if you take out a personal loan for business purposes, you are liable for payment, not the business.

Pros & Cons of Business Loan vs. Personal Loan

Take a look at the advantages and downsides of using a business loan vs. personal loan to finance a business.

Pros & Cons of Business Loans

Business loans are usually a better choice for a business, but not always.

Pros

• Larger loan amounts. Most business lenders have higher maximum loan limits than personal loan lenders.
• No personal liability. The debt is the responsibility of the business, not the individual.
• Tax-deductible interest. You may be able to deduct interest payments on your business (not personal) tax filing.

Cons

• Limited availability. New businesses may be unable to get business loans.
• Debt can be a problem. Businesses with existing loans or other debt may not be approved.
• Strict requirements. You must provide detailed documentation of your revenues, costs, and business plan.
• Longer approval times. The more detailed application requirements for business loans mean that the time required for review and approval is longer.

Pros & Cons of Using a Personal Loan for Business

Personal loans can be an option to finance a business, but there may be better options. Look at the pros and cons.

Pros

• Quick Application. A personal loan application can often be approved in minutes, and the funds can be released within a day.
• Less Paperwork. Personal loans typically require a minimum amount of documentation. You are not required to provide your company’s balance sheet/business plan.
• Personal Loans Are Usually Unsecured. You won’t risk assets belonging to you or the business.
• A Personal Loan May Provide Startup Money. Most small business lenders do not advance money to startups. A personal loan might be a good option if you are in that category.

Cons

• Personal Loans Do Not Establish Your Business Credit. They only have an impact on your individual credit rating. This will make it difficult for your business to establish its credit history.
• You are Personally Liable. You are personally responsible for everything that happens in connection with the loan collection and everything that follows, not the business.
• Personal Loans are Related to Personal Income. The amount you can borrow will be limited by your personal income.
  If you need an investment beyond what your income warrants, a personal loan will not help you.
• Blending Personal and Business Expenses. Using a personal loan for a business can complicate your accounting and taxes.
• Higher Rates. Personal loans typically have higher interest rates than business loans.

How to Choose

The choice between a business loan and a personal loan will be largely based on the circumstances of your business.

When a Business Loan is Best

• Your business is well established. A solid operating history will improve your chances of being approved for a business loan.
• Your business needs a large amount of money. In that case, a business loan will probably be a better option.
• You’re trying to establish business credit. A personal loan won’t help you build business credit.
• You don’t want your personal assets to be at risk. You will not be personally liable for a business loan.

Tip: If you get turned down for a business loan, consider it a reality check on the viability of your business. Ask for the criteria the lender used, and address the issues.

When a Personal Loan for Business Can Make Sense

• You need cash quickly. Some personal loan lenders may offer funding within one day. You may have to wait for some business loans.
• Your business is new. If your business is new or hasn’t yet built a solid credit history, you may have a better chance of being approved for a personal loan.
• You don’t have collateral or don’t want to use collateral. Most personal loans are unsecured.
• You need a relatively small amount. If you don’t need a large loan, the convenience of a personal loan is appealing.

Alternative Ways To Get Funding For a Business

Business loans are not the only way to get funding for a business. Here are some other options.

Small business loans from NBFCs, MFIs:

• Self-Financing your Startup. Using your own money offers the greatest flexibility if you can afford it.
• Microloans. Non-profit groups offer very small loans to people starting small businesses. These may be focused on specific groups, like minorities, women, or veterans.
• Crowdfunding. If you have an appealing product and story or a wide circle of friends, crowdfunding may raise the capital you need.
• Getting an Angel Investor. If your business has strong growth potential, it may attract investors. Seek legal advice before signing anything!
• Peer-to-Peer Lending. Some peer-to-peer lending platforms offer business lending.
• Government Lending Programs. Aside from SBA loans, many state and local governments support startup businesses. Look into what’s available in your area!

Financing a new business isn’t easy, but it doesn’t have to be impossible. Be creative, look for all possible financing options – there may be more than you think – and don’t give up!

The post Business Loan vs. Personal Loan: Which One to Use for Business Financing appeared first on FinMasters.

Credit scores are provided by two companies: FICO® and VantageScore. These companies base their scores on information in your credit reports from the three major credit bureaus: Experian, Equifax and TransUnion. They run this information through proprietary algorithms to produce your score.

Let’s take a look at what constitute a good FICO score as well as what a good VantageScore might be.

What Is A Good FICO Score?

“FICO” stands for Fair Isaac Corp., the first company to develop a widely used numerical credit rating scheme.

FICO classifies any score between 670 and 739 as “good”. Scores between 580 and 669 are regarded as “fair,” while 740 and 799 are regarded as very good. Anything above 800 is considered “exceptional.”

What Is A Good Rating With VantageScore?

FICO competitor VantageScore generates a similar rating using the same credit reports. The VantageScore algorithm is different, so the scores will not be the same as FICO scores. 

VantageScore classifies scores from 661 to 780 as “good”. VantageScores 780 to 850 are considered “exceptional”, whereas those between 601 and 660 are “fair.” VantageScores lower than 600 are considered “poor.”

How Many Americans Have a Good Credit Score?

The average American Fico score in April 2022 was 716, which is squarely in the “good” range. Here’s how the scores break down:

67% of Americans with credit scores have good, very good, or excellent credit. Only 33% have fair or poor credit. Those percentages don’t include the 45 million adults who have no credit score!

What Will a Good Credit Score Get Me?

The score ranges we discussed above are set by FICO and VantageScore. Individual lenders may use different ranges. For example, lenders making secured loans, like mortgages and car loans, may accept lower scores because the loan is protected by collateral.

A score that is “good” to FICO or VantageScore may not be in the same category for any given lender. Still, as a general rule, you can expect to get approved for most loans and credit cards with a “good” score, especially if you’re in the upper part of the “good” range.

While you will get approved, you may not get the lowest rates ot the best terms, which are reserved for borrowers in the “very good” and “excellent” ranges. You may not be approved for premium products, like the credit cards with the highest rewards.

Credit Scoring Factors

A number of factors are used to calculate your credit score. Although the exact criteria used by each rating model vary, the following are the most important influences on your FICO score.

• Payment History: on-time payments are the single most important part of your credit score.
• Credit Utilization: credit utilization is the percentage of your credit limit that you are using on your revolving accounts, like credit cards.
• Length of Credit History: based on the average age of your active credit accounts.
• New Credit: each time you apply for credit, a hard inquiry is placed on your account.
• Credit Mix: your credit mix is the balance between installment credit and revolving credit.

VantageScore uses very similar criteria, though they are weighted differently.

Understanding how your credit score is calculated is an important step toward improving it.

Tip: Tax liens, civil judgments, alimony, and child support obligations do not appear in credit reports. However, lenders can locate them through public records, and they will affect your ability to get credit.

The Benefits of a Good Credit Score

Your credit score is designed to measure the risk that you will default on your loan obligations. It’s used for many purposes outside of lending, though. Here are some of the benefits of a good credit score:

• Easier qualification. Whenever you apply for a loan, credit card, or any other type of credit, the lender will verify your credit score. Good scores make it easier to qualify.
• Better interest rates. Lenders offer lower rates to low-risk borrowers. The savings can be significant.
• Better access to employment. Some employers will verify your credit score before making a hiring decision. 
• Renting gets easier. Landlords will check your credit before renting you a house or apartment.
• Avoid Expensive Types of Credit. If you can’t get approved for loans or credit cards, you might have to use costly forms of credit, such as payday loans, to cover a deficit.

Think of your credit score as a financial report card. A passing grade makes your entire financial life easier!

How To Improve Your Credit Score

You can improve your credit score. Here are some ways to start:

• Get a free copy of your credit report. Understanding what’s on your credit report can help you learn what is helping or hurting your score.
• Dispute inaccurate information on your report. Your scores may suffer due to incorrect information in your credit file. If you see inaccurate information on your credit report, dispute it at once.
• Make any outstanding payments. Late payments and delinquent accounts are credit score kryptonite. Get your payments current and keep them that way!
• Set Up More Frequent Payments. Making payments several times a month will help you keep your balance down and lower your credit utilization ratio.

There are many other ways to build credit, but the most effective are the most basic: make your payments on time and keep your credit card balances low!

Tip: Do not close any credit cards you have paid off. Closing accounts raises your credit utilization ratio and shortens the average age of your credit accounts.

FAQ

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They are still very different types of loans, and the differences can be extremely important.

Let’s compare these two types of financing.

What are Payday Loans?

Payday loans are among the most popular loans in America. There are 23,000 storefront payday lenders in the country, more than twice the number of McDonald’s restaurants, and many more lend online^[1].

These are some of the characteristics of payday loans:

• Easy qualification. There’s no credit check or minimum credit score. Anyone with an income and a bank account can borrow.
• Small amounts. Some payday lenders lend up to $1000, but most loans are from $300 to $500.
• Single payments. A payday loan is meant to be paid in a lump sum on your next payday.
• Automatic payments. A payday lender will request a post-dated check or authorization to withdraw directly from your bank account. They won’t wait for you to pay.
• Very high rates. Payday loan fees may reach 400% to 600% on an annual basis.
• Rollovers. Most payday lenders will roll over your loan for an additional fee if you can’t pay on the due date.
• Limited availability. Some states ban or restrict payday loans.

Payday loans are a fast, easy way to get money to carry you through until your next payday. They are also a fast, easy way to get trapped into a cycle of debt at astronomical interest rates.

Most borrowers can’t pay off their loans: the CFPB estimates that 80% of payday loans are rolled over, and over 60% are part of “loan sequences” of seven or more loans in a row^[2]. These borrowers often end up paying back more than they borrowed in the first place.

Tip: A payday loan may also be called a payday advance, check loan, small-dollar loan, payroll loan, salary loan, or cash advance loan.

What are Personal Loans?

Personal loans are typically made by banks, credit unions, and online lenders. These are some key features of personal loans.

• Higher lending standards. Personal loan lenders will check your credit. If you have poor credit or no credit score, it’s hard to get approved.
• Larger amounts. Many personal loan lenders will lend up to $50,000 to qualified borrowers. Some will lend more.
• Multiple payments. Personal loans are paid off in monthly installments, usually over terms of three to five years.
• You have to make payments. You can authorize an automatic payment from your checking account, but the lender won’t make a withdrawal.
• Low interest rates. The average personal loan rate is about 10% per year. Your rate will depend on your credit score and other factors, but personal loan rates almost never exceed 30% per year.
• Wide availability. Personal loans are available in all states.

Personal loans, also called consumer loans, are designed to pay for large purchases or expenses. The most common uses of personal loans are debt consolidation, medical costs, vacations, marriage ceremonies, birthdays and other celebrations, vehicle repairs, and home renovations.

Payday Loans vs. Personal Loans: What’s the Difference

Payday Loans and personal loans are different financial products made for different purposes.

• Payday loans are small, short-term loans designed to get you through to your next paycheck. They are usually used by people with poor credit and little access to other loans. 70%of borrowers use their loans to pay for routine recurring expenses^[3].
• Personal loans are larger installment loans typically used by borrowers with at least fair credit. They are usually used for planned major expenses, not to cover an emergency shortfall.

Payday loans are used by people under serious financial stress. The average payday loan borrower earns around $30,000 per year, and 58% of borrowers have trouble meeting routine expenses.

What if You Can’t Pay?

A significant similarity between payday and personal loans is that they are usually unsecured, so there is no ownership or asset behind the loan. In other words, in the event of non-payment of a payday loan or a personal loan, the lender cannot seize anything.

But what happens if you can?t pay your loan?

Personal Loans

If you fail to make payments on a personal loan, the lender will report the late payments to the credit bureaus, and your score will drop.

If your account becomes seriously delinquent, it may be charged off and sent to a collection agency. The collector will pursue you, your credit will drop more, and the collection agency could sue you.

Payday Loans

If you can’t afford to pay a payday loan, you can roll it over into another loan. This is very common. It’s what the lender wants you to do: they make more money when you roll the loan over. It’s also a huge drain on your finances.

When your payday loan becomes due, the lender will deposit your post-dated check or make a direct withdrawal from your checking account. If your account doesn’t cover it, you may be hit with an overdraft or insufficient funds fee.

These fees can add up fast. Your lender may make repeated attempts to draw their payment, and each one will trigger a fee.

Payday lenders do not report to the credit bureaus, so missed payments will not affect your credit score. If the lender sends the account to a collection agency, it will be reported, and it will affect your credit.

The lender or collection could file a collection lawsuit against you. If the judge rules against you, your wages could be garnished.

Personal Loans vs. Payday Loans: Pros & Cons

Here is a rundown of the pros and cons. 

Which Should You Use?

In most cases, it won’t be a choice. If you qualify for a personal loan, you’re probably not in the market for a payday loan.

If you do have a choice, it should be clear: a personal loan is a far cheaper and generally better option. Payday loans are designed to trap you in a cycle of high-interest debt that will cost you far more than you initially borrowed.

If you think you don’t have a choice, remember that there are alternatives to payday loans. Examine all your options before you make a decision!

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But what about a personal loan? Personal loans can generally be used for any legal purpose. Could you use one to buy a house?

In theory, yes. In practice, a mortgage will almost always be a better option.

Let’s explore why that is the case.

Personal Loan vs. Mortgage 

There are significant differences between personal loans and mortgage loans, and those differences affect the usefulness of these loans for buying a home.

1. Different Loan Types

A mortgage is a secured loan. Your home serves as collateral for the loan. If you don’t pay, the lender can foreclose, seize the property, and sell it.

Most personal loans are unsecured. There is no collateral. If you don’t pay, the lender has little recourse beyond selling the account to a collection agency.

2. Differences in Cost

Because personal loans are unsecured, they carry more risk to the lender than a mortgage would. Lenders respond by raising their interest rates.

The average US mortgage rate in January 2023 is 6.42%. The average personal loan rate is 10.16%. That makes a personal loan much more expensive.

3. Different Loan Sizes

Most mortgage lenders won’t lend less than $100,000. The upper limit is much higher. Super jumbo mortgages can run up to $25 million if you have the income and credit score to support it.

Explore the credit score you need to buy a house for each different type of home loan.

4. Different Loan Terms

Most mortgages have 30-year terms, allowing affordable monthly payments. Personal loan terms typically run from three to five years.

5. Different Closing Processes

One advantage that personal loans have over mortgages is a much faster and simpler closing process. Many personal loans offer near-immediate approval and release of funds within one business day.

A mortgage requires a complex closing process that can take days or weeks and incur closing costs in the thousands of dollars.

6. Different Down Payments

Most mortgages require a substantial down payment. A personal loan does not require a down payment.

7. Different Risks

If you do not repay your personal loans, you will have problems with collection agencies, but there will be no bank ready to seize your property,

It’s not as scary as not making mortgage payments. If you default on your mortgage, your home may be foreclosed. 

Can You Use a Personal Loan to Buy a Home?

Realistically, probably not, and even if you could, you probably wouldn’t want to. Here’s why.

• You can’t borrow enough. The median US home price (Q1 2022) is $428,000. Most personal loan lenders won’t lend more than $100,000.
• It’s too expensive. Interest rates for personal loans are much higher than interest rates for mortgages.
• No special deals. The Federal Housing Administration (FHA), the Veteran’s Administration (VA), the Department of Agriculture (DA) and many state agencies offer programs to make mortgages more affordable. No such programs exist for personal loans.

A mortgage is a specific tool designed for a specific purpose: financing a home purchase. It’s almost always the best tool for that purpose.

Using a Personal Loan to Buy Land

Buying a piece of land can sometimes be a great investment. For instance, you could buy a piece of land and use it to build a home in a situation where you cannot find your dream house. Yes, you can use a personal loan to buy land.

Lenders are often quick to approve and finance personal loans, sometimes even on the same day you apply. You can choose this way to buy land if you need to move fast or if you want to avoid a cumbersome underwriting and appraisal process and the costs of closing a mortgage or traditional land loan.

Some personal loan lenders specify whether their loans may be used to purchase land. But you will want to ensure that your personal loan lender permits you to utilize loan funds for a land purchase. Every lender has its own regulations for qualifying.

Can You Use a Personal Loan To Finance a Down Payment?

Your lender won’t accept a down payment from a personal loan. For example, If you purchase a standard home and need a conventional mortgage, your down payment may range between 3% and 20%, depending on the lender and the situation. You can’t take out a loan for that amount and still qualify for the mortgage. 

Personal loans increase your debt-to-income ratio (DTI), making it harder for you to receive mortgage approval. 

Lenders will know if you try to use a personal loan to cover your downpayment. They have access to your credit reports and other financial information.

Which One Should I Use?

A mortgage is the best way to go to buy a conventional home unless you have the capacity to pay cash. Consider a personal loan for tiny houses, mobile homes, and manufactured homes. 

The post Can You Use a Personal Loan to Buy a House? appeared first on FinMasters.

Good business credit is vital in getting business insurance, small business loans, and supplier payment agreements. A high score may lead to lower loan interest rates and more favorable supplier payment terms. A low score can make borrowing more difficult or even impossible.

Understanding your score is a significant step toward building your company. Here’s how business credit scores work.

What Is A Business Credit Score?

A business credit score is the measurement of a company’s creditworthiness that consists of several factors to understand a company’s financial position and level of risk.

There are multiple business credit score providers. These are some of the most common.

• The Dun & Bradstreet PAYDEX Score.
• The Experian Intelliscore Plus.
• Equifax offers a payment index score, a credit risk score, and a failure risk score.
• FICO’s Small Business Scoring Service (SBSS) score.

Why Your Company Needs a Good Business Credit Score

Business credit is just as important as personal credit. Here are some things that a good business credit score can do for you.

• Save You Money. Lenders offer better interest rates to businesses that have good credit.
• Get Business Loans Without a Personal Guarantee. This reduces your personal liability and protects your personal credit score.
• Maintain a Competitive Edge. You can transfer your interest savings to your clients through lower prices or keep a higher profit margin.
• Lower Stress and Greater Confidence. You’ll know you can get money when you need it.
• Obtain Trade Credit. A good business credit rating can help you get better repayment terms with your suppliers. This is important when you need to buy equipment and inventory.

Good business credit is essential to starting and running a business and should not be treated as an afterthought. Make it part of your business plan from the beginning.

How To Establish Business Credit

Every business has to establish credit for the first time. Here are the steps:

• Set Up Your Business Legally. The first step towards business credit is choosing the right structure. Set up your business as a sole proprietorship, partnership, or limited liability company.
• Obtain Your EIN. Your Employer Identification Number (EIN) is like a social security number for your company. It’s a company ID number that you will use to file taxes, open bank accounts, and apply for a business license.
• Set Up a Business Bank Account. Open a business bank account for your company. This is required to clearly distinguish between your professional and personal expenses. It also provides key data lenders use when reviewing financing.
• Open accounts. Using supplier credit, loans, or a business credit card will help your business establish a credit record.

As with personal credit, managing your accounts well is a key part of achieving and maintaining good business credit. Pay all bills on time and keep your business credit card balances below 30% of your credit limit.

Keep Track of Your Business Credit Reports

Checking business credit is not as simple as checking personal credit. Business credit reports are not covered by the Fair Credit Reporting Act, so you are not entitled to a free annual credit report from each provider.

There are still ways to check your business credit. Reporting agencies will provide you with a copy – though you may pay a fee – and some companies can give you free access to your business credit report and score.

You have the right to dispute erroneous entries on your business credit report. Contact the agency to make the appropriate corrections if you discover outdated or inaccurate data.

Is Business Credit Tied to Personal Credit?

While you and your business have distinct credit ratings, it can be important to maintain good personal credit if you are seeking business financing. Your personal credit history may be examined when applying for a commercial loan.

You must segregate your personal and business credit as much as possible. However, while you do your best, your personal credit can still affect your business. The impact amount depends on the specific situation.

Your lender may ask you for your social security number in addition to your EIN, especially if your business is relatively new and has not yet established an extensive credit record.

This usually means that your personal credit is under review. If you use personal property or personally guarantee a loan and have little accumulated business credit, your personal credit history will likely come into play to cover gaps.

What Factors Influence Your Business Credit Score?

As far as credit reporting agencies are concerned, there is no standard score model for assessing risk. Lenders, vendors, banks, leasing companies, businesses, and finance companies use different reports and rating models based on the credit score agency they subscribe to. 

The business credit reporting agencies compile a score based on the various reports it receives regarding your business. Some agencies consider information from the homeowner’s personal credit report and commercial organizations, such as the Small Business Financial Exchange.

1. Creditworthiness

Many of the factors that go into a business credit score are similar to those that go into a personal credit score. Payment history is one of the most important. Timely payments on debts and bills will help you build good business credit.

Business credit scores also consider the age of your business: you may get a higher score if your business has been around for a while. The percentage of the available revolving credit you are using, known as credit utilization, also determines your business credit score., Other factors include the type of industry you are in and the size of your business.

Reports from vendors, suppliers, or creditors regarding a business’s accounts and activities help determine a business’s credit rating. The business credit reporting agencies compile a score based on the various reports it receives regarding your business. Some agencies consider information from the homeowner’s personal credit report and commercial deposits, such as the Small Business Financial Exchange.

2. Credit Capacity

Creditors want to see positive cash flows, a sound banking history, a steady payment history, and cash reserves.

These may be difficult to achieve for small businesses or relatively new businesses. As with personal credit scores, you’ll need to start small and have a strategy for building better business credit.

3. Capital Invested

One of the factors that bankers use when assessing a commercial loan is how much money the owner has invested in the business.

Banks look at the company’s debt-to-equity ratio to understand the amount of money you’re asking for versus the amount of money you’ve already invested in your company. The smaller the ratio, the better.

What Business Entities Can Have Business Credit?

Every business can apply for credit. It doesn’t matter if your business is an LLC, proprietorship, or partnership. All you need to do to establish a credit score. You do not need to be a registered business or a full-time business owner to qualify; even small part-time businesses can generate sufficient revenue for a new account.

Start Early

If you’re starting a business, think about business credit from the start, and have the plan to build it. Even if you don’t need credit right away, setting up a solid structure and taking on well-chosen credit lines can set you up for the future.

It is likely to come a time when you want to expand, you want to set up payment terms with suppliers, or you need to cover a cash flow issue. When that time comes, your business credit score can be a major asset!

The post What Is a Business Credit Score and How Does It Work? appeared first on FinMasters.

Why Do People Use CD Ladders?

CDs come in term lengths of three months to five years. It makes sense to buy CDs at different maturities so you can periodically unlock your money and reinvest at a higher rate or use it for expenses and purchases. Some people use CD ladders to save for college or other expenses that come at predictable times.

Tip: The longer the maturity, the higher the interest you earn.

Higher Interest Earnings

You can get high interest in a five-year CD, but you may be able to make more with a CD ladder if interest rates rise. If you have some shorter-term CDs in a ladder and they mature, you can reinvest at a new higher rate when you get your money back. You will earn more income if you keep investing at higher rates when your three-month, six-month, one-year, and two-year CDs mature.

Interest rates will vary, so these are rough figures. The standard ladder that the calculator used for these projections may be structured differently than yours.

Protecting Against Falling Interest Rates

If interest rates begin to fall, you will have locked in higher interest for the term of each CD. As your CDs mature, you don’t have to invest in the lower-rate CDs coming on the market. You can invest your money elsewhere.

Waiting on the Stock Market

When the stock market is volatile and uncertain, a CD ladder will let you earn interest while you wait to see which direction the market will go. You don’t have to gamble and plunge into stocks during uncertain times. A CD ladder will pay you while periodically freeing up money if you want to invest in stocks.

Different Ways to Structure a CD Ladder for Various Purposes

There are many ways to build a CD ladder. Your choice will be based on your financial goals and how long you plan to invest your money.

When the first CD matures, you can get your cash out and continue building your ladder by reinvesting. Every time you climb past a rung at the bottom of your ladder, you can add another to the top.

You will also have access to cash at regular intervals without sacrificing your interest gains.

Continue the process as long as you want to maintain the CD Ladder.

If rates continue to increase, you will earn more as you move your balances from these initial CDs into new CDs. You can decide to use the same bank or search elsewhere for the best CD rate.

How to Change the Ladder Structure According to Your Goals.

CD ladders can be organized in different ways to meet different goals.

• If you anticipate needing your money in a year or so, focus your ladder on short-term maturities.

• If you want the best rate and won’t need your money for five years or more, make the lower rungs of your ladder one to five-year CDs.

• If interest rates start falling or if you expect interest rates to fall, invest in long-term CDs, with the lowest rung being two years and the highest being five. You will lock in high rates.

• If you think interest rates may rise for a long time, consider opening five CDs with one-year, two-year, three-year, four-year, and five-year terms. Once each CD matures, roll the balance into a higher-interest five-year CD.

Tip: You do not have to reinvest proceeds into CDs of the same maturity. It is your money, and you can change your CD ladder strategy as you see fit.

Pros of CD Ladders

These are some of the advantages you get from a CD ladder.

• Higher Interest Rates – CDs pay significantly higher interest rates than savings accounts. Banks pay CD investors a higher return in exchange for locking their money for a fixed term. This is true for every rung on your ladder. 
• Freedom of Selection Based on Terms and Account Options – CDs are available in various maturities and at different interest rates from thousands of banks and credit unions.
  • Some banks offer CDs without penalties for early withdrawal.
  • A few banks may offer a 10-year CD.
  • Other CDs you might encounter include step-up and bump-up CDs. These CDs increase the interest you earn over time. For example, a step-up CD might start with a two percent interest rate and increase by one percent every year.
  • You can find Jumbo CDs. Typically, these require a minimum deposit of $100,000 and pay a higher interest rate than regular CDs. If you have the resources you could make a CD ladder out of Jumbo CDs.

This range of options will help you select the CD ladder that best serves your needs.

• Safety – The CDs of federally insured banks and credit unions are backed by the credit of the United States government up to a maximum of $250,000 per depositor, per insured bank. Even if a financial institution is forced out of business, your money is safe up to the guaranteed limit. Your entire CD ladder is covered.

Cons of CD Ladders

Like all investment instruments, CDs also have disadvantages.

• Inflation Risk – Investing in CDs carries the risk that your money will lose its purchasing power over time because your interest earnings will be reduced by inflation.
• Reinvestment Risk – It is possible that when the CD matures, yields will have fallen, and if you choose to reinvest, it will be at a lower interest rate.
• Early Withdrawal Penalties – If you withdraw early on any CD in your ladder, expect to lose approximately three months of interest on a one-year CD, six months on a two-year CD, and so on. The penalty depends on the length of maturity for the CD. At some banks, the penalty might be any interest earned, no matter the maturity date.

Tip: You are not prohibited from withdrawing money from a Certificate of Deposit early. You can get your cash back at any time. You just pay the penalty.

CDs are designed to hold money you do not plan to spend immediately.

• Accessibility – Savings and money market accounts can include debit or ATM cards. Certificates of deposit do not offer this convenience.
• Tax burden – You will have to pay taxes on the accrued interest when each CD matures.

Tip: You can create a CD ladder in your retirement account. If you have a regular IRA, you won’t pay tax on your interest earnings until you withdraw the money from your IRA.

The post What Is a CD Ladder, and How Can You Use One? appeared first on FinMasters.

Let’s look at personal loans. credit cards, and when it makes sense to use each one.

The Difference Between a Personal Loan and a Credit Card

The key distinction between a personal loan and credit cards is they are different kinds of credit.

• Credit cards are revolving credit. This means you can borrow money repeatedly on the same account. As long as your total debt is below your credit limit and you make minimum monthly payments, you can keep making charges against the account.
• Personal loans are installment loans. You receive your money in a lump sum and then repay the loan in equal installments over time.

Neither of these types of credit is inherently better or worse than the other. They have different purposes, and you will use them for different things.

When to Use a Credit Card vs. Personal Loan

Personal loans are typically used for major purchases, while credit cards work best for small daily expenditures.

You generally won’t have to choose whether to use a personal loan or a credit card. The situation will choose for you:

• If you want to pay for a large expense that you want to pay off over an extended period, use a personal loan.
• If you are making routine purchases that you can pay off relatively quickly, a credit card is a better choice.

There is one situation where you might need to choose between a personal loan and a credit card. That deserves a special look.

Debt Consolidation: Personal Loans vs. Credit Card

If you are carrying several different high-interest debts, you may have considered debt consolidation to simplify your payment schedule and reduce your interest rate.

Personal loans and balance transfer credit cards are both popular ways to consolidate debt:

• To consolidate debts with a personal loan, you take out a personal loan, use the money to pay your other debts, and pay off the personal loan.
• To consolidate debts with a balance transfer card, you find a card with an interest-free period for balance transfers. You transfer the balances to that card and pay them off before the interest-free period expires.

The key difference here is the term of a personal loan vs. the length of the interest-free promotion on a balance transfer card.

• Personal loans are often available with terms of three to five years.
• Balance transfer cards usually have an interest-free period of 12 to 18 months. After that, you will pay a regular (high) credit card rate.

If you can pay off your debts within that 12 to 18-month period, a balance transfer card is a better choice. You’ll pay no interest at all.

If you need more time, a personal loan is a better bet.

Remember to be realistic in assessing your payment ability!

You will need good credit to get a personal loan on competitive terms, and most balance transfer cards also require good credit. If your credit is not good, you may need to look for other ways to consolidate debt.

Let’s Sum That Up

If you want to borrow a lump sum of money and pay it back over an extended period, a personal loan will serve you best. If you’re looking for a convenient way to make day-to-day purchases that you can pay off quickly, a credit card will be your best option.

You’ll get better deals on both types of credit if you maintain a good credit score, and as with any form of credit, borrowing carelessly can get you into trouble. Always know your limits and borrow only what you can afford to pay!

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