CHAPTER 1

Why Credit Scores Matter

Your credit score is a financial report card. It’s designed to predict the probability that you will default on a loan, but it has taken on much wider importance.

Any time you apply for a loan, credit card, or any other form of credit, the lender will check your credit score. If your score says you’re a risky borrower, they may raise your interest rate and fees.

If your score is really low, you may not get approved for credit at all.

Some employers will check your credit score before making a hiring decision. Landlords will check your credit before agreeing to rent to you.

Bad credit can be expensive. If you can’t get approved for loans or credit cards you may be forced to use very expensive forms of credit like payday loans to cover a shortfall.

Paying a high interest rate can be a huge cost, especially on large loans like a mortgage or a car loan. If you routinely carry a credit card balance interest costs can add up to hundreds or thousands of dollars every year.

Good credit, on the other hand, can open doors and save you money.

Understanding your credit score and how it is generated can help you build better credit, gain opportunities, and save money.

A good credit score isn’t just about better loans and credit cards or better prices, though. It’s a sign that you are managing your money effectively. The same habits that help you build better credit will help you achieve other financial goals.

CHAPTER 2

Where Your Credit Scores Come From

Credit Bureaus

Your credit score is based on information compiled by three credit reporting companies, often called credit bureaus. They are private companies, not government agencies.

These three companies – Experian, Equifax, and TransUnion – collect information from your creditors and assemble it into credit files.

Creditors are not required to report to the credit bureaus. In fact, they have to pay to report. For this reason, not all creditors report to all three credit bureaus. Major lenders and credit card issuers usually report to all three, but smaller ones may report to only one or two.

Lenders who report to credit bureaus don’t just have to pay, they are also subject to regulation under the Fair Credit Reporting Act (FCRA). That’s why many utility companies, rental property owners, and other companies that bill you don’t report.

Payments that are not reported to the credit bureaus will not affect your credit score.

Credit Score Providers

The three major credit bureaus collect the information that goes into your credit score, but they don’t provide the score itself. Most credit scores come from two companies.

• The Fair Isaac Corporation, or FICO, is the dominant provider of credit scores. Most lenders base decisions on FICO scores. FICO provides multiple scores, including scores used by specific types of lenders.
• VantageScore, a newer score provider, was developed by the three major credit bureaus to compete with FICO. It is not used by many lenders but it is widely used by free credit score providers.

These companies use different algorithms or scoring models to generate credit scores. Both are based on the information in your credit reports. If you have an excellent FICO score you are likely to have at least a very good VantageScore as well, but there may be significant differences between the two scores.

There are two variables that generate different credit scores:

1. Different Models

Each of the credit score providers upgrades its algorithm periodically, and lenders can choose which score to use. For example, FICO’s latest general-purpose score is the FICO 9 score, but many lenders still use FICO 8. These scores may be different.

In addition, FICO in particular generates specialized scores for specific types of lenders. The FICO Auto Score, for example, prioritizes your record in making car payments and is used by auto lenders.

You cannot get specialized FICO scores from any free credit score provider. If you want to see all your FICO scores the only way to do it is by signing up for MyFICO. Learn more about this service in our MyFICO review.

2. Different Bureaus

When a lender pulls your credit score they typically get it from one credit bureau. Because not all lenders report to all bureaus, these scores can be different. A FICO 8 score from Experian may not be the same as a FICO 8 score from Equifax.

For example: Imagine that you have a debt with a small lender that reports only to Equifax. If you don’t pay that debt and it is charged off, that will only appear on your Equifax credit report. Your scores based on an Equifax credit report will be lower than scores based on other reports.

How Many Scores Do You Have?

There are 28 types of FICO scores, but only 16 are in current use. Each of those may vary depending on which credit bureau it’s drawn from.

Keeping track of one credit score can seem complicated, so how do you keep track of 48?

The answer is simple: you don’t have to.

If you want to track your credit, stick to the basics.

• You are entitled to one free credit report every year from each credit bureau. You can get these reports from www.annualcreditreport.com. Check each report each year so you know which accounts are reported to which bureaus. In most cases, your reports will be similar, though not necessarily identical.
• Find a way to track your credit score. Many credit cards, banks, and other institutions allow you to see your score for free. Tracking your score on a regular basis will give you a general sense of how you are handling credit.
• Understand that there may be differences. If you are applying for a loan or credit card, avoid applying if the score you know is close to a cutoff point. The score the lender pulls could be lower. Give yourself a margin of safety.

The credit reporting and scoring system is complicated, but don’t let that keep you from keeping track of your credit and understanding it.

If you’re going to be using credit, you need to understand your credit reports. Unfortunately, there’s a lot of information packed into them and no small amount of financial jargon. You’ll need to learn how to read a credit report.

CHAPTER 3

What Affects Your Credit Score?

Most credit scoring models use the same basic criteria to determine your credit score, Different models may give different weights to these factors or interpret them differently, but the basic ingredients that make up your credit score will be similar.

FICO uses five elements to create your credit score.

VantageScore uses similar elements, though the weighting varies.

Let’s take a closer look at the components that make up your credit score.

1. Payment History

Payment history is the single most important element in both VantageScore and FICO scoring models. Creditors want to know whether you have paid previous debts reliably and made on-time payments consistently. 

In most cases, a payment will be reported as late if you have not paid within 30 days after the due date. A late payment will damage your credit score. If you still haven’t paid after 60 and 90 days that will be reported and will do more damage to your score.

After 90 days your creditor may charge off your account. At this point, they consider the debt uncollectible. A charge-off will do serious harm to your credit score. If the account is sold to a collection agency a collection account will be listed on your credit report and your credit score will fall further.

On-time payments, on the other hand, will build a higher credit score.

The single most important part of improving your credit score is making on-time payments.

2. Amounts Owed / Credit Utilization

These are two ways of describing the same concept: how much you owe relative to your total available credit. It’s typically computed using only revolving credit accounts, such as credit cards.

Each of your revolving credit accounts has a fixed credit limit: the maximum amount you can borrow on that account. Each account also has a balance, which is the amount you owe at a given time.

Your credit utilization ratio is the percentage of your limit that you actually use.

For example: If you have a credit card with a $5000 credit limit and your balance is $1000, your credit utilization ratio on that card is 20%.

Credit scoring algorithms look at your combined total credit utilization and at your credit utilization on each account. Even if your total credit utilization is low, one maxed-out account can still harm your credit.

Most experts advise keeping both your total credit utilization and your credit utilization on each account under 30%. That is not a magic number and your credit score will not fall off a cliff if you exceed it. It is a general rule, and a ratio below that level will not harm your credit.

It’s important to remember that your credit utilization rates are based on your balance on the day that your card issuer reports to the credit bureaus.

It’s a good idea to learn when your issuer reports and pay off large balances before then. Keeping those balances low all the time is even better!

3. Age Of Credit Accounts

This factor, which is often referred to as the AAOA or Average Age Of Accounts, is one factor that you can’t do much about.

Basically, it’s the age of your oldest credit account, the newest accounts, and the average ages of all the accounts on your credit file.

Here’s a sample report on a consumer’s age of credit accounts. 

It will help to keep your oldest accounts open for as long as possible, even if you aren’t using them.

This is because if the oldest account falls off your report, it will shift your average age of accounts and affect your credit score. Closed accounts will not contribute to the average age of your accounts.

4. Types Of Credit Accounts (Credit Mix)

Credit scoring models favor consumers that have shown that they can handle multiple types of credit. A good credit mix includes a blend of revolving credit (like credit cards) and installment credit (loans).

There are several types of accounts:

• Credit Cards (Revolving Account)
• Line Of Credit (Revolving Account)
• Store Card (Revolving Account)
• Personal Loan (Installment Account)
• Student Loan (Installment Account)
• Mortgage Loan (Installment Account)
• Auto Loan (Installment Account)

Maintaining a balance of these types will improve your credit mix and help you build better credit.

5. New Credit / Number Of Credit Inquiries

Every time you apply for new credit, a hard inquiry is registered on your credit report. This will have a negative impact on your credit score.

It’s important to understand the difference between hard and soft inquiries. Hard inquiries affect your credit, soft inquiries do not.

A single hard inquiry will have a very minor impact on your credit score, and the impact will fade quickly. A large number of hard inquiries in a short period of time can do much more harm to your credit: a mass of hard inquiries makes you look like you are desperate to add credit accounts.

A hard inquiry can only be added to your credit report with your written permission. When you sign an application for credit you are authorizing the lender to make a hard inquiry.

If you see a hard inquiry on your credit report that you do not recognize, call the lender (the number will be listed on your credit report) and ask why they are on your credit report. It could be a mistake or an early sign of identity theft.

If you are shopping for the best deal on a loan or credit card, keep all of your applications within a 15-day period. The credit bureaus will recognize that you are shopping and record only a single hard inquiry.

Bankruptcy and Other Public Records

At this time the only public record that will appear on your credit report is a bankruptcy. A Chapter 13 bankruptcy will remain in your credit report for 7 years. A Chapter 7 bankruptcy will remain on your credit report for up to 10 years.

Other public records, like tax liens, civil judgments, or child support decrees, will not appear on your credit report. However, many lenders will perform public record searches before making a lending decision, so these records may still affect lending decisions.

Factors That Don’t Affect Your Score

None of these factors will have any impact on your credit score: 

• Race
• Religion
• National origin
• Sex, gender, sexual preference, or marital status
• Age
• Salary
• Occupation
• Title
• Employer
• Date employed or employment history
• Where You Live

This information is not recorded on your credit report, and it cannot affect your credit score.

How Long Do Records Stay on My Credit Report?

Negative entries on your credit report are not there permanently. They will drop off eventually.

Most negative records will disappear from your credit report seven years from the date when the account became delinquent and was not subsequently brought up to date.

The impact that a record has on your credit also fades with time. Newer records have more weight than older ones. A Chapter 7 bankruptcy will be on your credit report for 10 years, but if you add consistently positive records its impact on your score will be reduced to a minimal level well before the account itself drops off your record.

CHAPTER 4

What Is A Good Credit Score?

Most credit scoring systems range from 300 to 850. Each credit score provider has its own credit score ranges, which define what score the provider considers excellent, good, fair, or poor.

Credit score ranges determine how likely you are to be approved for a loan or credit card and what interest rate you will pay. If your credit score is good you will be approved for most credit products and you’ll pay low interest rates.

If your credit score is low it may be difficult to get approved for a loan or credit card. If you are approved you will pay high interest rates, because the lender sees you as a high-risk borrower.

What Is A Good FICO Score? 

The FICO score was created by the Fair Isaac Corporation in 1956 and has become the score of choice for over 90% of lenders.

Remember that lenders may have their own classifications for what constitutes a good credit score.

What Is A Good Vantage Score?

The VantageScore is a relatively new type of credit score that more lenders are starting to use.

Your VantageScore may be different than a FICO score, but it is based on similar criteria. If you have a good VantageScore you are likely to have a good VantageScore as well.

Most lenders use FICO scores to determine your creditworthiness. If you are checking your score through a free credit score provider, you are probably seeing a VantageScore. They may be different.

It’s always worthwhile to try and improve your credit score. A good or even fair score may be enough to get you approved, but you’ll pay higher interest rates that could cost you thousands of dollars over the life of a large loan like a mortgage or car loan.

CHAPTER 5

How To Improve Your Credit Score

Improving your credit score doesn’t really take that much skill as long as you don’t try to rush the process. The steps you need to take are pretty simple and they will improve both your credit score and your overall financial management.

Most people who are trying to improve their credit fall into one of two categories.

• People with no credit have an advantage. When you start with a blank slate you can build a great record with no negative records to drag you down. Find out more about how to start building credit at 18.
• People with bad credit will need to take more time and work a little harder. Those negative records will stay on your credit report for some time, and you’ll need to balance them out with good ones. Find out more about how to rebuild damaged credit.

Either way, don’t expect to build credit overnight. The process takes time, but it’s worth the effort!

These steps will help you build better credit.

1. Pay Your Bills On Time

It sounds simple, and it is. It’s still the single most important part of building your credit score. Payment history is the most influential component of your credit score, and making every payment on time will build a solid payment history.

Paying every bill on time is not just a way to improve your credit. Late payments can rack up costly late payment fees and pile up debts that can quickly become unmanageable. If you can’t make payments on time, something is wrong and you need to do something about it.

If you already have late payments on your record, you can still improve. Credit scoring models give recent records more weight than older ones. Start making on-time payments today and your score will improve.

2. Take Charge of Your Credit Utilization

Credit utilization is a major influence on your credit score. You’ll need to avoid maxed-out cards at all costs and keep your balance below 30% of your limit. Lower is better.

Follow these steps.

• Limit card use. If you use your card for everything it will be hard to keep your utilization low, especially if your card has a low limit. Only use your card when you really need to and use it wisely.
• Make multiple payments. Making payments several times a month will help you keep your balance down.
• Know when your issuer reports. Your credit utilization is a snapshot taken on the day your issuer reports to the credit bureaus. Find out when your issuer reports each month and make your payment well before that day.
• Pay your balance in full each month. Carrying a balance will make it very difficult to keep utilization low. You’ll also be paying interest at very high rates.
• Ask for a credit limit increase. A higher credit limit will lower your credit utilization. Just be sure you don’t raise your spending to match your new limit!

3. Manage Your Applications

Every time you apply for new credit, a hard inquiry is registered on your credit report. A single hard inquiry will have a minor impact on your score. If you start piling on the hard inquiries you’ll look desperate, and your credit will suffer.

Only apply for new credit if you really need it. Try to space your inquiries out. If you’ve just applied for a loan or credit card, wait six months – or even longer – before you apply for another one. 

If you’re shopping for the best deal on a loan, keep all of your applications within a 15-day period. The credit bureaus will recognize that you are shopping and record only a single hard inquiry.

4. Don’t Close Old Accounts

If you have an old credit card that you’re not using, you may be tempted to close the account. If you do you will reduce the length of your credit history, which can cut your credit score. It’s best to keep those accounts open, even if you’re not using them.

The exception to that rule would be a card that has an annual fee. The whole point of building credit is to save money, and you shouldn’t have to pay to do that.

If your old card has a fee, ask the issuer if they will upgrade you to a no-fee card. If they won’t, it’s probably best to go ahead and close it. Your credit will recover, but the money you pay in fees is gone forever.

5. Watch Your Credit Reports

You are entitled to a free credit report from each credit bureau every year. You can get these reports from annualcreditreport.com.

Get your credit reports regularly. Many people choose to get one every four months. Read them in detail and be sure you know how to understand a credit report.

Over a third of credit reports contain errors that can damage credit scores. Inspect your credit reports carefully and look for accounts or hard inquiries that you don’t recognize. If you find them call the company – the phone number will be listed in the entry – and ask why they are on your credit report. It could be legitimate, it could be an error, or it could be an early sign of identity theft. You need to know which.

If there is a mistake on your credit report you can dispute the entry and have it removed.

6. Negotiate With Creditors

If you have a delinquent account or you think you can’t make a payment, take the initiative. Contact the creditor, explain the situation, and ask to set up a payment plan.

Many creditors are willing to work with debtors who are experiencing financial trouble, especially if it’s due to factors beyond their control, like medical bills or job loss. Taking the first step is a sign of good faith.

You may be able to prevent a late payment from being reported or stop an account from being sent to a collection agency. That will prevent further damage to your credit score.

If you already have an account with a collection agency, start by learning how to deal with collection agencies.

If you’re sure the debt is yours and the statute of limitations has not expired, offer a debt settlement. Debt collectors pay an average of 4 cents for every dollar of debt they buy, so they can accept less than the full amount of your debt and still make a profit.

You may be able to get a collection agency to delete your record with the credit bureaus in return for a settlement. Use a pay for delete letter to propose this arrangement. It’s not guaranteed to work, but it’s worth a try.

7. Add New Accounts Strategically

If you have no credit or a thin credit file adding accounts will be a core part of your credit-building strategy. If you have a bad credit record adding new accounts will be less effective, but it can still help.

Here are some ways to add accounts to your credit record.

• Become an authorized user. A friend or relative can add you as an authorized user on their credit card and share their credit history.
• Use a secured credit card. Secured credit cards are readily available and many are fee-free. Use it wisely and it will build your credit.
• Get a credit-builder loan. Credit-builder loans aren’t free, but they can be an affordable way to add an installment loan to your credit record.
• Report your utilities. Services like Experian BOOST and eCredable Lift can put your utility payments on your credit record.
• Try rent reporting. Rent reporting services can put up to two years of rent payments on your credit record. These services can be expensive, so compare carefully. Choose one that reports to all three credit bureaus.
• Use credit-building products. There’s a wide range of new ways to build credit out there, from credit-building debit cards to ways to report streaming service payments. Choose carefully!

You won’t need to use all of these methods. Compare carefully and select the best mix for you.

Watch for hidden costs: some store credit cards offer low fees or no interest but restrict you to buying overpriced goods at their stores!

Before you pay for a credit-building product, remember that you can build credit for free!

8. Don’t Fall For Hype or Scams

Lots of people will promise to fix your credit overnight. You’ll hear all kinds of stories about 100% effective credit repair, or about magic letter templates or dispute methods that will make even legitimate accounts disappear from your credit report.

Take a deep breath and be skeptical. If it sounds too good to be true it probably isn’t true, especially if someone wants you to pay them!

9. Wait… Seriously… Just Wait

My last tip is that you need to wait.  

This is probably the oddest thing you can do to get a better credit score; however, it is the most crucial step. 

Most people want to see an instant change in their credit, and they want to be able to buy that car or get the home they dreamed of. 

Unfortunately, the one thing you have to do with credit is to wait.

Expect to take at least a year to put a plan into action, put new accounts on your credit, and allow old ones to fall off or fade away. 

Waiting also helps you increase your average age of accounts, which can only increase with time. 

I know you didn’t want to hear that, but it’s the last and best piece of advice for increasing your credit score.

BONUS CHAPTER

What’s A Good Credit Score For Loans By Type?

Credit scores are used by lenders to help predict the likelihood of default. Lenders want to be paid back and credit scores help them assess the risk of losing their money.

Different loan types require different credit scores. Remember that these are averages, and different scores will have different requirements.

What Is A Good Credit Score For An Auto Loan?

Auto loan rates by credit score are divided into five categories, with Super Prime being the highest and deep sub-prime the lowest. 

Auto loans are secured loans. The Vehicle is collateral for the loan. This lets lenders extend credit to less qualified buyers, but the interest rate will be high.

What Is A Good Credit Score For A Personal Loan?

Personal loans are broken into four credit score categories, and to keep things confusing, they are usually referred to them as excellent, good, fair, or bad/poor. 

Personal loan APRs for each credit score range vary widely with the lender, but as always, higher credit scores will get lower rates.

Personal loans are the Swiss army knife of loans. They can range from $1,000 to $100,000 with payment terms as short as six months and as long as seven years.

Personal loans can be used for a variety of needs:

• Debt Consolidation
• Payoff Credit Cards
• Home Improvement 
• Emergency Cash
• Medical Bills
• Education
• Business Start-up
• You name it!

Most personal loans are unsecured by any collateral and have lower interest rates than credit cards but higher rates than secured loans.

People with excellent and good credit scores will receive the best rates because they are at a lower risk of not paying back the lender.

As your credit score become fair and lower, the number of lenders willing to risk giving an unsecured personal loan dwindles fast.

Even with a bad credit score, there are still some personal loan options, albeit, at interest rates between 35% and 155%.

While these are personal loans, they are usually also marketed as ‘installment loans,’ which is basically a payday loan that has longer payment terms between 6 months to 7 years.

Caution! A personal loan with an APR rate of 100% will double in value each year. If you have to take out a bad credit loan, use the smallest amount possible for the shortest possible length of time.

What Is A Good Credit Score For A Mortgage?

A mortgage is the largest loan most people will ever take out. Your credit score has a large impact on your chances of approval and on the interest rate you will pay.

Mortgage rates per score range (February 2022):

You may be able to get an FHA mortgage with a score as low as 580, but you will pay for mortgage insurance and your interest rate will be high.

Because mortgages are very large loans with long terms, a small difference in rates can translate to a very large difference in cost. The difference between 3.507% and 4.328% doesn’t sound large, but with a 30-year fixed-rate mortgage of $423,100, that adds up to an additional $71,713 in interest cost!

If you’re considering buying a home it will be very much worthwhile to build up your credit score first!

Your Turn To Take Action

Now that you know what a good credit score is and how to get one it’s your turn to take action.

You know the exact steps it will take to step away from having bad credit or no credit and build a better credit score.

You have a ton of options so don’t waste any time. The sooner you build a better credit score the better your overall financial life will be.

The post What Is a Credit Score: Definition, Factors and How to Improve It appeared first on FinMasters.

Let’s dive in and discover how you can turn your credit invisibility around.

What Is Your Credit File?

Your credit file is much more than your credit score. It’s your entire borrowing history: which institutions have loaned you money and your track record in paying that back. It shows late payments, defaults, bankruptcies, and other credit problems.

Your credit file is composed of the credit reports kept by the three major credit bureaus: Experian, Equifax, and TransUnion. All of the information in those files is reported by companies you have done business with. Usually, those companies are lenders and credit card issuers.

Most of the companies that bill you day in and day out don’t report, so paying your rent and utility bills on time won’t build up your credit file. That said, failing to pay your bills can hurt your credit score. Find out more in our guide on how utility bills affect your credit score.

What Is a Thin Credit File?

If you haven’t used loans or credit cards, you’ll have a thin credit file or no credit file at all. With a thin credit file, lenders don’t know what or who they are looking at. That can become a big problem, especially if you plan to finance major purchases. If you have a thin credit file and you see moves like buying a car or a home in your future, the time to start building that credit file is now. It will take time, but you can do it.

A thin credit file can make it hard to get credit. If you don’t have enough information on file to generate a score, potential creditors will have nothing to evaluate. Even if you’re managing your money well, there won’t be any evidence of that.

Even if you have enough information on file to generate a score, a thin credit file can leave you subject to rapid swings in your credit score.

The Consumer Financial Protection Bureau (CFPB) highlights that over 45 million American adults face credit invisibility, unable to generate a credit score due to limited information.

The Thinner the File, the Bigger the Drama

With little credit for credit monitoring companies to observe, every credit-related move you make will have a dramatic impact on your file. With a thin credit file, everything you do – positive or negative – is magnified. You need to be extra careful about your credit activity.

If you have a deep file with numerous accounts and entries, the impact of a single missed payment will be small. Why? Because there are so many other items to balance out a small misstep.

Think of it as dilution. A drop of red dye can color a shot glass of water but be barely visible in a gallon jug. The impact of a negative entry on a credit file works the same way. The thinner the file, the more visible the impact.

Who Has a Thin Credit File?

Anyone can have a thin credit file, but there are specific groups that are most likely to face this obstacle.

• Young people entering the world of adult financial responsibility.
• Recent immigrants.
• People who have avoided credit and handled finance with cash and debit.
• People who stopped using credit for long enough that their credit data is too old to use.
• Newly single and had little to no credit in your own name.

If you’re in one of these groups, or if you have a thin credit file for any reason, you probably know all too well what a thin credit file can do. Your main concern is probably getting out of that trap. Let’s look at some ways to do that.

What Is a Thin Credit File? (And What Can You Do About It)

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Fattening Up That Credit File

There are a number of ways to start building credit for the first time, or after a period of time when you have not been using credit. Here are a few ideas to get you started down the road to getting a credit history for lenders to work with.

1. Become an Authorized User

If you’ve never had a credit card, you could start by becoming an authorized user on someone else’s card. The primary cardholder still has full responsibility for the balance, payments, and making any changes. But the credit report on the account will go to both the primary cardholder and authorized user. Make sure that you have a good relationship with the primary cardholder and that the primary cardholder has a good credit track record, especially with this card. Also, check to be sure that the credit card issuer includes authorized users in their credit reports.

2. Retail Store Cards

Another way to expand your credit file is to apply for a retail card, like for Kohls, Amazon, or wherever you shop. These cards are usually easy to get: you’ve probably been offered a card after shopping in-store or online recently.

Store cards offer lower limits than a Mastercard, Visa, or Discover card, so you can start with small purchases, pay them back, and build credit.

3. Secured Credit Cards

Secured credit cards are an effective and accessible way to build credit. You put down a deposit, and the amount of the deposit becomes your credit limit. The lender takes only minimal risk, so they’re willing to issue a card even if you have a thin credit file.

Many issuers will raise your credit limit or even move your card to non-secured status if you establish a good payment record.

4. Credit Builder Loans

Many local bank and credit unions offer credit builder loans. The money you borrow is placed in an interest-bearing account at the lending institution. You make the payments, and when the loan is paid you get the lump sum.

Again, there’s little risk to the lender, so approval is easy, and you get an installment loan on your record. You also walk away with a lump sum of money at the end of the deal, which is a great incentive to make the payments.

If you’re considering buying a car, for example, you can save for a down payment and build your credit at the same time!

5. Get Payments Counted

Utility and rent payments are generally not counted toward your credit score. Credit reporting bureaus have recognized this gap, and are introducing products to close it. Look into Experian BOOST, Experian RentBureau, and TransUnion’s eCredable Lift.

Each of these services will only affect one of your credit reports, but that still means something, and when your credit file is thin every little bit helps.

6. Make Those Payments

Getting new credit accounts will thicken your credit file, but you need to make sure you’re filling that file with positive records. A secured credit card or a credit builder loan is a great way to build credit, but you need to be sure that you’re making every payment on time, or you’ll be doing yourself more harm than good.

Making every payment on time is a huge part of building your credit file, so you’ll want to be sure to keep your commitments well within your capacity.

It’s always good to avoid biting off more than you can chew, but it’s especially important when you have a thin credit file. A credit card can make spending tempting, so be sure to keep an eye on that temptation!

7. Mind your Credit Utilization Ratio

As you build your credit, understand that credit reporting companies will also be looking at your credit utilization ratio. The ideal is to use under 30% of your available credit limit on your credit cards. Less is even better: the average credit utilization ratio of FICO’s “high credit achievers” is only 7%^[2].

Credit utilization is especially important if you have a thin credit file because most of your credit products will have relatively low limits. If your limit is low it’s easy to push credit utilization up with a few transactions.

Use our debt utilization calculator and keep coming back to it to stay on track with this important credit metric.

If you have a low limit on a card consider putting a few small recurring expenses that you’d pay anyway, like a Netflix subscription or your internet bill, on the card. Then you can set up an automatic payment from your checking account and just put the card away.

Build Your Credit File Slowly

Building up a thin credit file is a marathon, not a sprint. It’s important to understand that you don’t want to rush out and take all these steps at once. It’s well worth the time and effort. Remember, you’re not just building up you’re credit file, you’re learning good financial habits that will serve you for the rest of your life.

A thin credit file is not something to get overly stressed about. It doesn’t mean you’ve been financially irresponsible, it just means you haven’t built up a paper trail that proves your responsibility. Understanding what a thin credit file is and having some tools in hand to build your file over time will help you reach your financial goals and keep your credit rating solid.

The post Thin Credit Files: What They Are and How to Fix Them appeared first on FinMasters.

There are many reasons your credit score could drop unexpectedly. Some are innocuous, while others could require quick attention to fix.

Components of Your Credit Score

To understand the different ways that your credit score could drop unexpectedly, it’s important to understand how credit scores work.

Your credit score is composed of five factors, in order from most to least important:

• Payment history
• Amount owed/credit utilization
• Age of credit
• Credit mix
• New credit

Changes in any of these factors could cause your score to drop.

Why Your Score Could Go Down When Nothing Changed

There are a variety of explanations for a surprise drop in your credit score.

Using a Different Scoring Model

One of the simplest and least worrying reasons that your credit score could drop unexpectedly is that you’re not comparing scores that used the same model.

When people think about their credit score, they often think of it as a single number, but that isn’t quite true. There are many different credit scoring models out there.

Two popular credit scores are the FICO Score and the VantageScore. They both look at similar factors, but they weigh things slightly differently.

Even within the FICO Score and VantageScore systems, there are differences. For example, FICO has FICO 8, FICO 9, FICO Auto Score, FICO Bankcard Score, and more. All of these scores are used by different lenders for different purposes.

Even if you’re looking at two scores calculated using the same model, if the information put into the formula differs, the answer will be different. Each of the three major credit bureaus can have slightly different information about your interactions with credit based on which bureaus your lenders report to.

If you’re looking at a score calculated using data from Equifax and comparing it to a score using data from TransUnion, there may be a slight difference between the two. If you’re comparing a VantageScore (often used by free credit score providers) to your FICO score, there could be a significant difference.

If you’re asking yourself, “why did my credit score go down when nothing changed?” the first step to take is to make sure that you are comparing scores of the same type.

Unexpected Hard Inquiry

Understanding the reasons behind a credit score decline is essential, particularly when you find yourself asking, “Why did my credit score go down when nothing changed?” One common but often overlooked reason is the effect of hard inquiries.

Whenever you apply for a credit card or loan, the lender will check your credit score with one or more of the credit bureaus. When this happens, the credit bureau places that information on your credit report. This is called a hard inquiry, and each hard inquiry on your credit report can cause it to drop by a few points.

A loan isn’t the only thing that can lead to a hard inquiry into your credit.

Renting a car, especially if you pay for the rental with a debit card or cash, could lead to a hard inquiry. The rental company will check your credit to make sure you’ll be able to pay for any damage or other issues with the card.

Signing up for a new cell phone plan could also lead to a hard inquiry if you’re trying to get a monthly contract. The cell phone company wants to make sure you’ll pay your bill before offering service.

Asking an existing credit card provider for a credit limit increase or applying for a business credit card can lead to hard inquiries on your personal credit as well.

If your credit score has dropped due to an unexpected hard inquiry, the impact is likely to be small, and it will fade quickly. As long as you can confirm that the inquiry was, in fact, caused by your actions, it’s not a major concern.

Co-Signing On a Loan

Co-signing on a loan can be another reason why your credit score could go down when nothing changed. When you co-sign on a loan for someone else, it can help them qualify for a loan they otherwise wouldn’t get or secure a lower interest rate. The reason for this is that you’re promising to pay the debt on their behalf if they aren’t able to make payments.

Because you’re sharing responsibility for the loan when you co-sign, the lender will want to check your credit, which means a hard inquiry will show up on your credit report. The loan balance and payment history will also show up on your credit, which could also cause it to drop by a few points.

An Old Account Was Closed

If you’re puzzled by the question, “Why did my credit score go down when nothing changed?” consider the impact of old credit accounts. You may have an old credit card lying around that doesn’t see much action these days. After a long enough period of inactivity, your credit card issuer might choose to close the card because you’re no longer making any purchases on it.

Closing an old account, either intentionally or through inactivity, can cause your credit score to drop, sometimes by quite a lot.

First, closing an old account lowers the age of your credit accounts. The older your average credit account, the better your score will be. For example, if you have three cards, one that’s 10 years old, one that’s 4 years old, and one that’s 1 year old, letting the oldest one close will drop the average age of your accounts from 5 years to 2.5 years.

That can lead to a big decrease in your score.

Closing an account also reduces your available credit, which can boost your credit utilization ratio. Your credit utilization ratio is the percentage of your total credit limits that you’re using. The more credit you have access to, the more of a balance you can build up without lowering your score by much. Removing some of your available credit means that a lower card balance will have a bigger impact on your score.

Your Credit Card Balance Went Up

This is another explanation that’s tied to your credit utilization ratio. If you spent a bit more on your credit cards than usual this month, it could lead to a drop in your credit score.

When your card statement closes, your credit card issuer sends details about your account, including its balance, to the credit bureaus. Even if you pay the balance off in full, the credit bureaus still see that higher balance, which can lead to higher credit utilization.

The good news is that credit bureaus don’t track the history of your credit utilization. Once you pay off the card and the card issuer reports next month’s balance, your score will return to normal so long as your balance also returns to normal. However, this does mean that big purchases on a credit card could cause a temporary drop in your credit.

If you plan to apply for a major loan, like an auto loan or mortgage, it’s important to try and avoid using your credit cards for large purchases as it can cause a drop in your credit score, making you wonder, “Why did my credit score go down when nothing changed?”

A Lender Reduced Your Credit Limit

Credit card issuers don’t usually make changes to your credit limit unless you ask for a credit limit increase, but they’re well within their rights to adjust your credit limits at will. That can mean increasing them or reducing them.

If one of your credit card issuers reduces the credit limit on one of your credit cards, that will reduce your total available credit. Like making larger than normal purchases using your credit card, which can cause your credit utilization to rise, causing your score to decrease and making you wonder why your credit score went down when nothing changed.

A Mistake On Your Credit Report

Credit bureaus aren’t perfect. They do make mistakes, and there could be inaccurate information on your credit report. Adding an account that isn’t yours, marking a timely payment as late, or putting the wrong number for a balance or credit limit could all cause your credit score to drop.

If there’s a drop in your credit score and you are thinking, “Why did my credit score go down when nothing changed?” it’s a good idea to check your credit every once in a while to make sure your credit report is error-free. Each bureau is required, by law, to give you a free copy of your credit once per year, and there are many other free services you can use to monitor your credit.

If you identify an error, reach out to the credit bureau to dispute it. Each bureau has a slightly different process for reporting errors, so make sure to follow the appropriate process based on the bureau that has inaccurate information.

Identity Theft

Dealing with the confusion of “Why did my credit score go down when nothing changed?” can sometimes be traced back to identity theft, a serious problem that affects many people. More than 300,000 Americans fall victim to scams that can lead to identity theft each year.

If someone steals your identity, they can do a lot of things that will damage your credit score. Applying for new loans in your name and racking up debt are among the most common ways identity thieves will damage your credit.

Confused about a sudden #creditscore drop with no apparent reason? See why it might happen in our new article.

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If you think you’re a victim of identity theft, the first thing to do is reach out to the credit bureaus and put a fraud alert on your credit. This will help prevent the thieves from opening any more accounts in your name. You’ll also want to file a police report. The FTC has an identity theft report page that can generate a recovery plan for you.

Reach out to any companies that the fraudsters have opened accounts with and let them know that the accounts were not opened by you and that you’ve been a victim of identity theft. You should also check your credit card and bank statements to make sure no one has accessed those accounts without your permission.

As you recover, consider signing up for an identity or credit monitoring service so you can try to prevent identity theft from happening again.

Derogatory Marks Added to Your Report

One of the most common reasons for a drop in your credit score is a derogatory mark on your credit report. If you’re asking yourself, “Why did my credit score go down when nothing changed?” it is always possible that you have overlooked a payment, and it was reported as late.

Check your financial records to be sure you haven’t missed anything…

What to Do When Your Credit Score Drops Unexpectedly

Many people often wonder, “Why did my credit score go down when nothing changed?” If you notice an unexpected decrease in your credit score, the first thing to do is see how much it’s gone down. A minimal drop is nothing to get alarmed about. Just keep track and make sure the trend doesn’t continue.

If the drop is significant, you’ll need to figure out what the root cause is.

The best way to do this is to check your credit reports. This will tell you if there are any actual changes in your credit history that could have brought your score down. You will need to know how to get your credit report and how to read a credit report.

Some of the things that can cause a drop in your credit are no big deal. For example, looking at a score produced using a different model or having a slightly higher credit card balance in one month is not a cause for major concern.

Some changes require immediate attention. If you notice mistakes on your credit report, you need to report them to the credit bureaus as soon as possible. Identity theft also requires an immediate response.

If your credit score has gone down when nothing changed in your financial life, you don’t need to panic. You do need to find out what happened and why!

The post Why Did My Credit Score Go Down When Nothing Changed? appeared first on FinMasters.

What Is a Credit Inquiry Removal Letter?

A credit inquiry removal letter is a tool that you’ll use to remove an unauthorized hard inquiry on your credit report. This letter requests the credit bureau to remove the inquiry, asserting that it was not authorized by you. We’ll explore how these unauthorized inquiries can appear on your report, steps to address them, and actions to take if they result from identity theft.

How to Write a Credit Inquiry Removal Letter

When you write a credit inquiry removal letter, there is some key information that you’ll need to include. For example, you’ll need to provide your personal information, information on the inquiry you are disputing, and your official request to open an investigation (dispute).

Below is a sample credit inquiry removal letter to help you get started. 

[Today’s Date]

From: [Your Name]
[Street Address] 
[City], [State] [Zip]
[Phone Number}

To: [Credit Bureau Name]
[Street Address] 
[City], [State] [Zip]

RE: Request for Investigation of Unauthorized Credit Inquiry

To whom it may concern,

I am writing to dispute an unauthorized inquiry on my credit report. I retrieved a copy of my credit report from your organization on [date you pulled your credit report] and noticed a credit inquiry that I did not authorize.

I contacted [Lender’s Name] regarding the unauthorized inquiry and requested that they remove the inquiry from my credit profile. 

At this time, I am requesting that you launch an investigation into the inquiry by [Lender’s Name] to determine who authorized it. 

If you find that my claim is true and the inquiry is invalid, I am requesting that it be removed from my credit report and an updated copy of my credit report be sent to the address listed above upon resolution of the investigation. 

If you find that the inquiry is valid, please send me proof along with a description of your investigation procedures within 15 days of the closure of this dispute. 
Thanks in advance for your assistance with this matter.

Sincerely,

[Your Signature]

[Your Name Printed]

Download credit inquiry removal letter templates:

 Credit inquiry removal letter template for Microsoft Word
 Credit inquiry removal letter template for Google Docs
 Credit inquiry removal letter template in PDF

Once this letter is complete, you can mail it to the appropriate credit bureau. Each bureau may have additional requirements for what information you need to send with your dispute letter. This can include proof of identification, your social security number, proof of residence, etc.

1. Experian’s requirements
2. TransUnion’s requirements
3. Equifax’s requirements

While it doesn’t cost anything to initiate a dispute, it is highly recommended that you send your letter by certified mail; this way, you have clear documentation of when it is received.

You can send your letter and copies of other required documents to the three credit bureaus at the following addresses:

Why Should You Be Concerned About Unauthorized Inquiries?

A hard inquiry or hard pull occurs when a creditor or lender checks your credit

Nobody can make a hard inquiry on your credit report unless you authorize it. Usually, your signature on an application form authorizes the hard inquiry. Any hard inquiry that is not supported by your signature is unauthorized.

It’s important to understand the difference between hard inquiries and soft inquiries. Soft inquiries may be made without your authorization. You’re the only one who can see them and they don’t affect your credit.

Hard inquiries will affect your credit. They are part of the New Credit portion of the FICO score calculation. Having too many inquiries can indicate to a creditor that you are financially unstable.

When you’re looking for unauthorized inquiries on your credit report you are concerned with hard inquiries. An unauthorized hard inquiry can hurt your credit score. It could also be an early warning of identity theft.

How to Tell if an Inquiry Is Unauthorized

If you are not already signed up for a credit monitoring service, it can be difficult to spot a fraudulent or unauthorized credit inquiry. 

You will start by pulling your credit reports. Not just one, but all of them. Many lenders will pull just one credit bureau when making a hard inquiry, so you will have to search through all of your reports.

Hard inquiries will appear in your credit report’s Inquiries/Requests for Your Credit History section. Each inquiry will display the lender that performed the inquiry along with the date the inquiry was completed. 

If you don’t immediately recognize the inquiry, a good first step is to contact the lender listed. They will be able to help you confirm why your credit was pulled and who authorized it.

If the inquiry was a simple mistake, i.e., someone typed in the wrong social security number, they should be able to resolve the error for you. You may have also authorized an inquiry without realizing it.

If the lender confirms that the inquiry was unauthorized and not a clerical error, you will need to remove the inquiry from your report (dispute) and take steps to prevent future fraudulent activity. 

How to Write a Credit Inquiry Removal Letter

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Dispute a Hard Inquiry Online

All three major credit bureaus support initiating a dispute online. Starting an online dispute can save you time and money over initiating a dispute by mail or via phone. 

To begin a dispute, you’ll need to create an account with the credit bureau. This account will allow you to initiate disputes, upload documents, and check on the status of your dispute.

Once you create an account, you can file a dispute. The credit bureau will then review the information, ask you for supporting documentation as needed, and communicate with the lender to obtain further information. For full details on creating an account and initiating a dispute, check the dispute webpage for each credit bureau. 

1. Experian
2. TransUnion
3. Equifax

Some credit bureaus offer additional features with an account, such as setting fraud alerts, viewing updated credit reports, etc. 

How Long Will the Dispute Take? 

A dispute can be resolved in a few short days if the lender agrees with the dispute and replies to the credit bureau quickly. The Fair Credit Reporting Act requires the credit bureau to respond to your dispute in writing within 30 days. 

If the dispute results are in your favor, the unauthorized inquiry will immediately be removed from your credit report. If the dispute results are not in your favor, you can always try re-initiating a dispute with additional documentation of your claim. 

Halting Future Fraudulent Inquiries

When you find fraudulent inquiries on your credit report(s), you’ll want to take steps to prevent future fraudulent inquiries as you begin the dispute process. You’ll have to assess the situation. Was there one unauthorized inquiry or many? Did someone actually open an account in your name?

If you determine that identity theft occurred, your first stop should be the Federal Trade Commission’s identity theft website. You’ll find full instructions on how to report and recover from identity theft.

Some of the actions you can take include: 

• Filing a police report
• Sending an identity theft complaint to creditors and banks
• Notifying the credit bureaus of fraudulent activity
• Place a fraud alert on your credit
• Setup a credit lock or credit freeze
• Utilize identity theft insurance and restoration services

Most importantly, you’ll want to continue to monitor your credit reports for any future fraudulent activity.

Will Disputing an Inquiry Improve Your Credit?

In the case of fraud, it is always important to take steps to investigate the unauthorized inquiry as this can help prevent future fraudulent activity. There is no guarantee that disputing the inquiry will impact your credit score. FICO estimates that a single inquiry has less than a 5 point impact on your credit score. 

Hard inquiries are part of what makes up the New Credit portion of your credit score. However, this factor accounts for only 10% of your overall credit score. Not all hard inquiries are weighted the same way. Newer inquiries have the most significant impact. Once inquiries are 1 year old, they no longer affect your credit score. And after 2 years, they fall off your credit report. 

Final Thoughts 

When you are suffering from identity theft or fraud, having a hard inquiry removed from your credit reports is likely the furthest thing from your mind. And that is okay. You may choose to address the fraud first and worry about fixing your credit later. 

But once you do get around to initiating disputes with the credit bureau(s), the process is thankfully simple. You can file a dispute by mail or online yourself, free of charge, and you are guaranteed a response within 30 days. 

So don’t stress out. Initiate the dispute and the problem should be solved quickly.

More Letter Templates

Our collection of free, fully-customizable letter templates is there to help you write effective letters when you need to set up, cancel or complain about something.

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The post How to Write a Credit Inquiry Removal Letter appeared first on FinMasters.

The formulas that determine your credit score aren’t just random facts. Understanding them can help you make better financial decisions.

In this post:

• Where Do Credit Scores Come From?
• How Your FICO Credit Score Is Calculated
• How Your VantageScore Is Calculated
• What Does Not Affect Your Credit Score?

Where Do Credit Scores Come From?

The information contained in your credit reports is the basis of your credit score. Creditors submit this information voluntarily in reports to the three major credit reporting companies: Experian, Equifax and TransUnion.

If you’d like to get a copy of your credit report know that each credit reporting company is obligated to provide you with one free credit report every year.

Not all creditors report to all three of these companies, and they may report on different schedules. That means that your three credit reports will often be slightly different, and may be significantly different.

Credit score providers process this information using proprietary algorithms, and produce your credit score. There are two primary credit score providers.

• FICO, or the Fair Isaac Corporation, has been in business since 1956 and is the dominant provider of credit scores. Most lenders use FICO scores to assess creditworthiness.
• VantageScore was initiated in 2006, a joint project of Experian, Equifax, and TransUnion. Most providers of free credit scores use VantageScore.

Your lender is probably using a FICO score and your free credit score provider is probably using VantageScore. That means you may be looking at different scores, which could cause some confusion.

Your credit score is not held on file and is updated on a schedule. Each score is generated as a response to a request. It’s a snapshot of your credit file at the time of a given request, and it can change from day to day as new information is reported.

How Your FICO Credit Score Is Calculated

Your FICO credit score is calculated using five credit factors.

Let’s unpack what each of the five contributing factors means, and how they affect your credit score calculation.

1. Payment History

This is the item most consumers associate with credit scores. It’s also the largest single component in the calculation, with a 35% weight. Naturally, this factor takes your payment performance into account. It also measures that history against the total amount of credit you have outstanding.

2. Amounts Owed

If you’ve ever heard the term “credit utilization,” this is where it figures into the mix. Though the amounts owed represent 30% of your credit score calculation, it’s not based on a fixed amount of debt. Rather, it’s based on the percentage of your available credit that you are actually using.

The credit scoring models perform similar calculations with installment loans.

The credit scoring models favor credit utilization ratios below 30%. That’s not a fixed boundary and your score won’t fall off a cliff if you cross it, but it’s best to stay below it. Lower is even better, but you don’t want a credit utilization ratio of zero, which indicates that you aren’t using credit at all.

FICO’s “high achievers” – people with credit scores from 800 to 850 – have an average credit utilization of 4%^[2].

3. Length of Credit History

This factor makes up 15% of your score and plays a much smaller role in your credit score calculation than payment history and amounts owed. It still can make a substantial impact on your credit score.

Credit scoring models reward consumers with longer credit histories. For example, if you’re fresh out of college and have only two credit lines – the oldest being one year – your credit history will be shorter than it will be for someone who has multiple credit lines open for the past decade.

Length of credit history determines how long you’ve been managing credit. The longer you’ve been doing so successfully, the more you help your score.

If you have no credit history read our guide on how to build credit at 18 (or any other age).

4. Credit Mix

Credit scoring models reward credit balance. For example, if you have a mortgage, a car loan, and five credit cards, you’ll have a better credit mix than you would if your entire credit profile was limited to just five credit cards.

The reason credit mix is considered important is that it shows the consumer’s ability to successfully apply for different forms of credit and the ability to manage multiple financing types in combination successfully.

Scoring models prefer to see a balance between revolving credit, like credit cards, and installment credit, like a car loan, student loan, or mortgage. If you only have a single type of debt, you’ll be penalized for overreliance on that type of financing.

5. New Credit

Credit scoring models have an inherent preference for established debt. That’s because your payment history can easily be measured, making it easier to predict successful management of the loan. New credit, on the other hand, is an X factor. There’s no history to show how well you’ll handle that new credit line.

Applying for a lot of new credit quickly can mean that you’re desperate for credit.

This makes a strong case for adding new credit only when you really need it. If you have two open credit lines, then apply for three new ones within one year, the scoring models will consider you to be a greater risk. Every time you apply for new credit a hard inquiry will register on your credit report, and multiple hard inquiries can harm your credit.

One exception to this rule: if you’re shopping for a loan and keep your inquiries within a 15-day period, the credit reporting companies will recognize that you are shopping and register only a single hard inquiry.

How Your VantageScore Is Calculated

Your VantageScore credit score is calculated using somewhat different criteria, and VantageScore weights those criteria according to its own algorithms. VantageScore doesn’t provide percentages, but rates the overall influence of each component it uses.

1. Total Credit Usage, Balance, and Available Credit are “extremely influential”. This includes credit utilization.
2. Credit Mix and Experience are “highly influential”.
3. Payment History is “moderately influential”.
4. Age of Credit History is “less influential”.
5. New Accounts Opened is “less influential”.

This breakdown is different from the formula used by FICO, and explains why VantageScore and FICO may generate different scores.

What Does Not Affect Your Credit Score?

There are a number of items that do not have any impact on your credit score.

• Race, color, religion, national origin, gender, or marital status. Federal law prohibits the use of any of these factors in determining credit status.
• Occupation, salary, or employment history. Lenders will evaluate this information, but they won’t get it from your credit report.
• Your age. Neither FICO nor VantageScore considers your age as a factor in your credit score.
• Tax liens, alimony, and child support obligations. Lenders may find these through a public records search, but they do not appear on credit reports.
• Participation in credit counseling. Credit counseling agencies don’t report to the credit bureaus, so participation in credit counseling or a debt management plan will not appear on your credit report.

Your credit score is about how well you handle debt, not about how rich you are. A low-income person who makes every payment on time can have a higher credit score than a well-off individual who habitually misses payments.

Bottom Line

You should know how your credit score is calculated because that knowledge will help you improve and maintain your credit score. Understanding the variations in credit scores can help you plan your credit more effectively. If you ask which scoring model a lender uses before making an application for credit, you’ll have a better idea of what to expect!

The post Learn How Your Credit Score Is Calculated – 5 Key Factors appeared first on FinMasters.

That easy income sounds irresistible, but it comes with potential downsides that you should consider before making a move.

You risk being scammed or linked to criminal activity. You can also hurt your credit score if one of your accounts ends up being closed. The legality, both for the buyer and the seller, is also questionable. We’ll take you through the risks and benefits of selling tradelines.

Key Takeaways:

1. Selling tradelines can be lucrative. It is possible to earn $500-$10,000 annually with a minimal time investment, depending on your credit score and card characteristics.
2. Selling tradelines can be risky. There are potential scams, links to criminal activity, and harm to your credit score if an account is closed.
3. Selling tradelines is not technically illegal. It’s still frowned upon by banks and credit bureaus and may violate credit card terms of service. Your accounts may be closed if your issuer finds out that you are selling tradelines.

In this post:

• What Are Tradelines?
• Why Buy And Sell Tradelines?
• How to Sell Tradelines?
• How Much Can You Earn From Selling Tradelines?
• Is Selling Tradelines Legal?
• Risks of Selling Tradelines
• Does Selling Tradelines Affect Your Credit Score?

Why Buy and Sell Tradelines?

A credit card tradeline with a good payment history and low credit utilization will help build a positive credit score. That’s something people want. That demand means people are willing to pay for the use of a good tradeline.

Credit card tradelines can be shared through authorized user status. When you add an authorized user to your card, the tradeline, with your good payment history, will appear on their credit report. Parents often do this to help their children build credit.

When you sell a tradeline, you add a complete stranger to your card as an authorized user. That stranger gets the benefit of the record you’ve built up on the card, which can help their credit score. They pay you for that advantage.

Learn more about how tradelines work and the pros & cons of buying tradelines.

How to Sell Tradelines?

The easiest way to sell tradelines is through a brokerage service. Companies like Tradeline Supply, BoostCredit101, and Tradeline.Club specialize in buying and selling tradelines for a fee.

Selling tradelines means adding an authorized user to your credit card for a set fee. The user will usually stay on your account for about two months, after which the broker will tell you when you can remove the authorized user. 

The price you receive for selling tradelines is based on your total credit score, the age of the card, and its credit limit. Some banks or credit card issuers are also considered to have more favorable reporting practices and will command a higher price. 

How Much Can You Earn From Selling Tradelines?

The amount of money companies claim you can earn from selling tradelines varies greatly. It goes from $50 to $350 per authorized user per month.

Exactly how much you can earn from selling tradelines will depend on four different factors taken together:

1. The card issuer. Which card issuer is most favored varies as bank policies change, but generally, Barclays, Discover, Capital One, Chase Bank, Bank of America, or Elan are preferred.
2. Your credit limit. A card with a credit line over $20,000 will earn the most.
3. The age of the tradeline. A card that is more than 10 years old is ideal. 18+ years will command the highest prices.
4. Your credit score. Generally, you will not be able to sell tradelines with a credit score under 700. The higher your credit score, the greater the price per tradeline sold. 

The only time invested is the few minutes it takes to add an authorized user, and another few minutes to remove the authorized user two months later. The small time investment for big returns is what makes selling tradelines seem like an attractive added income stream.

Is Selling Tradelines Legal?

Selling tradelines is not technically illegal, as of early 2021. Legally, as a credit card holder, you can add anyone to your credit card. Accepting payments for adding someone as an authorized user is also legal.

However, it is frowned upon by both banks and credit bureaus. Those buying the tradelines can be seen as deceiving the lender or even committing bank fraud. When selling tradelines, you risk violating your credit card terms of service. This can lead to your account being shut down, which can affect your own credit score.

Risks of Selling Tradelines

• Violating your credit card company’s terms of service. If this happens, they have the right to cancel your account, reducing your total credit lines and potentially hurting your credit score.
• Assisting in identity theft. Someone can create a fake ID and buy a tradeline to legitimize it. While it might seem like you’re helping someone less fortunate boost their credit score, you might be helping to steal someone’s identity. There is no way to know who you are selling the tradeline to or their reasons for buying your tradeline.
• Unauthorized purchases. As an authorized user, the tradeline buyer could request a card sent to their address and make charges on your card.
• Assisting in bank fraud. Banks and credit bureaus go to great lengths to ensure that credit scores reflect the user’s earned credit. Buying tradelines can be seen as a type of bank fraud or deception. 
• Data breaches. Selling tradelines can increase your risk of data exposure or identity theft.
• Accounts shut down. If a credit card issuer sees that you have added a large number of authorized users — usually more than four to six — they may flag your account or shut it down. You risk a lowered credit score, especially if that was your oldest or largest line of credit. 

For most people, the combined risks of selling tradelines outweigh the benefits. If your credit score is good enough to be useful in selling tradelines, you’re already handling your finances well. Why would you risk that for a little extra money?

Look into other, safer ways of making extra money.

Precautions

If you do decide to sell tradelines, you can protect your identity and prevent unauthorized transactions by requesting that the new card for the new authorized user be sent to your address. Set up two-step verification with your bank to prevent the new user from requesting a card directly with the bank. 

While this will prevent the tradeline buyer from making charges on your account it will not alleviate other risks.

Does Selling Tradelines Affect Your Credit Score?

Selling tradelines will not directly affect your credit score. The new authorized user will only benefit from your credit score, not harm it. However, if you have an account closed from selling too many tradelines, your credit score could be affected.

The post Selling Tradelines: Can You Make Money and Is It Safe? appeared first on FinMasters.

What Is a Credit Report?

A credit report is a detailed representation of a person’s credit history. That includes their account details, payment records, and any significant events (like bankruptcy). Your copy of your credit report should also provide guidance on what rights you have regarding your credit.

If you’ve ever wondered how exactly lenders calculate your credit score, it’s by applying formulas to the information in these reports. That makes minimizing negative entries and showing a history of responsibility in your file the best way to boost your appeal to lenders and get better deals.

How to Read Your Credit Report

If you’ve never seen a credit report before, you may be overwhelmed by the amount of information and detail in them. Fortunately, it gets a lot easier once you know what to expect. These are the sections that you’re most likely to encounter.

Personal Information

Credit reports begin with details that are unique to you and end with a list of broader disclaimers. You’ll probably want to focus on the stuff in the beginning. As you read your credit report, do your best to fact-check the details.

Identifying Information

One of the first sections you’re likely to see is a summary of your identification information. It’ll include what you’d expect, like the following:

• Name
• Social Security Number
• Addresses
• Marital status
• Employment information

While this section will be straightforward, you should still pay close attention to it. Errors here are among the most dangerous. You don’t want to have anyone else’s credit activities attributed to your account or vice versa.

Red Flag: The credit bureaus will also usually make a note of any incorrect Social Security Numbers that are being attributed to you. Make sure that these are due to typographical errors and not fraud, but fix them either way.

Credit Summaries

After your identification details, you’ll probably see a section with a title similar to “Credit Summary.” It will be a snapshot of the credit accounts (and some of their high-level details) that have the most impact on your credit score.

It’ll probably sort your accounts into three groups: revolving accounts, installment loans, and mortgages. Revolving credit accounts are credit cards and lines of credit. Installment loans are things like your auto and personal loans.

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Credit Account Details

Next, your credit report will go into more detail and cover things like each account’s payment history, status, limit, and balance. All of the major credit bureaus handle this a little differently, so you may see a variety of names for and approaches to this section. Some common ones include:

• Positive and Negative Accounts: Experian separates accounts into good and bad buckets. The positive section will list ones that are currently up to date. The negative section will show any that you’re behind on, including ones that are a few days late or in collections.
• Open and Closed Accounts: Equifax sometimes uses these categories. For an account to be “closed,” you have to reach out to the lender and make a request. Ignoring it and letting it sit idly won’t do the trick. You probably shouldn’t close any, though, (it can hurt your scores) unless the account carries a fee. 
• Trades or Tradelines: These are just fancy terms for “account.” TransUnion may present this section in this way. It’ll just be one long list of every one of your credit accounts. 

If the payment status of any of your accounts surprises you, fix the problem as soon as possible. Your payment history is one of the most significant factors in your credit score.

Red Flag: Make sure that you recognize all of the accounts and that none you expect are missing. If someone has stolen your identity and opened a credit account in your name, it’ll show up here. If an account is missing that you think would help your score, you should reach out to your creditor to see if they’ll report it.

Public Records

The public records section includes all of the big no-nos that you don’t want on your report. That includes debt settlements, bankruptcies, and judgments won against you by creditors.

Read More: If you’ve recently filed for bankruptcy, it can be hard to get back on your feet. Take a look at our guide for a little help and inspiration: Life After Bankruptcy.

Important/Special Messages

All three credit unions set aside a section to note any unusual circumstances that you may need to know. For example, if they suspect that someone has stolen your identity, that alert will probably go here.

Model Profile

Most credit reports do not contain your credit scores. That said, TransUnion may include some of them, like FICO auto or VantageScore 3.0, in this section if you request it specifically. It’s easier to get a rough estimate of your credit scores from your bank these days, though.

Inquiries

An inquiry occurs whenever someone requests a copy of your credit report. There are two types: soft and hard.

Soft inquiries aren’t a big deal. They happen when you try to pre-qualify for a credit account or when a potential employer or landlord runs a background check. Some soft inquiries are registered when companies pre-qualify you for a credit card offer. They may show up on your credit report, but they don’t affect your credit score.

Hard inquiries occur when a lender officially requests your credit score as part of your application. These are the ones that affect your credit scores. Too many can cost you some points, but they’ll disappear from your report after two years.

You should examine the hard inquiries on your report carefully. If you don’t recognize one, follow up and find out who made the inquiry and why. If you didn’t authorize it (signing a credit application generally authorizes a credit check), you can dispute it and have it removed.

Personal Statements

If you want to make a note on your credit report for lenders or other parties to see, you can request that they show it in this section. For example, you may wish to note that you’re undergoing financial distress and that it’s making it hard for you to make your debt payments.

General Information

After recounting your personal details, your credit report should discuss your rights and privileges as a consumer under the Fair Credit Reporting Act (FCRA). That should include the following:

• Identity Theft: You should also find an explanation of what might signify identity theft on your report and how to address the problem if you encounter it.
• Disputing Details: If you find anything that you think is incorrect on your credit report, you have the right to request a change. It will require an investigation, though, so it will take a while.
• State Laws: Each state has additional rules regarding what rights consumers have and what creditors can do.

If you find an issue on your credit report, consult the general information sections to figure out how you should proceed.

Who Creates Credit Reports?

Credit reports are assembled by the three major credit bureaus: TransUnion, Experian, and Equifax. There are other bureaus, but the lenders you want to borrow from will always pull their data from one or more of these three.

Credit bureaus can only populate their reports with information that creditors share with them, which they do voluntarily.

Not all creditors report to all three credit bureaus. Because of that, and because credit bureaus don’t share information with each other, there may be some discrepancies between your credit reports.

Where to Get Your Credit Reports

It’s a good idea to read each of your credit reports at least once a year. You should make sure everything is accurate to confirm that there are no errors that could harm your credit and that no one is using your identity fraudulently.

You can get a free copy of your credit reports from each of the three major credit bureaus each year. Visit AnnualCreditReport.com to make your request. Until April 2021, they’re allowing people to get one for free each week. For more information, read our complete guide to getting your free credit report.

It’s also helpful to take a look at your credit reports before applying to new credit accounts. You don’t want errors to hold you back from qualifying.

Did you know that only 33% of Americans checked their credit reports each year?

Are you trying to build up credit for the first time? Take a look at our guide on how to build credit.

Credit Report Errors

The Federal Trade Commission estimates that 20% of Americans with a credit record have at least one error on their record^[1]. These errors are on your record because the credit bureau doesn’t know they are mistakes. The only way to remove them is to spot them yourself and file a dispute.

Some credit report errors are simple mistakes, either from the reporting company or the credit bureau. Other mistakes could indicate identity theft. Either type can do serious damage to your credit.

If you see anything on your credit report that looks wrong to you, investigate and seek clarification. If it’s just a mistake, filing a dispute and having the error removed will be enough. Errors can also be caused by identity theft, and if that’s the case you will have to take additional steps to protect yourself.

It’s wise to learn about common credit report errors before reading your credit report.

Don’t Fall for Credit Repair Scams

Now that you know how to read your credit report, you’ll naturally ask what comes next. Specifically, you may be wondering if you should get help from a credit repair company to improve any problem areas you found.

If so, I’d strongly suggest that you don’t bother. Credit repair companies usually offer next to nothing of value and are one of my bigger pet peeves in the financial service industry. Anything they can do, you can do better (and cheaper).

Do you want to protect yourself against the many scam artists out there looking to take advantage of people in tough financial spots? Read our guide: How to Spot Debt Relief and Credit Repair Scams.

The post How to Read a Credit Report: The Ultimate Guide appeared first on FinMasters.

FICO® and VantageScore Credit Score Ranges

Credit scores are provided by two major companies: FICO® and VantageScore. They calculate scores using slightly different formulas and group their scores in slightly different ranges.

Both FICO® and VantageScore divide credit scores into ranges that define general risk brackets. Lenders use these ranges to help them decide what credit terms to offer.

Did you know you have more than two credit scores? In fact, you have over 30 of them. Here’s a list of all types of credit scores you should know, along with their credit score ranges.

Excellent

The credit score range for “exceptional” borrowers is 800 to 850 for FICO®.

For VantageScore, a score of 781 to 850 will put you in the “excellent” credit score range.

Borrowers in this range will have no problem getting approved for loans or credit. You’ll receive the best lending terms offered, including the lowest interest rates and fees. If your credit score is exceptional, lenders roll out the red carpet!

Only 1.2% of Americans have an exceptional credit score of 850.

Very Good

If your FICO® score is between 740 and 799, you fall into the “very good” category.

VantageScore does not have a range with a “very good” designation.

Individuals who fall in this range often qualify for better interest rates on loans and credit cards, and will generally have an easier time with the lending process. 

Good

A score from 670 to 739 falls into FICO’s “good” category.

The VantageScore “good” range is 661 to 780.

If your score is within this range, you are close to the national average (the current FICO® average for Americans is 714). Lenders see a score in this range as an indication of an acceptable borrower and it will qualify you for most loans and credit cards. You may not receive the best available terms, and you’re likely to pay a higher interest rate than borrowers with very good or exceptional credit scores. You may not qualify for highly selective premium credit products.

Fair

FICO® scores that range from 580 to 669 fall into the “fair” range.

The VantageScore “fair” range is 601 to 660.

This range may disqualify borrowers from some loans. Some lenders may class borrowers in this range as subprime. Some lenders may not approve your application at all. If they do approve your application they may offer a higher interest rate than borrowers with better credit would get.

Poor

FICO® doesn’t have a “poor” classification, but VantageScore does. VantageScore rates a credit score between 500 and 600 as poor.

It will be difficult to get credit with a poor credit score. Lenders who do approve you will charge very high interest rates.

Very Poor 

A FICO® score between 300 and 570 is considered “very poor”.

This is often caused by bankruptcy or other major credit problems. Most lenders will not extend credit to applicants with scores in this range. If you’re applying for a credit card, your only option may be a secured credit card where you put down a deposit equal to the amount of the spending limit. Utilities will probably require a deposit.

No Credit

As many as 26 million Americans have no credit score and another 19.4 million have thin credit files.

Having no credit can be even more frustrating than having a low score, especially if you have no debts and your finances are in good order. If you don’t have a credit score, it’s probably because you have a “thin credit file,” which means you don’t have much credit history or activity. If you have no credit information on file or there is not enough information on your credit report to generate a score – you will have no credit score.

Some Lenders Use Their Own Ranges

Many lenders adopt the ranges used by FICO® and VantageScore. Others may develop their own classifications. Major lenders may use different ranges to classify potential borrowers by risk level. Many lenders publish their credit score ranges or provide them on request.

If you’re considering applying for a credit card or a significant loan, find out what score ranges the lenders you’re considering use. Check your score and see where you fit. Don’t just consider the minimum standard for approval. Check the ranges that the lender uses to determine interest rates.

Fitting into a higher range can get you significantly lower interest rates, and that can save you money.

Know Your Credit Score Range

The concept of credit score ranges may seem unfair at first glance.

If your FICO® score is 660 you may wonder why you get offered the same loan terms as a borrower with a score of 590 but less attractive terms than a borrower with a score of 670. Some lenders will adjust terms according to your position within a range, but in many cases, the range defines the terms you are offered, fair or not.

If your score falls at the upper end of a lender’s range, ask whether they will give you a break and put you in the higher range.

They may agree, especially if your financial record is generally good. If they won’t, look into other comparable lenders. You may find one that breaks up their score ranges in a way that’s more favorable to you.

If you don’t find a lender that will fit you in a higher range, consider waiting and trying to improve your credit score. A little time and effort could save you real money, and once you start working on building your score you can keep on building it and move into an even higher range.

It is possible to build better credit. If you understand how credit scores are calculated and take a few simple steps, you can improve your credit score. You can rebuild a damaged credit score or start one if you haven’t got one. You may have to wait a bit for that loan or credit card, but you may be doing yourself a big favor!

The post Credit Score Ranges: What They Mean and Why They Matter appeared first on FinMasters.

Experian BOOST will place all of your on-time payments on your Experian credit record. They won’t report any missed payments. That can help you build a better credit record.

Experian Boost can also report your rent payments if you pay rent with a credit card or through a direct transfer from your bank account.

How Experian BOOST Can Help

Experian BOOST is designed to help the 62 million Americans who have “thin credit files”. Credit bureaus need the information to establish your creditworthiness, and they need payment history to do that.

Experian BOOST Review: The Pros & Cons of Boost

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Experian BOOST gives Experian access to more payment history, which can boost your credit score.

How Boost Affected Me

I signed up for Experian BOOST with the understanding it can only help your credit score, not hurt it.  What I found was that may be true for your score, but that may not be the case when applying for a loan.

Here’s how it shows up on my credit report.

So here’s what happened: I refinanced my mortgage, and my broker said the utilities I had reported on Boost showed up on my credit report as “self-reported debts.”

That created the impression that I had more monthly debt payments than I actually did. Luckily, the amount was too small to affect my debt-to-income ratio seriously. It is something you should be aware of if you’re going to be applying for a mortgage or any other loan where they look at your debt or debt-to-income ratio.

Can Experian BOOST Hurt Your Credit Score?

Late payments usually hurt your credit score, but that isn’t how Experian Boost works.

Experian only considers positive payment history. That means if you missed your utility payment, rent, or cell phone payment, the late payments won’t bring down your credit score.

Using Experian BOOST: 7 Easy Steps

Here’s how it works:

1. Enroll

Go to Experian.com and click on the “Start for free” button. There is no fee for enrolling in Boost.

2. Give Boost Access to your Checking Account

Boost learns how you pay your utility bills by looking for payments you have made to utility companies from your online checking account. You’ll have to give Boost access to your checking account by providing your login credentials.

If your bank requires multi-factor authentication (like a one-time code texted to your phone), you’ll be prompted to enter this code to verify that you want to give Experian access to your checking account.

Banks are very particular about you sharing your log-in credentials. Be prepared to work through this process.  Be careful not to enter wrong information so you don’t accidentally get locked out of your online bank account.

3. Experian BOOST Finds Your Utility Accounts

Experian BOOST will review your checking or credit card account looking for payments to utility companies. Eligible accounts include:

• Cell phone
• Landline
• Internet
• Cable TV
• Satellite TV
• Power/Electricity
• Gas
• Water
• Waste
• Rent

Experian BOOST will automatically detect payments made to these accounts.

4. Select the Accounts You Want Included in Your Credit Report

If Boost finds at least three payments made to a utility account, this account is eligible to be included in your credit report. Boost then presents all eligible accounts to you so you can pick which ones you want to have included in your Experian credit report.

Boost only includes positive payment history in your credit report. It cannot detect any late payments you might have made or payments you might have skipped.

This is an advantage to the consumer but a disadvantage to the lender, who relies on complete and accurate information to make credit risk decisions.  Some lenders may not recognize accounts added by Boost because they consider the information incomplete.

5. Experian BOOST Re-Calculates Your Credit Score.

Credit scoring models are complicated and use a variety of information as part of the score calculation.  Some credit scores do not use utility accounts in their calculations. 

Once your utility accounts are included in your Experian credit report, any credit scoring model that values utility accounts will reflect this information. VantageScore 3 values this information and is the second most popular score after FICO.

All newer versions of these credit scoring models continue to value utility accounts.  This means FICO Score 9 and VantageScore 4 value utility accounts.

Experian BOOST only affects your Experian credit report and credit scores generated by Experian.

6. Experian BOOST Updates Your Score Regularly

Every month Experian BOOST will review your checking account looking for new payment transactions for your utility accounts. It updates your credit report to reflect this information.

7. You Can Delete Accounts

If, for any reason, you no longer want your utility account(s) reported to your credit report, you can delete the account from Boost. Boost will stop searching for the account you delete.

If you no longer want Experian BOOST logging into your online bank account for any reason, you must delete the service from your Experian Profile altogether.

If you change your online bank account log-in credentials, don’t forget to change the same information in Experian BOOST.

Experian BOOST can help you build your credit record with phone and utility payments… and it’s absolutely free!

Try Experian BOOST Now!

Pros & Cons

Experian BOOST can be an effective way to help your credit. That doesn’t mean it’s the right move for everyone.

Pros

• It’s free.
• Adding more positive information to your Experian credit report can have a very positive impact if your credit report has very few accounts.
• Experian claims the average credit score improvement is 14 points. That could make a big difference for some people, especially if you cross over one of the major score thresholds from “poor” to “fair” and from “fair” to “good.”
• If Experian Boost detects rent payments, it will add those to your credit score automatically.
• If you have late payments, it won’t hurt your credit score since Experian doesn’t know about your late payments. Since they won’t be included in your credit report, they can’t affect your credit score.

Cons

• You have to give Experian access to your online checking account.  This is a non-starter for some people who are concerned about the security of their checking accounts.
• You have to pay all of your utility bills from your online checking account.  This is the only way Experian BOOST can scan your checking account to look to payments to utility companies.  This means you can’t use a credit card to pay your bill and earn reward points.
• It only works for people who already have a credit file.
• Because Experian BOOST only reports positive payments, some lenders may not use these accounts when they calculate your credit score.
• Experian BOOST only helps your Experian score.  It won’t help your scores at the two other major credit bureaus, TransUnion and Equifax.

Experian BOOST works best for people with thin credit files. If you have 20 years of payment history, have owned multiple credit cards, and had a car loan and home loan, adding proof of utility payments will not have the impact that it would have for someone with a thin credit file.

Does Experian Boost Work?

Now let’s talk turkey. Does it actually work?  The answer is yes!

But how much does it really help?

It depends on your starting credit score. The average consumer saw their credit score go up 14 points. If your credit is 579 or less, you could see an even bigger increase. Eighty-six percent of people in this range saw an average increase of 21 points.

Considering how easy it is, that’s a significant increase.

Like most credit-building tools, Experian Boost will be most effective if you have a thin credit file. It’s a useful tool for people who don’t have many records in their credit files or those who are just beginning to build credit.

Is Experian BOOST Legal?

You might wonder if all of this is legal. Can Experian expect you to give them access to your bank history so they can see your payment records?

Rest assured that Boost is 100% legal. The service is optional.  You do not have to participate.  As for their access to your records, that’s Experian’s entire business model. They are a consumer reporting agency.  Every time a credit card company or lender has sent Experian information about you, you have given them permission to do so (probably in the fine print when applying for a new credit card or loan, which few of us ever read).

Is Experian BOOST Safe?

Anytime you’re dealing with your finances, you want to take precautions. (Identity theft is real!)

Experian BOOST is safe. The system uses use 256-bit SSL encryption, which is government-level security.

Experian will review your bank records to find qualifying payments made to utility and phone companies. You will have to give Experian access to your account.

They’re limited to read-only access. That means they don’t store your login information and can’t make any changes to your account.

Experian BOOST Support

Experian BOOST is easy to use. Visit Experian.com and click “Sign In” in the upper right corner to log in.

The service is free, but they ask you to upgrade each time. To access your account, just click the option that says “No, Keep My Current Membership.”

Navigating to Experian BOOST is easy. Click the menu button and select “Experian Boost” under the “Reports & Scores” section. If you hit a snag, you can call customer support at 866-617-1894.

It helps to have your Member ID number when you call. You can find it by clicking the menu button and then going to your profile.

If you want to cancel your account, it’s easy to do with the automated phone system.

Experian BOOST can help you build your credit record with phone and utility payments… and it’s absolutely free!

Try Experian BOOST Now!

Other Ways to Add Payments to Your Credit Report

There are several other systems that let you add regular payments to your credit report.

Experian RentBureau adds rent payments to your Experian credit report. It’s free and easy to use. Your landlord will have to be willing to participate.

Rent reporting services like Rent Reporters, Boom, and LevelCredit will report your rent payments to the three credit bureaus. You will have to pay a fee to use these services but your landlord doesn’t have to agree to participate.

eCredable Lift is a service similar to Experian BOOST but run by TransUnion. While Experian BOOST is free there’s a fee to use eCredable Lift. Using both Experian BOOST and eCredable Lift will place your utility payment records on two of your three credit reports.

These services have limitations. The change in your credit score won’t be dramatic, and the payments may not show up on all of your credit reports.

FAQs:

What bills qualify for Experian BOOST?

Here are the bills that qualify for Experian BOOST:
1. utility bills
2. cable bills
3. cell phone payments
4. streaming service payments

How do I add bills to Experian BOOST?

You can add your bills to Experian BOOST by following these three steps:
1. Connect your bank account
2. Experian BOOST automatically finds eligible accounts
3. Pick accounts you want to include in your Experian credit report

How much does Experian BOOST cost?

Experian BOOST is free of charge for everybody who signs up as it is created to help as many people as possible.

How does Experian boost your credit score?

Experian BOOST helps increase your credit score by adding more positive information to your Experian credit report.

Can Experian BOOST hurt your credit?

Using Experian BOOST will never cause your credit score to fall; but, while linked, your score may fall for the typical reasons that credit scores fall, such as missing a payment or making a late payment.

The post Experian BOOST™ Review: The Pros & Cons of Boost (2024) appeared first on FinMasters.

Compare Cards

Best Secured Credit Cards

BEST FOR NO CREDIT

Citi Secured Mastercard

Citi Secured Mastercard is an inexpensive way to build credit, making it the best solution for customers with little or no credit history. Learn more

Fees
$0 annual fee

APR
27.74% (Variable)

Minimum deposit
$200

Convertibility
Yes

Apply Now

BEST FOR BAD CREDIT

OpenSky® Secured Visa® Credit Card

With no credit check required and a high approval rate, the OpenSky® Secured Visa® Credit Card is a top choice for those who are recovering from bankruptcy or have a low credit score. Learn more

Fees
$35 annual fee

APR
25.64% (Variable)

Minimum deposit
$200 (Refundable) 

Convertibility
No

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BEST FOR LOW APR

Applied Bank® Secured Visa® Gold Preferred® Credit Card

The Applied Bank® Secured Visa® Gold Preferred® Credit Card has one of the lowest APRs on the market, even compared to traditional credit cards. Learn more

Fees
$48 annual fee

APR
9.99% (Fixed)

Minimum deposit
$200

Convertibility
No

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BEST FOR LOW DEPOSIT

Capital One Platinum Secured

Capital One’s secured credit card is an excellent choice for those who want to start rebuilding their credit with a flexible security deposit. Learn more

Fees
$0 annual fee

APR
30.49% (Variable)

Minimum deposit
$49, $99 or $200

Convertibility
Yes

Apply Now

BEST NO-FEE CARD

Discover it Secured

With a rewards program that rivals even the best of credit cards and no annual fee, Discover it is a favorite among many cardholders. Learn more

Fees
$0 annual fee

APR
28.24% (Variable)

Minimum deposit
$200

Convertibility
Yes

Apply Now

BEST FOR REWARDS

Capital One Quicksilver Secured Rewards

Quicksilver Secured Rewards from Capital One is our pick for the best secured credit card for rewards. Learn more

Fees
$0 annual fee

APR
30.49% (Variable)

Minimum deposit
$200

Convertibility
Yes

Apply Now

Citi Secured Mastercard

Best for No Credit

Summary: Citi Secured Mastercard is an inexpensive way to build credit, making it the best solution for customers with little or no credit history.

Description: 

The Citi Secured Mastercard is a great starting point for people with limited credit history who want to build credit and eventually switch to a regular credit card. You don’t need a credit history or an excellent score to apply. As long as your credit report doesn’t show a bankruptcy in the last two years, qualifying is easy.

Citi Secured reports to all 3 major credit bureaus and gives you free access to your FICO score online to help you ensure that you’re building a positive credit history. It also has no annual fee, which makes it a low-cost option for people new to credit, like students. 

The downside of this card is the lack of rewards and a high APR. If rewards are important to you, then a card like Discover it is a better option, as long as you’re eligible to qualify. 

Before you prioritize rewards, remember that you will probably have a low credit limit, and you’ll want to keep your balance below 30% of your limit. It may be hard to spend enough to gain significant rewards without stretching your credit utilization rate.

Citi Secured Mastercard is a good stepping stone if you’re new to credit. With responsible use, it helps you build a good credit history and transition to a card with more perks. 

Apply Now

Best Alternative for No Credit:

Chime Credit Builder Card: Chime is another low-cost way to build credit. It has no annual fee, no interest, and it doesn’t require a credit check. You will need to have a Chime spending account to use the card. 

Read our full Chime Credit Builder Card review

OpenSky® Secured Visa® Credit Card

Best for Bad Credit

Summary: With no credit check required and a high approval rate, the OpenSky® Secured Visa® Credit Card is a top choice for those who are recovering from bankruptcy or have a low credit score. 

Description: 

OpenSky believes in giving everyone an opportunity to improve their credit score. Since applicants are not required to undergo a credit check or even have a checking account, it’s easy to get approved for the OpenSky® Secured Visa® Credit Card even if you have a history of bad credit or no credit at all. 

Another perk that makes OpenSky attractive is flexibility: you choose your credit limit by putting down a refundable cash deposit that ranges between $200 and $3,000. The card also boasts a 25.64% variable APR, which is relatively low for a secured credit card. 

Where OpenSky falls short is the $35 annual fee and lack of rewards. However, if rebuilding your credit history is more important to you than a lower fee and rewards, it’s a fair price to pay. Another downside is not having the option to upgrade to an unsecured credit card. When your credit improves and you qualify for a better card, you’ll have to apply for one somewhere else. 

Apply Now

Read our full OpenSky Visa review

Best Alternative for Bad Credit:

Sable ONE Secured Credit Card: Relative newcomer Sable ONE doesn’t require a credit check, has no annual fee, and allows you to qualify for an unsecured card in as little as 4 months. It also has a solid rewards program that includes up to 2% cashback with select merchants like Amazon, Netflix, or Spotify. 

Applied Bank® Secured Visa® Gold Preferred® Credit Card

Best for Low APR

Summary: The Applied Bank® Secured Visa® Gold Preferred® Credit Card has one of the lowest APRs on the market, even compared to traditional credit cards. 

Description: 

Applied Bank’s biggest benefit is its 9.99% fixed APR. But a low APR isn’t really a selling point when it comes to a secured credit card. You may be paying only 9.99% in interest charges, but you’re still paying to borrow your own money. Like we mentioned before, it’s best to avoid paying APR altogether. Pay every bill in full and on time and you’ll never pay interest!

The real benefit of this card is the fact that it doesn’t require a credit check. This feature gives people with a damaged credit history a chance to rebuild their credit. If your spotty credit history is making it challenging for you to get approved for a secured card, Applied Bank is not a bad alternative. 

If you can qualify for a more affordable card, our advice is to skip Applied Bank’s visa. It has no rewards, it’s pricey, and it doesn’t allow you to convert to a regular credit card once you improve your credit history. 

Apply Now

Read our full Applied Bank secured card review

Best Alternative for Low APR:

First Progress Platinum Prestige MasterCard: The First Progress Mastercard has similar features to Applied Bank’s visa. It has a low APR of 15.24% (Variable), a $49 annual fee, and no minimum credit score required for approval. 

Capital One Platinum Secured Credit Card

Best for Low Deposit

Summary: Capital One’s secured credit card is an excellent choice for those who want to start rebuilding their credit with a flexible security deposit. 

Description:

If you’re looking to rebuild credit at a low cost, the Capital One secured card might be your answer. You can get access to a $200 credit limit in return for a refundable security deposit as low as $49. It also has no annual fee, making it a very affordable way to repair your credit history and gain access to the advantages of a credit card. 

Like most secured credit cards, it has a high APR. This means that if you don’t pay off your balance every month, you’ll be hit with a hefty interest charge. It’s best to avoid carrying a balance on any credit card!

If you use your card responsibly, you’ll have a chance to upgrade to a regular credit card and earn back your deposit. 

Overall, the Capital One Platinum card is a solid, low-cost choice, but not everyone can qualify. Applicants without a bank account or a credit history will have a hard time being approved.  

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Read our full Capital One Platinum review

Best Alternative For Low Deposit:

Sable ONE Secured Credit Card: Sable ONE makes our list once again. This time, it’s because it doesn’t require a minimum deposit amount. They also claim you can get back any deposit you put down in as little as 4 months. 

Discover it Secured Credit Card

Best No-Fee Card

Summary: With a rewards program that rivals even the best of credit cards and no annual fee, Discover it is a favorite among many cardholders. 

Description: 

Discover it is kind of like the unicorn of secured credit cards: it’s among the select few that offer rewards and it has no annual fee. You earn 2% cash back on the first $1000 you spend at restaurants and gas stations each quarter, and unlimited 1% cashback on all other purchases. They’ll even throw in a bonus and double your cash-back rewards during your first year. 

Besides great rewards, the card comes with no annual fee and gives you free FICO score access each month so you can monitor your credit. As your credit score improves, you can convert to an unsecured credit card. 

One of the few downsides of Discover it is its high variable APR. A high interest rate is common among secured cards. As long as you pay your bill on time, that’s not something you need to worry about. 

As far as unsecured credit cards go, Discover it is hands down one of the best ones on the market. It has a unique offering that is hard to come by – you can earn cash while you re-build your credit and no annual fee. 

Remember that your credit limit will be low and it may be difficult to earn enough to make those rewards matter without pushing your credit utilization into dangerous territory. Always put your credit health ahead of rewards!

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Capital One Quicksilver Secured Rewards

Best for Rewards

Summary: Quicksilver Secured Rewards from Capital One is our pick for the best secured credit card for rewards. With no annual fee, it’s also an economical pick, but you’ll need at least fair credit. 

Description: 

Quicksilver Secured Rewards lets you earn a generous 1.5% cashback on all your purchases and 5% cash back on hotels and rental cars booked through Capital One Travel. Unlike the Discover it card, rewards aren’t capped, which means your rewards earnings don’t have a fixed limit. 

Don’t get carried away with those unlimited rewards, though. You will still want to keep your spending low enough to keep that balance below 30% of your credit limit. Unless you make a very large deposit, that limit is likely to be low. That will make it hard to spend enough to get meaningful rewards and still maintain good credit utilization. Still, every little bit counts, and with no annual fee, there’s not much to lose.  

You don’t want to be carrying a month-to-month balance on this card, as the APR is very high. If you will pay your balance in full and on time every month and you’d like to earn cashback while building good credit, Quicksilver is an excellent choice for you. 

Not everyone can qualify for this card. You can at least have a fair credit score to be eligible. Different issuers may define “fair credit” differently, but if your credit score is below 580 approval may be difficult.

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Best Alternative for Rewards:

Bank of America Customized Cash Rewards Secured: This secured card from Bank of America has no annual fee and offers worthwhile rewards: 3% cash back in the category of your choice, 2% at grocery stores capped at $2,500, and 1% cashback on all other purchases. 

How to Choose a Secured Card

There are countless secured credit cards out there. How do you know which one is the right choice for you? 

The best card for you is the one that suits your needs and priorities. Here are a few questions that will help you narrow down your choices to the one that’s right for you. 

Does it report to all 3 credit bureaus? 

To improve your credit score, your credit card activity (i.e., making payments on time) has to be reported to a credit bureau. Make sure you choose a card that reports your activity to all 3 major credit bureaus – Equifax, TransUnion, and Experian. 

How much can you afford for the initial deposit? 

Many secured credit cards require you to put at least $200 down to “fund” your new card. This becomes your new limit. Ideally, it’s better to get a higher limit to reduce your credit utilization ratio and improve your credit score. 

If you can’t afford a larger deposit you may have to keep your spending very low to keep your credit utilization down.

If you can’t afford to put down the minimum amount, consider a card with a smaller security deposit, like the Capital One Platinum Secured Credit Card. 

Does it give you an option to upgrade? 

Your ultimate goal with a secured credit card is to improve your credit enough to eventually transition to a regular credit card.  

Some card issuers periodically review your account and upgrade you to a regular credit card if your credit has improved enough. Others don’t offer a path to upgrade, which means you’ll have to re-apply for an “unsecured” card elsewhere. 

If you’d like the option to upgrade, look for a convertible card. 

Is the annual fee worth it? 

Some secured credit cards charge high annual fees or even monthly maintenance fees. It’s best to avoid these cards. There are plenty of secured cards out there that don’t charge any fees at all. 

If you’re going to pay a fee, make sure you’re getting something in exchange. For example, some cards designed for people with bad credit will charge an annual fee. If this is the only way to qualify for a secured card, paying an annual fee is worth it as long as it’s not exorbitant. 

How important are rewards to you?

Rewards are a nice perk, but they shouldn’t be too high on your priority list when choosing a secured credit card. If your card has a lower limit, cash back rewards are not exactly worth it. 

Take the QuickSilver Rewards card for example. You’ll need to spend at least $220 each month to offset your yearly fee and break even. But that means your limit (aka your deposit) has to be over $700 to keep your credit utilization ratio 30% or lower. 

Your priority when choosing a secured credit card should be improving your credit score by using it responsibly. If spending enough to earn points affects your credit score, rewards are not worth it. 

Choose your card carefully and prioritize what matters most to you. Remember, your primary focus should be to build up a good credit history. Use your card responsibly and keep your credit utilization to a minimum. 

With responsible use, a good secured credit card will eventually help you graduate to a regular credit card.

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