Subprime Credit?

What is a “Subprime” credit level?  Subprime credit means that lenders might consider you a credit risk.  Not only will they be more likely to reject your credit application, but if and when they do issue you credit, you’ll pay a much higher rate to offset the “risk.”  But did you know that not all subprime credit is treated exactly the same way?

Here’s a little more information on the various credit levels and how each one can affect your interest rates on any type of credit card or loan that you take out.

Basically, there are five credit score levels, as outlined by the Consumer Financial Protection Bureau:

  • Super-prime (720 and above)
  • Prime (660 – 720)
  • Near-prime (580 – 619)
  • Subprime (580 – 619)
  • Deep subprime (580 and below)

These credit ratings comprise an important part of each borrower’s risk profile, which is what lenders use when they’re deciding whether to approve your application, and if so, where to set your interest rates.

It’s worth noting lenders may use slightly different scales whether they work off the FICO scoring system, the VantageScore model, or a proprietary set of ranges. The VantageScore typically classifies borrowers in these ranges:

  • Super-prime (781 – 850)
  • Prime (661 – 780)
  • Near prime (601 – 660)
  • Subprime (300 – 600)

How common is it for a borrower to have a risky profile based on their credit standing?  About one in five Americans has a subprime rating to some degree, with six percent of U.S. adults falling within the “subprime” category and 13 percent of American adults having “deep subprime” credit.

What are the consequences of having Subprime credit?  Your credit standing is one major factor lenders consider when evaluating your application, whether you’re trying to get a credit card, finance a car, take out a personal loan or finance a home.

Here’s a sample break down of auto loan interest rates per category based on Experian data for early 2020 and the VantageScore scale:

  • Super-prime (781 – 850): 3.65 percent
  • Prime (661 – 780): 4.68 percent
  • Non-prime (601 – 660): 7.65 percent
  • Subprime (501 – 600): 11.92 percent
  • Deep subprime (501 – 600): 14.39 percent

As you can see, borrowers with deep subprime credit can expect to pay an interest rate nearly three times higher than those considered prime. Even a few percentage points of difference can add up to hundreds or thousands of extra dollars over the lifetime of a loan or credit card.

Finally, subprime mortgages can carry interest rates as high as eight to 10 percent, and furthermore may require the borrower to put down a higher down payment between 25 and 35 percent to secure funding. Over the course of a 15- or 30-year housing loan, owning a home can become significantly more expensive for borrowers with poor credit.

As you can see, deep subprime and subprime credit makes it harder to get credit and much more costly when you do get credit.  So, do anything you can do to strengthen your credit history before applying.  This can help to smooth out the process and keep a little more money in your pocket.

New Year / Fresh Start

There is perhaps no better time than the start of a new year to get a fresh start on your finances!  From your credit score to your credit cards to your retirement plan, now is the time to sit down, take stock of where you are, and make a plan to get to where you want to be by the end of 2021.
Not sure what your credit score is?  If you are not sure what your credit score is, then you know exactly where to start, don’t you?  You can get your credit score, and in most cases, your credit report for free online in any one of a dozen or more places.  From your bank to your credit cards, nearly every financial institution is offering free access these day.
Once you have that information in hand, sit down and review it completely.  Are all of the accounts listed on the report yours?  What is your credit score?  What can you do to improve your score?  Make a list. Then, move on to the next step.
Take a look at your credit cards.  Are the balances too high?  Experts recommend that you keep the balances on your credit cards below 33% in order to maintain your credit score.  If your credit card balances are above this threshold, paying them down should be a top priority.  Once you’ve looked at your balances, then it’s time to look at your interest rates.  Are you paying too much interest each month?  Perhaps your credit has improved over the past year, and you’ve gone from bad credit to fair credit, or fair to good.  If that’s the case, there may be better options than your current credit card providers, enabling you to save money on interest.  You may even qualify for a balance transfer card with a 0% introductory rate.  But you will never know unless you compare those credit cards to others that are out there.

Finally, take a look at your budget.  Where can you cut expenses?  Where can you save money?  How much more could you put into savings each week or month?  Even though 2020 was a really difficult year for all of us, getting a fresh start in 2021 may be easier than you think.  You just have to start somewhere.  Are you ready for a fresh start?

Repairing Your Credit Score

As if 2020 wasn’t bad enough already, what with a pandemic, lockdowns, and an economic downturn unlike any other, millions of people also lost their jobs… and that will leave millions of us with blemishes on our credit reports that can and, in many cases will, take years to clean up.  We all know what the effect of just one missed payment can be, but what about months of missed payments?  What about repossessions, evictions, and the inevitable court cases that are sure to arise?  Is there anything that can be done to salvage some of your credit score?

Although there really is no good answer to these questions, there are some things that you can do to mitigate some of the damage:

  • Review your Credit Report:  Even though it is not a particularly pleasant activity in light of recent events, sit down and go through every single item on your credit report.  Make a list of the changes (favorable and unfavorable) over the past few months, and then, address each of the unfavorable items individually.  What options are available to you for correction of each and every item?
  • Put a Statement in your Credit File:  Most credit bureaus have the option for you to put some notes, explanations, letters, etc., into your file.  Take advantage of those options!  While it may not improve your score, it will help future lenders, employers, etc., to see exactly what caused the problems that are in your credit file.  And, while it might not seem important to you now, having a note about your job loss due to the pandemic will definitely help to explain those late charges on your credit cards later on.
  • Find and Dispute Errors:  Errors in your credit file are far more common than most people realize and taking the time to review and remove negative, inaccurate information is vital to maintaining your credit file.  Common problems include incorrect name, address, phone numbers, accounts belonging to others, identity theft, data errors, and more.  Dispute each and every single issue that you find – identify, clarify, and submit backup documentation to substiantiate your claim, then as that it be corrected or removed.  It may take time, but it can and should be done!
  • Watch your Credit Score as closely as you do your bank account:  With so many free credit monitoring services available, there is really no excuse for not knowing what your score is and exactly what is impacting your score at any given time.
  • Make your payments on time:  Once you get past your problems and get your income back on track, get your payments back on track as well.  Many people figure that there’s no way they’ll ever catch up or repair delinquencies, so they just ignore them without ever making the effort to get back on track.  That’s the wrong approach – contact your creditors and work out a plan to get each and every account up to date.  You might even be able to negotiate the removal of those late payment notifications in return for catching up, but first you have to try.
  • Get your Credit Utilization Score down as soon as possible:  Since this one thing makes up a huge part of your credit score, getting it down below 30% is vital to improving your score.  (Get it under 7% and that puts you in league with those who have “very good” credit.  1%-3% puts you in league with those who have “exceptional” credit.)
  • Increase your Credit Limit:  Although this is not always the best route to take, opening a new credit card can decrease your credit utilization, and therefore, increase your credit score.  Just be sure that you don’t make the mistake of overusing your new credit card and/or applying for too many new cards!

Remember, you’re not alone in this situation.  Millions of people around the world have been negatively impacted by recent events, so your hard work to repair your credit will undoubtedly pay off in the future when lenders have to decide who among us is worthy of new credit.

Personal Loan Options for People With Bad Credit Scores

With the financial crisis created by the pandemic, many people are finding themselves in need of an influx of cash to get back on their feet. If your credit score is less than perfect, it may be harder to get that loan.  However, it is not impossible.  You have options.

Unsecured vs. Secured Loans

All loans fall into one of two types, regardless of what the loan is for.  The first type, a secured loan, is a loan that uses some type of physical property as collateral.  The most common types of collateral are homes, land and vehicles.  Your credit history matters, but you’re more likely to get approved for this type of loan because there is something of value securing this type of loan.  Should you default on a secured loan, the lender would simply take the collateral property and sell it to recoup their loss.

The second type, the unsecured loan, is harder (but not impossible) for those of us with less than perfect credit to secure.  Should you default on an unsecured loan, the lender will not have anything to repossess to repay the loan. So, if you have poor credit, the lender will be review your application carefully before extending credit.

Unsecured Loans with Poor Credit

Obviously, when you search online, you’ll find many options for different credit levels.  Even if your credit is poor, lenders are still competing for your business – the terms will be different and the interest higher, but there are options. Just be careful, not every loan that you find online is as good as the ad says it is.  Read the fine print.  Verify that the lender actually exists.  Do they have a phone number?  Physical address?  What are the reviews?  Check with the Better Business Bureau before you sign anything.

Carefully Review the Fine Print

Remember, the lender views you as a greater risk if the loan application if for an unsecured loan, so they may be adding other details to the loan to benefit them. The biggest thing that lenders will do to protect them when lending you money if you have bad credit is to raise the interest rate, so be sure that you compare rates before you finalize the loan.  And, most importantly, never get a loan that you’re not going to be able to pay back!  Defaulting on a loan will make your already bad credit score get worse. If you can pay it back and are responsible with your finances going forward, then consider your options and pick the type of loan that works for you.

Best Ways To Improve Your Credit Score

When you look at improving your credit score, you have to look at the big picture.  If you’ve had a bankruptcy, it can stay on your credit report for 10 years, even though your credit history typically only covers the past seven years.

While there are plenty of law firms and companies out there that claim to be able to repair your credit report in an instant, many of them are scams, and can actually hurt your credit.  Simply put, the best way to clean up your credit report is to work on it yourself.  There is no “magic” fix – it takes time and effort, but in the end, it’s worth it.

Here are a few simple steps to get you started, cut remember, this is not an easy, quick fix.  It’s more of a starting point to put yourself on the road to managing your credit successfully.

Step 1. Make All of Your Payments On Time & In Full

The best possible way to offset your bad credit, and the best and first step toward repairing your credit, is making all of your payments on time, every time, and to pay them in full every month. Not only will this first step keep you from falling into the vicious cycle of owing interest and penalties, it will also help you climb back out of debt.

Step 2. Reduce Your Debt

Look for ways to reduce your debt, whether it’s just paying things off slowly, enrolling in a debt counseling program, or joining a payment plan with creditors to whom you are the most in debt. Don’t allow your debt to continue climbing.  Instead, actively take steps to clear your debt, and you’ll be home free sooner than you think.

Step 3. Understand Your Limits

This is the third most important step to take throughout your financial life. If a credit card, or bill sounds too high for you, or out of your league, don’t do it!  Your two best friends here are your basic math skills and your instincts. If you foresee a problem in the future, there’s a good chance there will be. Only purchase things you can afford, –it sounds simple, but it’s harder than most people think.

Step 4. Periodically monitor your credit report

Negative information about late or missed payments can lower your overall credit score. Monitor your credit report for incorrect information and dispute it when necessary.

3 Things You May Not Know About Your Credit

How much do you know about your credit score?  If you’re like many people, you know you have a credit score, and you may even know what it is, but that’s about all you know!  Even worse, many people have no idea WHY your credit score is even important in the first place.

If you’re not sure why you need to pay attention to your credit report and your credit scores, then you definitely need to start working on it.  Because your credit score is more than just your financial history… in many instances, your credit score can actually change the course of your life!  The question is, is your credit score changing your life for the better or for the worse?

Here are three things you need to understand about your credit score:

  1. Bad credit is expensive!   Your credit score can cost you hundreds of thousands of dollars in extra fees when it’s less than excellent.  There’s an old saying, “Buy with cash, pay once; buy with credit, pay three times.”  Sadly, it’s the truth, as it refers to interest, or the cost of borrowing money.  Not to mention the many other potential costs to bad credit, most of which lead to hundreds and even thousands of dollars spent on higher premiums for your auto and home insurance!
  2. Background checks aren’t all that potential employers pull!  Your credit score can affect your ability to get a job.  That’s right: your estimated ability to repay borrowed money (i.e., debt) also can be used to assess your suitability certain kinds of careers.   Although legislation has been introduced to limit the access of prospective employers to your credit score, these are just limitations, not universal exclusions – and I promise you, many employers these days do check your credit score.
  3. Knowledge is power!  Your credit score is a big indicator of your financial health and, as much as you’d like to, ignoring a low score won’t make it go away.  Instead, it’s time to be proactive and start working to raise or restore your credit score. You just have to take the first step and then put your mind to it.

Remember, your credit score is somebody else’s business, and not just your own.  Your credit score is big business these days.  Not only is your score at the mercy of three different privately owned credit bureaus, whose entire business is rating you and your creditworthiness, but they actually make millions of dollars every year doing it!

These “big three” national credit bureaus, Experian, Equifax, and TransUnion, not only track your score, they CREATE your credit score. And this credit – or FICO – score that they assign you ranges anywhere from 300 on the low side to a perfect 850 on the high side.  Which side do you want to be on?

Clawing Your Way Back Up

You know, when your credit score is really bad, it can seem like there is no point whatsoever in trying to improve it.  You know what I’m talking about, how many times have you or someone you know made the simple statement, “My credit score is so bad, I’ll never be able to buy a house (or a car, or anything else).”   The truth is, it can be daunting when you think about clawing your way back up to a decent credit score, especially if you’re starting at the bottom of the credit pit.  And sadly, that alone is enough justification for some people to just give up, accept that they will have damaged credit forever, and never do anything to change it.  But it can be done.

That’s right, no matter where you are on the credit scale, you can claw your way back up to a good or even an excellent credit score, as long as you are determined to work on it.  Note that I said determined and work.  Regardless of what anyone tells you, improving your credit score will take a lot of determination, a lot of work, and a certain amount of time.  But, if you never start the journey, then you will never get to the destination that you have in mind.

So where do you start?

First and perhaps foremost, you need to take the time to review your credit report, find out what your credit score is, and then make a plan for improving it.  And, by simply using the  technology at your fingertips, it’s really easy to get your credit score and your credit report at no cost, sign up for credit monitoring and protection, and keep a close eye on your progress.  (Some scores are updated weekly, some monthly, and a few quarterly.)  Once you know your credit score, depending on what range you fall into, you can start improving it by opening new accounts to increase available credit, paying down debts to get below the 30% credit utilization, or disputing things that are wrong on your credit report.

Now, if your credit score is really low, your choices will be limited when it comes to signing up for new (or even any) accounts.  But, keep in mind that there are a lot of other people who are in the same boat that you’re in, so there are options to start rebuilding your credit.  The most popular options are secured credit cards and catalog shopping cards, and there are companies that will work with you to make sure that you get the credit you need to start clawing your way back up the ladder… but, just like I mentioned in the beginning, if you don’t start, you’ll never get there.

Here are a couple of options to start rebuilding your credit today:

 

 

Is Good Credit Worth the Effort?

One of the biggest hurdles that you’ll ever face once you’ve had a credit setback is not what you think it might be… It’s not that no one will give you credit because you have bad credit.  It’s not that you have to find other ways to pay for things because you can’t get credit.  It’s not even that your credit is keeping you from getting the job, the car, or the home that you want.  Those things might be a problem, but they are not the biggest problem.

The biggest problem that you’ll face when your credit score hits rock bottom is convincing yourself that it is worth the time and the effort that it takes to recover from bad credit.  That’s right, the biggest hurdle you’ll face is the one within.  You see, when your credit score really tanks, you start to think that you will never be able to get it back up to where you’ll need it to be if you ever want to be able to buy another car, get a different apartment, buy a house, or even change jobs because your credit is so low.

And, standing at the bottom looking up, it really does seem like an impossible task.  So, you start to wonder, “Why bother?  I’ll never get my credit score back on track.  Never be able to get another credit card.  Never be able to buy a new car at a decent interest rate.  Never get that house.  So why even bother trying?”   Sound familiar?  I’d almost be that everyone who has ever had their credit score bottom out has felt that way at one time or another.  And they are right to an extent – it would be far easier to simply give up and accept that your credit is bad and that it is going to take some time and effort to rebuild your score.  But has the fact that something is going to take a little time and effort ever really stopped anyone who has ever really wanted something?  No, it hasn’t.  And that’s why you cannot give up on your credit score.

Ask yourself these questions:

  • How bad do you want that new car?
  • How bad do you want that house?
  • How bad do you want that dream job?

And now, ask yourself this, how hard are you willing to work for it?

Just like anything else that you really want, rebuilding your credit takes work.  Sometimes it will be hard work, other times not so hard.  But you will find that, if you start right now, TODAY, and you work as diligently at improving your credit score as you do at every other thing in your life that really means something to you, you will get there.

You will rebuild your credit score.  But you cannot do that unless you actually begin.  Now.  Today.

Christmas Shopping? Already?

This past weekend, I happened to be out and about shopping, running errands, and visiting.  It was unseasonably cool, with cloudy skies and a little rain, and the unmistakable feeling of Autumn was just there.  I’m not sure if it’s the total eclipse that is coming to our area within the next couple weeks, or what, but it’s there.  Of course, that automatically set me to thinking about the upcoming holidays, how much Christmas costs each year, and just how I plan to pay for all those gifts!

Fortunately, I signed up for a Fingerhut account a few years ago, so even if money is tight, I can still get all of my Christmas shopping done without ever leaving the house!  I just log onto my account, browse the hundreds of thousands of name brand, competitively priced gifts, place my order, and in no time at all, those boxes start showing up on my doorstep.  What could be easier?

And you know what’s even better?  There’s no ugly surprise come January with Fingerhut because I know when I place the order exactly how much my monthly payments will be!  That’s right, every item shows both the full price AND the monthly payment amount, so you know if you can afford it or not before you place your order – and let me tell you, if money is tight, knowing that ahead of time can make all the difference in the world when it comes time to pay the bill.

What about you?  Have you started planning this year’s Christmas budget?  Maybe you should consider a Fingerhut Credit Account issued by WebBank !

Worried you might not qualify? Fingerhut is known for working with those of us whose credit is less than perfect! Not only do most people qualify for Fingerhut, but opening a Fingerhut account will usually help you to improve your credit score (as long as you use your account responsibly, of course).

So go ahead, what are you waiting for? Get started on your Christmas shopping today!

 

Could Bad Credit Wreck Your Lovelife?

Although most people don’t really think much about a potential partner’s credit score when they’ve just met someone, once the relationship begins to develop into something more long term, having credit scores that are polar opposites can cause problems when finances and households are combined.

In fact, about 40% of the population indicate they might just cool things off in a hurry if a partner has a bad credit score… sadly, unless you’ve had a serious financial setback such as losing your job, getting a divorce, or having a catastrophic illness, having a poor credit history is often viewed as an indicator of your overall level of financial maturity.  Not paying your bills on time (or at all), running up the balances on credit cards, and even letting Mom & Dad pay for your car insurance or your cellphone are all indicators of irresponsible use of your money, and sadly, may appear to be a sign of how you’ll handle combined assets in a long term relationship.  (Likewise, if you’re the one with good credit, and the person that you’re seriously involved with has a poor credit score, wouldn’t you be concerned if finances were to be combined in the future?)

So, what do you do?  Even though you don’t want to know (or share) your financial details on the first date, it is a good idea to talk about your finances early on, before you start planning the wedding!  And if your credit is bad (or your partner’s credit is bad)?  The first thing that you need to do is to sit down and talk about it, openly and honestly.  Then, make a plan together to improve your (or his/her) credit score – and stick to it.

Study your credit reports, fix any errors, and start working on those areas where you’ll see the most improvement:  Payment History and Available Credit!

Not only can a poor credit score affect your relationship, but a poor credit score can also lower your partner’s/spouse’s credit score, and make it more difficult to buy a home or car, and seriously limit your job prospects.