Bad Credit: Improving Your Credit Score Through Secured Credit Cards

February 18th, 2011

Secured Credit Card For many people who’ve experienced financial issue getting credit in order to build your credit back up can become a huge issue. If you’re in this situation, don’t worry, there are still a few good options for you. One of these options that we recommend for fixing your bad credit is opening up secured credit card accounts.

What exactly is a secured credit card? A secured credit card is just like a regular credit card, but with one major difference. Your credit limit is secured with a cash deposit that the company will use if you default on your payments. It is important to understand that having a secured credit card does not mean you don’t have to pay your bill every month. These are not pre-paid debit cards where you spend the money that is in the account. They act exactly like regular credit cards where you are charged interest on your balance and late fees if you don’t make your payments every month!

Now, this might seem like a bad deal to the consumer, however, in order to help you build a good credit score your debtor needs to make sure they are covered in case history repeats itself. Here’s a look at exactly how they work:

You choose a credit limit and make a deposit to secure that credit limit.
The credit card company will issue you a credit card with that pre-set credit limit.
You make purchases and payments just like you would with a regular card.
After you have built a good credit history, you can request that card be converted to an unsecured card and to have your deposit refunded.

Also, if you decide that you do not wish to have that credit card anymore and close the account, the card company will refund your deposit, after any balance owing has been paid of course.

Why should you get a secured card?

There are two main reasons: First, if you don’t qualify for an unsecured card, they are fantastic ways to build your credit score… as long as you get the right card. The second reason you should get a secured credit card is that there are a lot of businesses that will not let you use their services if you do not have a credit card. Most car rental companies, for example, will not rent a car to you if you do not have a major credit card. For them, the fact that you have a credit card means that you are less of a risk when it comes to letting you loose in their car.

A few words about using your card…

There’s more to credit than just having a credit card. In fact, in order to build your credit, you will need to have between three and five credit cards. You’ll also need to make sure your balance never goes over 30% of your credit limit, even if you pay off the entire balance every month. Using just 30% of your credit limit shows the banks that you are responsible with your credit and are able to live within your means.

If secured credit cards are your best option financially, here are three that we recommend to help you build your credit fast:

PUBLIC SAVINGS BANK SECURED VISA CARD

Builds credit history – reports to all 3 major credit bureaus
0% APR on all purchases for the first 6 months
No annual fees or monthly maintenance fees
No credit check
No checking account required
Your credit is not a factor!
Choose your initial credit limit from $300-$2000
Lifetime credit lines up to $5,000
Free fraud protection against unauthorized use
Use the card everywhere you see the Visa logo

Apply Now!

ORCHARD BANK SECURED VISA CARD

Reports to 3 major credit bureaus monthly providing you the opportunity to rebuild your credit score!
Acceptance at millions of locations worldwide, including website purchases and reservations
Your account information is updated and at your fingertips 24/7 so you can manage it your way
Email and text messages to remind you of your upcoming payment due date with online enrollment
On-call customer service representatives to assist you with questions or concerns

Apply Now!

ORCHARD BANK SECURED MASTERCARD

An excellent credit card for rebuilding credit scores; reports to 3 major credit bureaus monthly!
Acceptance at millions of locations worldwide, including website purchases and reservations
Your account information is updated and at your fingertips 24/7 so you can manage it your way
Email and text messages to remind you of your upcoming payment due date with online enrollment
On-call customer service representatives to assist you with questions or concerns

Apply Now!

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Bad Credit: The Truth About Rent-to-Own Stores

February 9th, 2011

Rent to own store It can seem so easy – get a 250GB Compaq laptop, a 42-inch JVC 1080p LCD flat panel TV and two HP wireless TV connect adapters for only $129.99 per month! How about a full 15-piece living room and dining set for only $119.99 per month? You could get a sofa, loveseat, coffee table, two end tables, a matching rug, a dining room table and six chairs. Best of all, there are no credit checks and they’ll even throw in free delivery and set up!

There are ads like these every week in your Sunday paper. The rent-to-own industry has grown into a multi-billion dollar industry since its start in the 1960s. Targeting low-income consumers, rent-to-own stores make it possible to have the nice things that other people have, without the credit restrictions. If you don’t have a good credit rating, where else are you going to be able to get that big screen high definition TV for your Superbowl party?

The problem is that rent-to-own stores take advantage of the current credit climate and charge the equivalent of 80% to 160% interest rates per year! In the example above, the laptop, TV and HP wireless TV connect would cost me $1949.99 to purchase from my local rent-to-own store. However, if you did not have two grand to spend right now, but you wanted the TV for the Superbowl, you could pay them $129.99 for 24 months and own it that way.

Well, let’s do the math shall we? $129.99 for 24 months equals a total price of $3119.76. That is an interest rate of 80% per year!

Now, that is at the store’s advertised prices. They are the ones that said the equipment was worth $1949.99. So, looking at their specifications, we did a little online comparison-shopping at Amazon.

An equivalent 40″ Philips 1080p LCD flat panel TV at Amazon is $672.71 plus $31.99 shipping.

The HP Wireless TV Connect is $152.86 with free shipping

The Compaq Presario CQ61-420US 15.6-Inch Laptop (which has similar specifications to the one advertised at Aaron’s) is $549.95 with $8.99 shipping.

GRAND TOTAL: $1,375.52 plus shipping.

So the rent-to-own store is charging $574.47 more than you would pay on Amazon. When you add that overcharge into the equation, you get an equivalent interest rate of 113.4% per year!

Right now, the average consumer credit card interest rate in the USA is 15.32% annually. If you were to make that purchase on a credit card it would cost you $67 per month to pay off the balance in two years. That is a total charge of $1608, of which only $233 is interest. That is a total cost of ownership that is almost $350 cheaper than the Aaron’s “Every Day Low Price” of $1949.99!

Unfortunately, the exorbitant cost of ownership is only one of the problems with rent-to-own stores. These stores do nothing to build credit. As you are not technically buying from them, they are not technically extending credit to you. Therefore, there are no reports of your good payment history to the credit bureaus and your credit score will not improve.

Another problem is that it does not matter how many payments you have made, you don’t own the items until you complete the entire term of the lease. So, lets say you have made 20 payments at $129.99 and you miss a payment. As you don’t own the items, the rent-to-own companies have every right to ask for them back. It does not matter to them that you have paid $2599.80 for items you could have purchased for $1375. If you stop paying, they will come and take it all away. In fact, only 25% of people that “purchase” from a rent-to-own store actually end up owning the things they buy. That means 75% of their customers make monthly payments on items and then end up giving them back. What does the store do with the stuff they get back? They “rent” it to the next customer!

That’s right! If you think you are going to get a brand new TV or washing machine, think again. With a 75% return rate, the chances are incredibly high that the products you get are used. Because you are renting these items, the companies do not have to tell you how many times these items have been rented before. The TV you get could have had two previous “owners” and the store might have already received over $1,600 for the product. Then they turn around and rent it to you for another $3,400 over two years and, if you complete the lease and actually end up owning it, they have received over $5,000 for something that you could have purchased for as little as $1375!

The profits to be made in this business are astronomical… and these companies love the current credit scoring system. Over 25% of Americans have a credit score of less than 600 and would not be able to get a credit card to buy the things they want. As long as that situation continues to exist, these companies will have a dedicated market. So, don’t fall victim to the rent-to-own scam and start building a great credit score today.

Tags: bad credit, build credit, loans for bad credit, personal finance

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Bad Credit: 5 Things You Can Do Right Now To Start Fixing Your Credit

February 1st, 2011

Erase Bad Credit We live in a credit-driven society. You need credit for just about everything from buying a house to even getting a job. With so much importance put on using credit as currency, it’s really no surprise that so many Americans are swimming in debt. There are 22 different criteria for determining credit score, but unfortunately, the only ones who know the actual formulas are the credit bureaus themselves.With so little information on how to rebuild credit, people often make common mistakes that seem like the right choice, but in the end actually hurt your credit score even more.

If you’re in a situation where you need or would like to increase your credit score, you’ll want to try the following five actions you can take right now to get you started on the right path. Prior to doing any of these steps, however, you need to make sure you know where you stand. Odds are you wouldn’t build a house without a blueprint. In the same vein, you wouldn’t want to try to make changes to your credit if you don’t know exactly what needs fixing. Therefore, before starting these steps you’ll want to get your credit report.

Quick Fix #1: Check for Errors
One of the most common sources of a bad credit score can be attributed to reporting errors. The first thing to check, after any obvious errors, is to make sure your credit limits are being reported correctly. Your credit score is affected by your utilization rate, which is based on the percentage of your credit limit you use each month. If your credit limit is not being reported correctly, your utilization rate will be off and can significantly harm your score.

The other main error to check for is duplicated notices on a single collection account reported as active. Often a collection account will be transferred to more than one collection agency to be handled. There’s no real issue with this fact, and all of the collection agencies might be listed on your credit report. That’s normal, and all but the agency currently trying to collect the debt should be listed as transferred. But if more than one collection agency is reporting the collection account to the credit bureaus as active, you have a problem. If this happens, the one collection account is reported as two separate accounts and therefore contributes to a lower score.

Quick Fix #2: Start Reducing Credit Card Debt
This fix should seem like a no brainer, but it’s often overlooked because it’s never really explained why the amount of your credit card debt is so significant. We like to call this tip the 30/30 rule. 30 percent of your credit score is based on your outstanding debt, and if your credit balance is more than 30 percent of your credit limit, your score is going to drop. If you’ve racked up over 30 percent of your limit in debt and you’re only paying the minimum monthly payment each month, you’re score is going to drop – regardless of how “on time” you were each month. With this information in mind, it’s imperative to reduce your credit card debt as much as possible to maintain the 30/30 rule.

Quick Fix #3: No Credit = Bad Credit
Credit scores are created based on information from your credit history. If don’t have any credit history, there’s nothing to base your score off of. This isn’t a case of being innocent before proven guilty. When it comes to lending money, there aren’t many resources that are going to hand over a wad of cash if they don’t know whether you are a good investment or not. Think of it this way: Let’s say you needed heart surgery, and you met a guy who said he was the best heart surgeon in the world. He might be the best heart surgeon in the world, but if he had no credentials and no references, there’s no way you’d ever let him open up your chest. Likewise, you’d never let a guy who lost his medical license open up your chest.

The credit scoring bureaus think of you in the same terms. If you don’t have credentials, they consider you high risk. You have to give them information by which to judge you. To be sure you’re giving them enough information to properly judge your risk, you should have three to five credit cards and an installment loan.

Quick Fix #4: Authorized Users
If you’re in a situation where you either don’t have a lot of credit, or have fairly bad credit, you may want to explore getting added as an authorized user. As an authorized user, you get added to a relative’s (preferably one with the same address) credit account. This allows you to piggy-back on their good credit standing and reap the benefits. This only works, however, if the credit card company reports your status as an authorized user to the credit bureaus and if the outstanding debt on the card never exceeds 30 percent of the credit limit. Keep in mind, that while this is a great way to improve your score, if the account falls into poor standing your score will also be affected negatively.

Quick Fix #5: Use Credit!
It’s a natural reaction for someone to want to steer clear from something that has caused them harm in the past. In fact, it seems to make sense rationally that if you are having credit issues, you probably wouldn’t want to keep using credit. Unfortunately, this way of thinking couldn’t be further from the truth. For more information on why this is so important, check out the free ebook Credit After Bankruptcy & Foreclosure. You may not be experiencing these particular financial crises; however, the information is still valid for anyone looking to repair bad credit.

Tags: bad credit, build credit, credit score

Buying a Home With Bad Credit and No Money Down

December 1st, 2010

From bird-dogging to seller financing, Carter Brown kicked off the Credit and Debt Summit with six strategies for buying a home with bad credit and no money down. Even if you have a bad credit score and no down payment, Brown explains the six strategies for buying home, or investing in real estate.

Buying a Home with Bad Credit and No Money Down

Carter Brown is a real estate coach for Prosper Learning who started investing in real estate while he was in college. He now coaches other people on out-of-the-box strategies for buying homes or investing in the real estate market. These strategies don’t require any money down, and they can be used by people with bad credit scores.

As part of the Credit and Debt Summit, Brown shared these strategies with registrants:

Assigning contracts
Double-escrow closing
Subject to financing
Seller financing
Lease options
Bird-dogging

Two of the highlights are “subject to financing” and “bird-dogging. “

Buying a Home with Bad Credit and No Money Down Strategy: Subject to Financing

Subject to financing is a perfect strategy for buyers with bad credit and no money down and sellers who are on the brink of foreclosure. It works like this:

The buyer takes over mortgage payments on a person’s house. In exchange, the seller transfers the title to the buyer, but—and here’s the kicker—the seller keeps the loan in his or her name. The buyer, however, starts making payments on the home.

Does this sound crazy? Why in the world would a seller transfer title but keep the loan in his or her name?

It isn’t crazy, and Brown explains why it works;

1. The homeowner (seller) is going to lose the home to foreclosure otherwise. Under “subject to financing,” the seller doesn’t have to go through foreclosure and preserves his or her credit score. Perhaps more importantly, the seller’s financial stresses are over. No longer do they have to worry about coming up with thousands of dollars, negotiating with banks, attempting—and failing—to get loan modifications. The buyer can take over payments immediately, leaving the seller with peace of mind.

2. The buyer and seller can always write a clause into the contract that forces the home to return to the original owner in the event that the buyer misses a payment. And because the loan is still in the original owner’s name, the seller can track the buyer’s payments.

3. Worst-case scenario, the buyer misses a payment and the home returns to the original owner. If this happens, the original owner can start making payments if his or her financial situation has improved. If the original owner’s financial situation has not improved, he or she is no worse for the wear.

Obviously, this strategy is a bit sophisticated. Want the transcripts of Brown’s Credit and Debt Summit webinar? Register for the free summit here and get more details, including information on where you can find qualified sellers.

Buying a Home with Bad Credit and No Money Down Strategy: Bird-Dogging

If “subject to financing” makes you nervous, but you still want to get your foot in the door and start learning advanced techniques for real estate investing, Brown suggests starting with a technique he calls “bird dogging.”

Under this strategy, you don’t actually buy a home, but it allows you to shadow someone who is using outside-the-box strategies, which means you can quickly move up the ladder and start learning about buying a home with bad credit and no money down.

Simple put, bird-dogging is another way of saying that you act as a scout, and you get paid for bringing a seller and an investor together. You also get to shadow the investor so that you learn more about real estate investments.

Let’s say that you are chatting with your neighbor, and you learn that she and her husband are in financial distress. Their house has been on the market for months, but no one is biting. If something doesn’t happen—and soon—the bank is going to foreclosure.

This is where you come in. Simply introduce your neighbor to a real estate investor. Tell the investor that you want to provide a referral for a finder’s fee. If the investor purchases the property, you will receive a fee of about $500.

This isn’t where it ends. Ask the investor if you can shadow the transaction. Let the investor know that you are interested in learning more about real estate strategies. The investor, thrilled that a hot deal has dropped onto his or her lap, will agree.

Brown goes on to describe four other strategies for buying a home with bad credit and no money down. His strategies offer something for everyone—from the seasoned investor to the newbie hoping to get his or her feet wet.

Tags: bad credit, mortgage, real estate

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Credit Inquiries After Bankruptcy

November 12th, 2010

If your credit score is trashed, the last thing you probably want on your credit report is a bunch of credit inquiries after bankruptcy. Won’t this tell the credit-reporting bureaus that you are planning on returning to your old habits?

To some extent, yes. Each time you apply for credit, a creditor makes an inquiry into your credit report, and this causes your score to drop. One of the bankruptcy facts is that the credit-scoring systems will be keeping an eagle-eye on your behavior, and applying for credit is a big warning sign that you are up to your old habits.

So what are your supposed to do? Live as a cash-only citizen? This might sound good in theory, but it is highly impractical. You can barely get a cell phone without a credit card, much less reserve a hotel room or a rental car.

The truth of the matter is that credit inquiries after bankruptcy are a necessary part of building credit. The key is to be strategic about how you open new lines of credit and deal with credit inquiries.

The strategy might shock you. In short, your strategy should be to get it over with. Apply for all the credit you will need, and get all the credit inquiries on your credit report at once. I have three reasons for this:

Credit Inquiries After Bankruptcy—Fact #1: You need to start to repair credit after bankruptcy as soon as possible. This means you need to open credit cards, and you need to start building a positive credit history that shows the credit-scoring bureaus that your bankruptcy allowed you to start anew.

Credit Inquiries After Bankruptcy—Fact #2: Credit inquiries stay on a person’s credit report for only two years, but they affect a person’s score for only one year. If you have declared bankruptcy, your credit score is already trashed. Get the credit inquiries over and done with now rather than waiting to tarnish your credit report later. In fact, the only way to get your score to increase is to apply for credit and use it wisely.

Credit Inquiries After Bankruptcy—Fact #3: Every time you open a new account, the average age of your credit history drops. And credit-scoring bureaus like older accounts more than they like newer accounts. If you apply for new credit today, the accounts will be a year old this time next year. If you wait to apply for new credit, the accounts cannot start growing old because they do not exist.

Let’s take a look at how this works by considering Andy and Bob. Both of them have declared bankruptcy. Both of them decide to open three new credit cards as part of their plan to rebuild credit. But they go about it differently.

Andy decides to just get it over with, so in 2010, he opens three credit cards. By 2013, the inquiries had fallen off his credit report. And the average age of his credit accounts was three years.

Bob decided to open the credit cards in stages. He knew that credit inquiries count for about 10 percent of a person’s credit score, so he wanted to space out the damage. By 2013, he had three credit cards: one that was a month old, one that was 13 months old, and one that was 25 months old. The average age of his accounts was just 13 months. And he had a recent credit inquiry that was being factored into his score.

And guess who had the better score? Andy, who knew that credit inquiries after bankruptcy were necessary.

One thing to keep in mind about credit inquiries after bankruptcy: Your score will never be damaged if you pull your own credit report. The credit-scoring bureaus know that people need to monitor their own credit scores, and they consider this responsible behavior. If you need to pull your credit score, be sure to read this article about the credit score scale.

Tags: bad credit, bankruptcy, credit after bankruptcy, credit inquiries

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