Tag: bad credit

How to Fix a Bad Credit Score the Easy Way

Posted on October 6, 2021 by - CREDIT BLOG, CREDIT SCORING

People who have fallen onto tough financial times always want to know how to fix a bad credit score. In their attempt to learn how to build credit, they will spend thousands of dollars on credit repair services that promise to wipe their credit reports clean of all errors. Some people even try to create a new credit identity, as if they can sweep past errors under the rug.
The big secret, though, is that most of these services do not work. At best, these credit “repair” services will only temporarily suppress credit problems by using illegal methods to briefly suspend errors from your report—errors that will resurface only after the company has walked away with your dollars. At worst, they will expose you to lawsuits by using illegal methods of attempting to remove delinquent information from your credit report.
The good news is that there are tons of ways to fix your credit score that are both effective and legal.  If you want to learn how to fix a bad credit score, keep these two components in mind:
How to Fix a Bad Credit Score, Rule #1: Be strategic.
As you can tell, I am not a fan of credit repair strategies that purport to increase your credit score by surreptitious methods. However, there are legal and effective strategies you can use to raise your credit score fast:
1. Build your credit score fast by adding yourself as an authorized user to a family member’s credit card, so long as it is in good standing.
2. One of the fastest ways to build credit is to transfer your credit card balances to your spouse.
How to Fix a Bad Credit Score, Rule #2: Focus on current behavior.
Think of it from the credit bureaus’ perspective. Wouldn’t you be much more impressed with someone who positively changed his behavior than someone who tried to weasel out of past mistakes? Instead of arguing with the credit-scoring bureaus about all of your late payments, try taking a few simple but effective ways to let the credit-scoring bureaus know you have changed your habits.
This strategy works because credit-scoring bureaus place more weight on current behavior than on past behavior. If you made a mess of your credit score two years ago, the credit-scoring bureaus will pay less attention to this if you are making smart decisions today. This means that you should:

  • Pay your bills on time.
  • Keep your credit card balances as low as you can – preferably below 30 percent.
  • Keep three to five credit cards active. Use them at least once a month, but pay your balances as much as possible each month.
  • Open new lines of credit after a financial disaster, like bankruptcy or foreclosure. The credit-scoring bureaus need proof that you can manage several lines of credit. If you wipe your hands of credit, they will not have this proof, and your credit score will not increase. Your bad credit score will increase if you have between three and five credit cards, as well as an installment loan, all in good standing. Bear in mind that your credit score will initially drop upon opening a new line of credit. But after six months of timely payments, it will begin to increase.

So here’s the big secret: If you want to know how to fix a bad credit score, don’t turn to credit repair companies that make promises that seem too good to be true. Repairing a credit score is simple, but it cannot be achieved with the wave of a wand.

Credit Bad, Loan Modification, Behind on Payments, What to Do?

Posted on July 6, 2021 by - CREDIT BLOG, Loan Modification

Credit Bad, No Credit Score, How to Build Credit – Question #2
Question Submitted by:  Jan, Slidell, Louisiana
I refinanced our home into a poor loan with Countrywide.  Our loan is now with Bank of America and we are two payments behind.  Our credit is bad, any solutions?
Answer:
Jan – Thank you for your reaching out, and I know how difficult it can be when your credit is bad and you feel you have no options.  It’s impossible to give you all your options with this information; however, here are a couple thoughts:
1) Your bank will not tell you this, but as long as you are paying any part of your payment, your bank will not negotiate with you on your loan modification. Myself and too many of my clients have gone through this – when you pay your bills, you don’t qualify for these programs.  The irony of that statement amazes me every time I say it.
When dealing with the banks on the loan modification, be very nice (I guess most people with credit that’s bad are not that kind) and keep asking them for a solution.  The banks are so overwhelmed that they cannot keep up with the requests they have and you won’t get their attention if you are paying.
2) There is no way around it; at the end of this process you will say, “My credit is bad.”
3) Your bank is going to tell you that you will be “unlendable” for 7 years because of credit bad. That is false.  If you understand how to build credit, you can have a 720 credit score 5-6 years before those late payments fall off your credit report.
The key is to reestablishing your credit score is to start now.  Also, don’t beat yourself up about this process, we have all had learning experiences over the past two years, and this too shall pass.
Credit Bad, No Credit Score, How to Build Credit – Question #2

“I need a personal loan quick but I have bad credit”

Posted on March 3, 2021 by - Personal Finance

“I need a personal loan quick but I have bad credit.” An old friend of mine was calling for advice. “What’s the best way to get my hands on money? Should I go to one of those places that offers instant cash?”
If you are like many cash-strapped Americans whose scores fall below 720, you should–of course–learn how to build credit. But what do you do in the meantime?
You might think you must rely on high-interest loans with large penalties and lousy terms. But sadly, too many people desperate for money end up exacerbating the situation by applying for loans intended for people with bad credit, which guarantees that they will pay extra fines and interest rates. The irony, of course, is that people with bad credit are the ones who are least able to afford these loans.
If you find yourself saying, I need a personal loan quick but I have bad credit, consider one of two options:
1. If you have a long and strong relationship with your boss, ask for an advance. This is an interest-free way to secure some quick cash, and your boss might let you pay the loan off slowly by simply taking small deductions out of each paycheck.
Only implement this strategy if:

  • You have been at your job for more than one year,
  • You have a strong relationship with your boss, and
  • The company has a solid bottom line.

You should also pay close attention to the amount of the loan. After working for me for only three weeks, a former housekeeper of mine once asked me for an advance on her salary.
“I need a personal loan quick but I have bad credit,” she told me, begging for 10 percent of her salary! I had no idea whether she would work for me long enough to repay the loan, nor did I know whether she was the type of person who took her financial obligations seriously. I refused her the loan, and our relationship was permanently scarred.
To protect your relationship with your boss, follow this general rule:
If you have been employed for more than one year but less than two years, ask for no more than 2 percent of your annual salary. Your boss might feel comfortable lending you 5 percent if you have been with the company for two to three years; if you have been working for the same company for more than three years, you might be able to secure a 10 percent cash advance.
2. Another low-interest option is to ask a relative for a loan. Be upfront about your situation, but be businesslike. Instead of calling in a panic and saying, “I need a personal loan quick but I have bad credit,” try writing out an agreement that details interest, when the payments will be made, and what you will provide as collateral in the event you are late with a payment. By putting everything in writing, and making every payment on time and in full, you will preserve your relationship and secure a low-interest loan.
Finally, be sure to register for our free teleseminar so that you will never again need to say, “I need a personal loan quick but I have bad credit.”

Bad Credit: Improving Your Credit Score Through Secured Credit Cards

Posted on February 18, 2021 by - Credit Cards

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:

  1. You choose a credit limit and make a deposit to secure that credit limit.
  2. The credit card company will issue you a credit card with that pre-set credit limit.
  3. You make purchases and payments just like you would with a regular card.
  4. 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.

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

Posted on February 9, 2021 by - CREDIT BLOG

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.

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

Posted on February 1, 2021 by - CREDIT BLOG

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.