Credit9 - Personal Loans

Credit Scores

Credit scores significantly impact your financial and personal lives.  When your finances and credit scores are in good working order, you can rest easier knowing that your financial future is more secure.

Credit scores range from approximately 300-850.

Here’s what they mean:

(Keep in mind that these are approximations)

300-550 Poor May not be approved for loan, check with lender

550-620 Subprime Higher interest rates

620-680 Fair Rates will vary here

680-740 Good Better rates

Approx. 740 + Excellent Best rates

What It Means

Your credit score dictates if you are approved for a loan and the interest rate you will be paying on it. If you have a credit score in the 300-550 range, you would want to work on improving that score so that you don’t shell out more money over the life of a loan you may need. Even improving your score by a few points can save you a lot of money down the road.

You may still be able to apply for and get credit at the lower levels, but you’ll certainly pay more in terms of interest and/or down payments.

What Lenders See

Keep in mind that lenders not only look at your credit score when making a lending decision; they look at your current assets, debt-to-income ratio and your capacity to repay the obligation. Your credit score basically determines how trustworthy you are or not.

Fear & Loathing

Incidentally, many people resist checking their credit scores unless they absolutely have to. While some people have excellent scores and know how to keep them within an acceptable range, many of us have average or poor scores or worry that we will be denied if we apply for credit.

In this case, as it is with so many important things in life, avoiding the situation does not make it go away. Credit scores can improve with effort! Checking and understanding your credit score is the first step. Then making regular on-time payments for current loans makes for a good night’s sleep and clears the path for smoother major purchases and less financial bumps in your future.

Credit Reports

 

A Credit Report is a detailed report of credit history that is gathered by three credit bureaus; Transunion, Equifax, and Experian. Things like personal loans, mortgages, credit cards, medical bills and car payments are some of the things that can be on your credit report. Lenders look at your credit report to determine your creditworthiness, your credit report carries a lot of weight. They affect nearly every aspect of your life and certainly affect how lenders, potential jobs, auto insurers and business partners will view you.

What Credit Reports Are Not

Credit reports do not include your income, marital status, assets, age or location. They are also not permanent, after seven years your report will knock off accounts that are seven years old. You can also always improve your credit, whether it is by taking out a loan to pay everything off or starting to pay your bills on time. Using a credit monitoring service, like Credit 9 is going to help you stay on top of your report and make sure you are doing everything you can to maintain a high score.

How To Get A Copy Of Your Credit Report

By signing up with Credit 9 you will get a free copy of your credit score. We will pull a soft copy, meaning it will not affect your credit in anyway. You will also get a breakdown of what is hurting your credit, this will show you exactly what you need to working on to bring up your score. You can login whenever you would like and see you credit report, we will also be alerting you of any fraud we find.

What The Numbers Mean

Your credit score is calculated on a formula based on open credit card utilization, on-time payments, accounts in collections, bankruptcies, foreclosures, liens, age of credit lines, total amount of accounts and hard credit inquiries. All of these things determine what score you credit is at. Having a great credit score makes it easier for you to get a loan, and you end up paying less money in interest.

Make Credit Reports Work For You

Monitoring your credit is very important, any errors on it needs to be reported to the credit bureaus as it can dramatically hurt your score. It is illegal for a credit bureau to report inaccurate information. Using a credit monitoring service like Credit 9 makes it simple for you to take control of your credit report.

Check Your Credit Before Buying a Home

What is a Credit Score?

Imagine that a friend asks to borrow money from you. Assuming you had the money to loan, you might then ask yourself, “Did he pay me back the last time he borrowed money? Did he pay me back the full amount? On time?” When you approach banks and lenders for a loan, they go through a similar analysis, but since they don’t know you personally, they use your credit history to determine whether you will be a responsible borrower. Lenders learn about your credit history by looking at your credit report. You can get a free Credit Report Card that includes your free credit score right now!

Credit reports are developed by three separate credit agencies. These agencies (Equifax, Experian, and TransUnion) gather information about your credit history, and, using a formula developed by Fair Isaac Corporation (FICO), each assigns you a credit score. You will end up with three slightly different credit scores, each from one of the three agencies. Lenders typically look at your middle credit score (as opposed to the highest or the lowest), and you must provide all three of your credit scores (one from Equifax, one from Experian, and one from TransUnion), when applying for a loan.

Why are Credit Scores so Important When Buying a Home?

Your credit score helps determine the rate and conditions you receive on a loan. If your credit score is high, meaning that your credit history indicates that you’ve paid your credit card bills on time, haven’t “maxed out” your credit cards, etc., then lenders believe it’s a fairly good bet that you won’t have difficulty paying off your loan. They will see you as a low-risk investment and offer you a low rate on your loan with good conditions.

If your score is lower, lenders will think you’re a riskier investment, and charge you (by loaning you money at a higher interest rate, often including hidden charges) to take on the perceived risk. Get your free credit score now.

How do Credit Scores Affect You When Applying for a Loan?

Most lenders have a baseline credit score by which they largely make their decision to approve or deny mortgage applicants. The maximum credit score is 850 (though a score of 850 is rare, indeed. Only about 10% of applicants have a score over 800). Any score in the 700s or above is excellent and will get you a loan with the lowest interest rate. When you get into the 600s it starts getting dicey. A score of 680, for example, is still considered good, but when you get below 660, some lenders start saying, “No.”

For others, 640 or 620 is the line at which you won’t be considered for their better programs. Once you get into the 500s, you are a candidate only for what the industry calls subprime loans, those with interest rates that are a couple of percentage points higher than those offered to prime borrowers. Subprime loans also often come with a lot of hidden charges.

So you can see the importance of keeping a good score. It used to be okay to miss a credit card payment deadline. You might pay a $15 late fee. Big deal! But if you do this on a regular basis, it can savage your score and cost you many, many times that amount when you want to buy or refinance a home. That’s the bad news.

 

The good news: your credit score isn’t fixed in stone. If you have bad credit scores, there are ways to improve your credit health. If you find your scores are lower than you expected, you’ll need to engage in credit rehab. This is different from credit repair, defined as going to an outside company that promises to cure your problems and raise your scores. There may be some good ones out there (along with some disreputable ones) but they can’t do anything you can’t do yourself and you shouldn’t waste your time or money going to them for help.

From a financial standpoint, it is almost always better to take the time to improve your credit health, and make yourself eligible for a better interest rate, than it is to apply for a loan with a credit score that will only make you eligible for a subprime loan.

Find Out Where You Stand

You can check your credit score each month using Credit.com’s free Credit Report Card. This completely free tool will break down your credit score into sections and give you a grade for each. You’ll see, for example, how your payment history, debt and other factors affect your score, and you’ll get recommendations for steps you may want to consider to address problems. In addition, you’ll also find credit offers from lenders who may be willing to offer you credit. Checking your own credit reports and scores does not affect your credit score in any way.

What is a Good Credit Score?

A good credit score is what each of us aspires to. After all, a credit score is one of the important determining factors when it comes to borrowing money – and getting a low rate when you do.

But trying to pin down a specific number that means your credit score is “good” can be tricky. When it comes to figuring out what makes a good credit score, there are a few different schools of thought.

How Do I Rate?

Most credit scores – including the FICO score and the latest version of the VantageScore – operate within the range of 301 to 850. Within that range, there are different categories, from bad to excellent.

  • Excellent Credit: 750+
  • Good Credit: 700-749
  • Fair Credit: 650-699
  • Poor Credit: 600-649
  • Bad Credit: below 600

How does my credit score compare to others? Find out now for FREE.

But even these aren’t set in stone. That’s because lenders all have their own definitions of what is a good credit score. One lender that is looking to approve more borrowers might approve applicants with credit scores of 680 or higher. Another might be more selective and only approve those with scores of 750 or higher. Or both lenders might offer credit to anyone with a score of at least 650, but charge consumers with scores below 700 a higher interest rate!

The Credit Score Range Scale

There are many different credit scores available to lenders, and they each develop their own credit score range. Why is that important? Because if you get your credit score, you need to know the credit score range you are looking at so you understand where your number fits in.

The Credit Score Range Using Various Scoring Models:

  • FICO Score range: 300-850
  • VantageScore 3.0 range: 300–850
  • VantageScore scale (versions 1.0 and 2.0): 501–990
  • PLUS Score: 330-830
  • TransRisk Score: 100-900
  • Equifax Credit Score: 280–850

With all of the scores listed above, the higher the number the lower the risk. That means consumers with higher scores are more likely to get approved for credit, and to get the best interest rates when they do. And they are more likely to get discounts on insurance. What is considered a “high” score depends on what type of score is being used.

If your FICO score is 840, for example, you’re just 10 points shy of the highest score possible and your credit is “superprime.” But if you have an 840 VantageScore (using version 2.0), it’s not as spectacular because you’re 150 points away from the highest possible score.

 

What’s Your Score?

Don’t assume your score is good (or isn’t) just because you have always paid your bills on time (or haven’t.) The only way to know whether you have a good credit score is to check. You can get your credit score free every other week at Credit.com. This is a truly free credit score – no payment information is requested. In addition to the number, you’ll see a breakdown of the factors that affect your score and get recommendations for making your credit as strong as possible.

What Can I Get With A Good Credit Score?

Some of the best credit cards–from rewards cards to 0% balance transfer offers–go to consumers with strong credit scores. You’ll find great credit cards for good credit here.

A good credit score can also get you a lower interest rate when you borrow. That means you will pay less over time.

For example, if you’re buying a $300,000 house with a 30 year fixed mortgage, and you have good credit, then you could end up paying more than $90,000 less for that house over the life of the loan than if you had bad credit.

So, in the end, it really pays to understand your credit scores and to make them as strong as possible.

The Best Ways to Loan Money to Friends and Family

Most of us are fairly generous people, and we want to help a family member or friend when we can. But the fact is, a person who can’t get a personal loan from a traditional source often has damaged credit or no credit, both of which make such a borrower a greater credit risk. (There are also loans for bad credit, but perhaps this person has yet to apply for one.)

For the record, I believe that lending money to friends and family is far preferable to cosigning a loan for someone who can’t qualify on his own. Cosigning creates a false sense of security: You think the primary borrower is responsible for the loan, and that you, as a cosigner, are not. In fact, when you cosign a personal loan, for example, you are on the hook for the whole cost. Even if it is paid on time, your credit score will be affected by the loan if it is reported to the credit bureaus.

All warnings aside, there are times when you may be asked to loan money to someone you know for any number of reasons. These can include:

  • Capital to start or grow a small business
  • A down payment or loan so your child or relative can purchase a home
  • Money to help someone get back on his or her feet after a divorce, illness or other catastrophe

If you are going to lend money to someone you know, you might as well increase your chances for success. But before we get into that, let’s make one thing clear: Your friends and family do have some options.

Can You Get a Personal Loan With Bad Credit?

If they’re in need of extra funds, but their credit is not in great shape, they can try to apply for personal loans for bad credit. This will entail gathering personal information, including their credit score, as well as proof they can pay the loan back. After spending some time researching minimum credit score requirements for personal loans from lenders in their area, they may feel confident enough to apply for a loan. (Note: if they have a good relationship with their bank or credit union, they may want to start their search there.)

Of course, these personal loans will likely carry higher interest rates, so your loved one may want to try brushing up their credit before applying. To get started, they can pull their free credit report snapshot, updated every 14 days, on Credit.com. The snapshot provides two free credit scores, along with notes on what they can do to improve their scores. However, in general, you can raise a credit score by paying down high credit card balances, disputing credit reports errors and using a starter line of credit, like a secured credit card or credit-builder loan, to establish a solid payment history.

If directing your friends and family to a personal loan is out of the question, here are some tips for lending money the smart way.

  1. Set a Fair Interest Rate

This can work in your favor as well as the borrower’s. The interest rate you charge can still be competitive with the rate your borrower can get from a traditional lender but high enough that you make more money than you would if you parked your money in a safer bank account. If your borrower balks at being charged interest, you might want to blame it on the Internal Revenue Service. That’s because if you give someone more than $12,000 in a year, it will likely be treated as a gift and subject to gift tax. To avoid this potential complication on a larger loan, you must charge an interest rate that is at least as high as the IRS’ Applicable Federal Rate, which is set monthly.

  1. Get Your Agreement in Writing

When you loan money to friends and family, it’s best to get your agreement in writing. But if you think it is “uncomfortable” to insist on a written loan agreement, think of how uncomfortable you will be trying to collect if your borrower falls behind. If you must, blame it on your spouse, accountant or someone else who “insists you get it in writing.” You can find a sample promissory note online or in a legal forms book, or if the amount is large enough, you can ask an attorney to draft it for you. Spell out the terms, including how much is being borrowed, the interest rate, late payments and when they will be assessed, and how and where payments will be made.

  1. Set up a Formal Payment Arrangement

Let’s face it: It will be easier for your borrower to make a late payment to you than to his or her other creditors. And I doubt you want to become a debt collector. So include in your agreement the details of when payments are due, late fees that will be charged and how you want payments to be made (by check or PayPal, for example). I don’t recommend taking cash, which is harder to track. I do recommend that you set up a copy of any checks or money orders in a file in case there is a disagreement about payments that were made later. Go a step further to arrange automatic deductions from the borrower’s bank account to yours, and you won’t have to worry about whether the check is in the mail.

Pay for a Delete: Do you think it is a Good Idea?

What in life is really essential to our survival? It’s a pretty short list, headlined by food, shelter and clothing, but many people nowadays would also include a mobile phone among their list of indispensable “must-have” items. But did you know that a mobile phone payment could also affect someone’s credit scores? Currently, the account can only have a negative impact if you default on your payment, a sign that you might be falling behind on your regular financial responsibilities.

For most of your other payments, including a car loan, a mortgage or credit cards, you are rewarded for paying your bills on time and penalized when you miss or are late on a payment. A mobile phone, however, affects your credit scores only if you default on your payments and it is charged off or sent to collections. One key thing to know about charged off debt, however: if your debt is charged off, you’re still obligated to pay it.

1. Your account balance changed.

Many credit scoring models include consideration of your payment history and your credit utilization ratio (your outstanding balance as it relates to your total amount of credit available). The length of credit history, your credit mix, and your amount of new credit are also factors that can be considered, but may not have as much weight as the others.

Because your payment history is a major part of many scoring calculations, it is important that you avoid defaulting on any payments whatsoever . While paying your mobile phone bill on time doesn’t affect your credit scores positively, defaulting on the account is a serious negative that could have a potentially severe effect on your credit scores.

Is it already too late for you? If you currently have a defaulted mobile phone payment on your credit report, don’t be disheartened. Defaulted debt that’s either charged off or sent to collections will stay on your credit report for seven years. However, if you pay it off and recommit to using good credit behaviors like paying your bills on time each month, it will begin to recede into the past before you know it. Making good credit a part of your everyday life is something you can always reaffirm your commitment to; good behaviors beget good scores, so know that your efforts to improve your habits won’t be in vain.