Credit9 - Personal Loans

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.

So, You’re Getting Married! Will You Need a Wedding Loan?

Congratulations, you’re engaged! Of course, unless you’re planning to elope, you’re going to need a lot more than luck to get through your wedding day. How you decide to pay for your wedding will be one of the first important decisions you make as a couple — and there’s a chance you’re thinking about getting one of those wedding loans you’ve seen advertised. You know the ones with rates “as low as 7.49%” to cover all the expenses associated with the dream version of your big day. Of course, you don’t have to go into debt just to get married — and, in fact, it may be a good idea not to, given the stress financial troubles can put on a marriage. But if you decide to go that route, it’s important to know exactly what you’re signing yourself up for. Here, we break down what you need to know if you’re thinking about getting a wedding loan.

The Cost of a Wedding

The average cost of a wedding in the United States is $26,645, according to the website, Cost of Wedding. Couples typically spend between $19,984 and $33,306, excluding a honeymoon. That’s a big chunk of change to cover out of pocket, but your wedding can easily be much less expensive — without eloping. (Many couples do pay less than $10,000 for their wedding, the website says.)

For instance, you could get your wedding dress at Goodwill, tell invitees that you’re registered at your bank, and throw a helluva buffet-style reception on a shoestring. There are thousands of articles on the internet about how to throw a frugal wedding, but if those approaches make your eyes cross and you’ve decided you want to go all out on your big day, there are options when it comes to borrowing money.

What’s a Wedding Loan?

You may have seen the ads: “Have the wedding of your dreams!” “No assets required.” “No hidden fees.” “Pick up your check tomorrow.”

Well-known lenders, as well as some that seem more fly-by-night in nature, offer wedding loans, which are really ordinary personal loans when you remove the window dressing. Personal loans are installment loans, meaning you pay a predetermined monthly payment at a set interest rate over a specified period of time.

According to a 2015 survey from The Knot, 32% of couples believe having access to credit and/or loans will allow them to spend beyond their budget. If they are opting to take out personal loans, there’s a good chance they’re paying double-digits for them. Rates on personal loans can vary by lender, location and credit score, among other factors, but to give you an idea of the costs, one online lender lists the average annual percentage rate (APR) on all its personal loans at 12.76%, as of the second quarter of 2016.

Hopefully you won’t have to borrow the whole amount you’ll need for your wedding and can draw on savings, income and family contributions for many expenses, especially the ones where a deposits expected — for example, the place where you’ll be having the reception and the caterer, each of which may require a 50% down payment.

Let’s say you decide to borrow $15,000. If you take out a wedding (read: personal) loan in that amount and are charged 12.76% for four years, your 48 monthly checks will be $400 each. You might be able to chip away at that rate if you have excellent credit (more on that below), borrow from the bank or credit union where you have your checking or savings account, and allow automatic withdrawal of loan payments.

Other Borrowing Options

You’ll likely get a better rate if you have some serious security to put up as collateral, such as your home. In that case, you would be better off getting ahome equity line of credit (HELOC), in which the average interest rate is much lower. (As of late 2016, it was hovering just below 5%). Not only would you get a lower rate, there will probably be some tax deductions you could take, which wouldn’t be possible with a personal loan. If you were to take out $15,000 at once, at 5%, you’d have to send in about $345 a month to pay it off in four years (not including any closing costs).

Only you can judge whether it makes sense to put your house or condo on the line to finance this one day (because, yes, if you default on the HELOC, the bank can technically start foreclosure proceedings). Many personal finance experts will encourage you not to go that route – and virtually all of them will be horrified by the notion of borrowing against your 401K or other retirement savings.

All In the Family?

Perhaps there’s a family member who could loan you the money. You may be able to create a win-win situation: You can offer the lenders – say, your parents — an interest rate that’s less than you would have to pay a bank or credit union, but more than they are currently earning. (Five-year CDs are currently paying about 1% on average.) If you borrow $15,000 at 3% for four years, your monthly payment would be $332.

Approach family and friends with a specific plan, including the interest rate you’d pay them and how much you’ll repay each month. Put the agreement in writing so you won’t be tempted to put that bill low on your priority list. Propose late charges if you miss payments by more than a certain amount of time, and have a plan for what will happen if you default on the loan. Watch out! You could be putting family relations in jeopardy if you can’t live up to the terms.

Should You Charge It?

Another option to consider adding to the mix is a credit card that offers a great introductory APR on new purchases. There are plenty of them out there offering 0% for a year or more. Credit.com makes it easy to find cards that fit this bill.

There are a few important hitches:

  1. Never be late with a payment. Otherwise, you’ll be paying a lot more than 0% in interest.
  2. Be sure you can pay off what you owe by the time the intro period is over, when the rate is likely to go up significantly. (You may be able to find another card to transfer the balance to down the road, but you can’t really count on that. Plus, you’re generally charged a fee every time you transfer a balance.)
  3. Watch out for your credit limit. If you charge up to 30% of your available credit limit, your credit score could take a sizable hit, which might make other lenders nervous enough to jack up the rates on your other cards.

Credit Card Tips:

  • Call your current card issuers and ask for an increase on your existing credit lines.
  • Be careful not to use credit cards with high interest rates to finance purchases you won’t be paying off immediately.
  • Use credit cards as opposed to checks or cash when you can. That way, you’ll be able to take advantage of the cards’ purchase protection if you have a dispute with a vendor.

Check Your Credit

Remember, if you’re trying to get wedding financing with bad credit, it can really cost you. A stellar credit score will at least make personal financing more affordable since it will help you qualify for the best rates and terms. That’s why it’s a good idea to see where you stand before you apply. (You can view two of your credit scores, updated every 14 days, for free on Credit.com.)

Now What?

If you’re feeling as though there are no really good borrowing alternatives for your wedding … good! “Few things can put more stress on a relationship than financial woes,” as personal finance author Gerri Detweiler writes.

Go back to the drawing board and come up with a way to make your wedding day special without leaving you with a bill that will only cause trouble over time. After all, you have your debts, and your beloved’s probably got a few, too. The last thing you need is another big monthly expense.

When Wedding Insurance Makes Sense

While you’re taking another look at cutting expenses, you might want to consider adding one — for wedding insurance — especially if you’re going to have a pricey party. You wouldn’t buy a car without insurance, would you? Yet many a perfectly fine car can cost a lot less than many a wedding. And given all the other wedding-related expenses, this one is fairly modest:

“At roughly the cost of including one additional guest at your wedding, wedding insurance is a smart idea for couples who want to protect the significant investment that this important occasion represents,” says the insurer Fireman’s Fund to both straight and gay couples. “Inclement weather; flood, fire or power failure at the event venue; lost or damaged attire; photographers and videographers who lose the event images or video; and other vendors who fail to show up can all spell disaster.”

According to The Knot, a basic wedding insurance policy costs between $155 and $550, depending on how much protection you want. While some companies are now offering “cold feet” coverage, it’s not usually included. But if you pay extra, in some circumstances, you can even get protection from that.

USA TODAY personal finance columnist Sandra Block offers excellent advice on wedding insurance:

  • Liability coverage “will protect you from lawsuits if an exuberant guest slips and falls in the conga line,” she writes.
  • Sudden death or illness. “If the groom has an appendicitis attack the day before the wedding,” Block explains, “wedding insurance will cover the cost of non-refundable deposits.”
  • Lost or damaged formalwear. “If the bridal store files for bankruptcy before you pick up your Vera Wang gown, wedding insurance will cover the cost of a new dress.”
  • Photography mishaps. “Your wedding photos are supposed to provide a lifetime of memories, but what if they’re all out of focus?” Block asks. “Or the photographer simply disappears? Wedding insurance policies will cover the cost of reassembling your wedding party and retaking the photos or videos.”

As with other forms of insurance, it pays to shop around. Get recommendations from folks who have been recently married. Call your current insurers and see what they are offering. Discuss the “what ifs” that worry you most — for example, are you concerned that one of you may be called up by the military? It may be part of the policy, or you may be able to purchase additional coverage.

It all boils down to how much of a gambler you are — and how much additional stress you want to have or avoid.

All the best to the happy couple! May the celebrations be grand … and not cost you too much.

How to Protect Your Child’s Identity at Every Age

Some lenders require a social security number with a clean credit history, but don’t necessarily check that the borrower’s name matches the number, so thieves can get away with using social security numbers that aren’t assigned to anyone at all.

Your child’s identity can be at risk at any point in life. Children are easy targets because of their clean credit. So how can you protect Junior from a bruised credit history before he or she is even old enough to say “credit card”?

Here are a few steps you can take, at every age, to ensure your child starts off adulthood with a clean slate.

Birth-Preschool

Start with keeping your child’s documentation safe. Don’t carry around your child’s identifying documents, like a birth certificate or social security card. Establish good filing habits and store your child’s important documents in a fire-proof, locked safe or box. Be cautious when you offer your child’s social security number or identifying details. Always ask why the information is needed before you give it out. And, of course, make sure your family computer is up-to-date with the latest virus protection software. Entering sensitive information online without taking the proper precautions could leave your child’s details in danger of being captured by a thief.

Before your child is old enough to start using credit, he or she shouldn’t have a credit history at all. any sign of a credit history could mean fraud. If you want to ensure that your child’s credit history is non-existent before the age of 14, you have to go directly to the credit bureaus. Fill out the Child Identity Theft Inquiry Form with TransUnion, which will tell you whether or not your child has a credit report. If the answer is yes, your child could be an identity theft victim and you should contact the other two bureaus. Use the guidelines from the Identity Theft Resource Center.

Middle School

When your child turns 14, you’ll be able to request a credit report from each of the credit bureaus through AnnualCreditReport.com, but only if one is available. At this age, there should be no credit history at all, so if it turns out one exists, it’s a red flag for identity theft.

To give you time to dispute any fraudulent accounts with the credit bureaus, and to protect your child’s credit from being accessed again, put a credit freeze on the report. Guidelines for credit freezes vary by state, so checkConsumersUnion to find out how to initiate one in your state of residence. You’ll have plenty of time to clean up the credit report and dispute inaccurate items before he or she is old enough to start building a real credit history.

High School

Your teen will likely get a first job in high school. Teach your child how to protect financial information, not to carry certain pieces of information like ocial security card, internet passwords, passport or account PINs in a wallet or purse. Caution against giving out personally identifying information without first asking what the information will be used for. And encourage a credit report check once a year.

After turning 18, you can help your young adult set up an account with Credit Karma, including free credit monitoring. This way your child will be notified if anything important changes, like an unauthorized account, so your family can react quickly to any suspicious signs of fraud. Teach responsibly building credit, perhaps with a student credit card, when the time is right..

Bottom Line: In adult life, your child’s credit will be not be your responsibility. But you can help ensure your little one starts off adulthood with a clean credit history.

Why October FAFSA Deadline Could Help Students Make Smarter Choices about Paying for College

A new change to the process of applying for federal financial aid could lead students to make smarter choices when borrowing for college. Starting this year, the Free Application for Federal Student Aid (FAFSA), which was previously available for students and their families to fill out in January, is available starting October 1. The shift is significant since it will give students a better sense of the federal student aid they may be eligible for much earlier in the application process.

That may push students to think more carefully about the financial implications of where they apply, and to consider schools that may be less of a long-term financial burden. While students won’t get school-specific aid packages any earlier, they will find out whether they’re eligible for Pell grants and what their “expected family contribution” will be. They can then plug that EFC into college’s net price calculators to get an idea of what their need-based final aid package might look like (scholarships and other merit-based aid are awarded separately), and—importantly—how much they may need to borrow in order to make up for any shortfalls.

Nearly 70 percent of public and non-profit college graduates in 2014 owed money at graduation, with an average debt load of $29,000, according to the Institute for Student Access and Success. A recent Credit Karma surveyshowed that while most hope to pay off their loans in a decade or less, some plan to be making payments for more than 20 years. While college graduates may have higher employment and better pay than peers who without a degree, those who borrow too much for school may face financial insecurity for years after they’ve left. For some students, a better path may be attending a lower cost school, or one that offers a financial aid package that allows them to borrow less.

Just as students choose which schools to apply to based on their geographic, academic, and cultural fit, this FAFSA change allows students to better target schools that are a better fit financially. While that may mean ruling out schools they’d hoped to apply to, they will also have more time to research schools that they not have previously considered.

An earlier deadline will also give students an opportunity to explore other funding options, including scholarships and think about whether they’ll realistically be able to pay any money they borrow back after graduation.

The price of college has already become a major factor for students and parents. More than two-thirds of families considered it when narrowing their list of schools last year, according to Sallie Mae, and more than half of families eliminated schools for financial reasons before they began the application process. This change means that those students who take advantage of the early FAFSA may have more information on which to base their decisions about where to apply.

While the U.S. Department of Education asked schools not to shift their financial aid calendars this year, but going forward schools may start to send admitted students their full aid packages earlier in the Spring. That would benefit students once again, since it would give them a bit more breathing room to consider their packages, appeal awards, and either come up with a plan to deal with expenses not covered by need- or merit-based aid or choose another school that may make more financial sense.

In another major change to the FAFSA this year, families must use their income tax data from two years ago, known in the industry as “prior-prior year” returns to fill out the form. Previously, families had to use data from the immediately preceding year and often had to wait to file until they had a more complete estimate of their income. (As they have in previous years, families with irregular incomes will need to discuss their situation with financial aid officers if they don’t think that the prior-prior year data gives an accurate picture of their earnings.)