How To Get The Most Out Of Your Auto Insurance Coverage

Recent data suggests that the average driver will spend close to $100,000 on car insurance over their lifetime. That’s a staggering sum of money, especially when you consider estimates that suggest Americans will pay over $500,000 in that time just to own, operate, and maintain a car.

$100,000 is a lot of money to spend on something that you may never benefit from, something that you’re only buying because your state authorities told you too. But while car insurance policies are essential, the amount that the average consumer spends on them is not.

In this guide, we’ll look at the ways you can save money on auto insurance premiums and get the most value out of this necessary expense.

Build Your Credit Report

Never underestimate the value of a high credit score and a clean credit report. Not only can it help when applying for a car loan, increasing the value of the car you can purchase and decreasing the interest rates you’re charged, but it will also reduce your car insurance rates.

There is no easy and quick way to turn a bad credit report into a good credit report, but there are a few simple changes you can make that could increase your score enough to make a difference. These include:

  • Stop applying for new lines of credit.
  • Become an authorized user on a respectable user’s credit card.
  • Increase credit limits on your active credit cards.
  • Pay off as much debt as you can, focusing on credit cards and personal loans first.
  • Don’t close your credit card accounts after clearing them.

If you don’t have any credit at all, which is true for many teen drivers getting behind the wheel for the first time, try the following options:

  • Credit builder loans
  • Secured credit cards
  • Lending circles

Choose Your Car Carefully

A new car is a great way to get a high-tech, customized vehicle, but it’s not ideal if you’re looking to save on insurance costs.

New vehicles cost more to insure because they are a greater liability, with more expensive parts and greater overall value. If you want to save on your auto insurance coverage, look for a car that is at least a few years old, has a number of safety features and a high safety rating.

The cheaper, the better, but only to a point. You want something that won’t leave you in complete financial ruin if it’s wrecked in a car accident and you don’t have the insurance to cover it, but something that won’t breakdown every few miles and leave you stranded and broke every other week.

Drive Safely and Prove Your Worth

Your driving record is just as important as your credit report, if not more so. The more at-fault accidents, traffic tickets, and insurance claims you have, the higher your car insurance rates will be.

A single conviction won’t last forever and the impact will eventually dissipate, so even if you have a few blemishes on your record now, just keep driving safely and you’ll be able to reap the benefits before long.

It takes time to prove your worth to insurance companies, but there are a few things you can do to expedite this process. The first is to take a defensive driving course. In some states and for some demographics (mostly seniors and young drivers), you’ll be offered a discount for completing one of these courses.

The next step is to consider a usage-based program. These are offered by most major insurance companies and can track your driving habits to determine what kind of driver you are. If you’re driving safe and doing very low mileage, you could start seeing some noticeable changes in just a few months. The majority of providers will even give you a discount just for signing up.

Pay Everything Upfront

Most policyholders pay their premiums monthly and it may seem like that’s the best thing to do. $100 a month seems infinitely more manageable than $1,200 a year. 

It is an attitude that many people have, and it’s one that often leads to debt and poor decisions.

Millions of Americans have credit card debt because a $200 monthly payment seems more achievable than a $5,000 payoff, even though the former carries a phenomenal interest rate. It’s also why countless first-time buyers rush into getting mortgages with small down payments and high-interest rates, even though doing so could mean they are paying twice as much money over the term.

Whenever you can benefit from making an upfront payment, do it. This is true for your loan debt and credit card debt, and it’s also true for your car insurance premiums.

Many insurance providers offer you an upfront payment discount of up to 5%. It doesn’t sound like much, but every little helps. If you have a $3,000 car insurance policy, that 5% adds up to $150. Add a few more discounts and you can save even more money and make an even bigger dent in your insurance rates.

Combine Policies and Vehicles

Insurance companies that offer multiple types of insurance tend to offer discounts when you purchase several products from them.

Known as multi-policy discounts or “bundling”, these offers are common with homeowners insurance and auto insurance, but they are also offered with renters insurance and life insurance.

You can combine several vehicles onto the same auto insurance policy, as well, saving much more than if you were to purchase separate policies.

These discounts are essential for multi-car households, but they are not limited to cars. Many insurers will also let you add boats, ATVs, motorcycles, and other vehicles onto the same policy.

Shop Around

Before you settle on a single policy, shop around, compare as many car insurance quotes as you can, try multiple different insurance options (uninsured/underinsured motorist coverage, comprehensive coverage, collision coverage) and make sure you’re getting the lowest rates for the best cover.

Too many drivers make the mistake of going with the same provider their friends or parents have; the same provider they have used for a number of years. In doing so, they could be missing out on huge savings. 

You could be forgiven for thinking that all providers offer similar rates and that the difference between them is minor. But regardless of your age, gender, and state, the difference between one provider and the next could be up to 200%!

Check if You’re Covered Elsewhere

Car insurance companies offer a number of add-ons and optional coverage options. These are enticing, as they cover you for numerous eventualities and some of them cost just a few dollars extra a month. But all of those dollars add up and could result in you paying much more than you need for cover you already have.

Roadside assistance is a great example of this. It will help you if you are stranded by the side of the road, assisting with services such as tire changes, fuel delivery, towing, and more. But if you have a premium credit card or are a member of an automobile club, you may already have that cover.

The same goes for rental car coverage, which is often purchased at the rental car counter. Although it has its uses, if you have an auto insurance policy, travel insurance, and a premium credit card, you’re probably already covered. In fact, many Visa credit cards offer this service completely free of charge when you use your Visa to pay the bill, but only if you reject the waivers sold by the rental car company.

Bottom Line: Best Auto Insurance Companies

​Car insurance coverage varies from state to state and provider to provider. There is no “best” company, as even the ones with consistently affordable rates will not be the best option in all states or for all demographics.

In our research, we found that GEICO was consistently one of the cheapest providers for good drivers, bad credit drivers, and even high risk drivers. GEICO also offers personal injury protection, collision insurance, medical payments, uninsured motorist coverage, and more, making them the most complete provider for the majority of drivers.

However, in some states, local farm bureaus come out on top, offering very cheap bodily injury liability coverage and property damage liability coverage, and giving policyholders a level of care and attention that they might not find with the bigger, national providers. USAA, which offers cheap car insurance to members of the military, also leads the way in the majority of states, but only for those who meet the criteria.

Simply put, there is no right insurance provider for you, just like there is no right coverage. That’s why it’s important to shop around, chop and change your coverage options, and don’t assume that any type of coverage or provider is right for you until you’ve looked at the numbers.

 

 

How To Get The Most Out Of Your Auto Insurance Coverage is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

The Best Student Loan Companies For Refinancing

Refinancing your student loans can make good financial sense, and that’s especially true if your current loans are stuck at a high-interest rate. With a new loan at a lower APR, you could save a bundle of money on interest each month and ultimately pay your student debt off faster. Consolidating several loans into one new one can also simplify your financial life and make keeping up with bills a lot easier.

College Ave and Earnest topped our list, but since student loan refinancing is an incredibly competitive space, you’ll also want to spend time comparing student loan companies to see who offers the best deal. Many lenders in this space offer incredibly low APRs, flexible payment options, borrower incentives, and more. This means it’s more important than ever to shop around so you wind up with the best student loan for your needs.

What You Should Know About Refinancing Federal Student Loans with a Private Lender

The lenders on this list can help you consolidate and refinance both federal student loans and private student loans. However, there are a few details to be aware of before you refinance federal loans with a private lender.

Switching federal loans to private means giving up federal protections like deferment and forbearance. You also give up your chance to qualify for income-driven repayment plans like Pay As You Earn (PAYE) or Income Based Repayment (IBR). Income-driven repayment plans let you pay a percentage of your discretionary income for 20 to 25 years before ultimately forgiving your remaining loan balances, so this perk isn’t one you should give up without careful thought and consideration.

Best Student Loan Refinancing Companies of 2021

As you start your search to find the best student loan for your lifestyle, take the time to compare lenders and all they offer their customers. While there are a ton of reputable companies offering high-quality student loan refinancing products on the market today, there are also companies you should probably steer clear of.

To make your search easier, we took the time to compare most of the top lenders in this space in terms of interest rates offered, fees, borrower benefits, and more. The following student loan companies are the cream of the crop, so you should start your search here.

Our Top Picks:

  1. Splash Financial
  2. College Ave
  3. Earnest
  4. SoFi
  5. CommonBond
  6. LendKey
  7. Wells Fargo
  8. PenFed Credit Union

Student Loan Refinancing Company Reviews

1. Splash Financial

Splash Financial may be a newer company in the student loan refinancing space, but their offerings are competitive. This company lets you check your rate online without a hard inquiry on your credit report, and their variable rates currently start at just 2.25% APR.

Not only are interest rates offered by Splash Financial industry-leading, but the company has a 95% customer satisfaction rate so far. Their cutting-edge technology also lets you apply for your loan and complete the loan process online, meaning less hassle and stress for you as the borrower.

Check Out Splash Financial’s Low Rates

2. College Ave

College Ave offers student loan refinancing products that can be tailored to your needs. They offer low fixed and variable interest rates, for example, and you’ll never pay an application fee or an origination fee. You can even qualify for a discount if you set your loan up on autopay, and a wide range of repayment schedules are available.

College Ave also offers a wide range of online calculators and tools that can help you figure out how much student loan refinancing could help you save and whether the move would be worth it in the end. Considering their low variable rates start at just 2.74% APR, there’s a good chance you could save money by refinancing if you have excellent credit or a cosigner with great credit.

Get Started with College Ave

3. Earnest

Earnest is another online lender that focuses most of its efforts on offering high-quality student loans. This company lets you consolidate debt at a lower interest rate than you might find elsewhere, and you get the option to pick a monthly payment and repayment period that works with your budget and your lifestyle.

While you’ll need excellent credit to qualify for the lowest interest rates, loans from Earnest come with variable APRs starting at 1.81% and low fixed rates starting at just 3.45%. To qualify for student loan refinancing with Earnest, you’ll need a minimum credit score of 650 and a strong employment and income history. You also need to be current on all your bills and cannot have a bankruptcy on your credit profile.

Refinance and Save with Earnest

4. SoFi

Also make sure to check out student loan refinancing company SoFi as you continue your search. This online lender offers some of the best student loan refinancing products available today, including loans with no application fee, origination fee, or hidden fees.

SoFi lets you apply for and complete the entire loan process online, and they offer live customer support 7 days a week. You can also check your rate online without a hard inquiry on your credit report, which makes it easier to see how much you could save before you commit.

Get Pre-Approved with SoFi in Less than 2 Minutes

5. Commonbond

Commonbond is another online student lender who lets you check your rate online without a hard inquiry on your credit report. With student loan refinancing from Commonbond, you could easily save thousands of dollars on interest with a new fixed interest rate as low as 3.21%. Repayment terms are offered for 5 to 20 years as well, letting you choose a new monthly payment and repayment timeline that works for your needs.

You can apply for your new loan online and note that these loans don’t come with an origination fee or any prepayment penalties. Your loan could also qualify for forbearance, which means having up to 24 months without payments during times of financial hardship.

Apply Online with Commonbond

6. LendKey

LendKey offers private student loans and flexible student loan refinancing options to serve a variety of needs. You can repay your loan between 5 and 20 years, and their refinance loans don’t charge an origination fee.

You can use this company’s online interface to check your rate without a hard inquiry on your credit report, and variable APRs start at just 2.01% for graduates with excellent credit. LendKey loans also receive 9.3 out of 10 possible stars in recent reviews, meaning their customers are mostly happy with their decision to go with this company.

Save Thousands by Refinancing with LendKey

7. Wells Fargo

While Wells Fargo is mostly popular for their banking products, home mortgage products, and personal loans, this bank also offers student loan refinancing products. These loans let you consolidate student debts into a new loan with a low variable or fixed interest rate, and you can even score a discount for setting your loan up on autopay.

Terms for Wells Fargo loans are available anywhere from 5 to 20 years, meaning you can choose a repayment schedule and monthly payment that suits your needs. Wells Fargo also lets you check your rate online without a hard inquiry on your credit report.

Get Started with Wells Fargo

8. PenFed Credit Union

PenFed Credit Union offers unique student loan products powered by Purefy. You might be able to qualify for a lower interest rate that could lead to enormous interest savings over time, and PenFed lets you choose a repayment term and monthly payment that fits with your budget and lifestyle.

You can apply for student loan refinancing on your own, but PenFed Credit Union also allows cosigners. Low fixed interest rates start at just 3.48% APR, and you can check your rate online without a hard inquiry on your credit report.

Learn More about PenFed Credit Union

What To Look For When Refinancing

If you decide you want to refinance your student loans, you’ll be happy to know the refinancing market is more robust than ever. A variety of lenders offer insanely attractive loan options for those who can qualify, although you should know that student loan companies tend to be very finicky about your credit score. Some also won’t let you refinance if you didn’t graduate from college, or even if you graduated from an “unapproved” school.

While you should be aware of any lender-specific eligibility requirements before you apply with any student loan company, there are plenty of other factors to look out for. Here’s everything you should look for in a student loan refinancing company before you decide to trust them with your loans.

Low Interest Rate

Obviously, the main reason you’re probably thinking of refinancing your loans is the potential to save money on interest. Lenders who offer the lowest rates available today can potentially help you save more, although it’s important to consider that you may not qualify for the lowest rates available if you don’t have excellent credit.

Cosigner Requirements

Also consider that most lenders will offer better rates and loan terms if you have a cosigner with better credit than you have. This is especially true if your credit isn’t great, so make sure to ask family members if they’re willing to cosign on your new student loan if you hope to get the best rate. Just remember that your cosigner will be jointly liable for repayment, meaning you could quickly damage your relationship if you default on your loan and leave them holding the bag.

Low Fees or No Fees

Student loans are like any other loan in the fact that some charge higher fees or more fees than others. Since many student loans come with an application fee or an origination fee, you’ll want to look for lenders that don’t charge these fees. Also check for hidden fees like prepayment penalties.

Discounts Available

Some student loan companies let you qualify for discounts, the most popular of which is a discount for using autopay. If you’re able and willing to set up automatic payments on your credit card, you could save .25% or .50% off your interest rate depending on the lender you go with.

Rate Check Option

Many of the top student loan refinancing companies on this list make it possible to check your interest rate online without a hard inquiry on your credit report. This is a huge benefit since knowing your rate can help you figure out if refinancing is even worth it before you take the time to fill out a full loan application.

Flexible Repayment Plan

Also make sure any lender you go with offers some flexibility in your repayment plan and your monthly payment. You’ll want to make sure refinancing aligns with your long-term financial goals and your monthly budget, and it’s crucial to choose a new loan with a monthly payment you can live with.

Most lenders in this space offer repayment timelines of up to 20 years, which means you could spread your payments over several decades to get a monthly payment that makes sense with your income. Keep in mind, however, that you’ll pay more interest over the life of your loan when you take a long time to pay it off, so you may want to consider prioritizing a faster payment plan.

The Bottom Line

Student loan refinancing may not sound like a lot of fun. However, taking the time to consider all your loan options could easily save you thousands of dollars. This is especially true if you have a lot of debt at a high interest rate. By consolidating all your student loans into a new one with a lower APR, you could make loan repayment easier with a single payment and save a ton of money that would otherwise go to straight to interest without helping you pay off your loans.

The first step of the loan process is the hardest, however, and that’s choosing a student loan refinancing company that you trust. The lenders on this list are highly rated, but they also offer some of the best loan products on the market today.

  • Work with College Ave, our top pick, to refinance your student loan.

Start your search here and you’re bound to wind up with a student loan you can live with. At the very least, you’ll have a better idea of the loans that are available and how much you might save if you decide to refinance later on.

The post The Best Student Loan Companies For Refinancing appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

The Worst Ways to Deal With a Bill Collector

The Worst Ways to Deal With a Bill Collector

Dealing with a bill collector is never fun and it can be particularly stressful when you’re sitting on a mountain of debt. Sometimes debt collectors fail to follow the rules outlined in the Fair Debt Collection Practices Act. If that’s the issue you’re facing, it might be a good idea to file a complaint. But if you’re personally making any of these mistakes, your debt problem could go from bad to worse.

Check out our credit card calculator.

1. Ignoring Debt Collectors

Screening calls and avoiding bill collectors won’t help you get your debt under control. Debts generally have a statute of limitations that varies depending on the state you live in. Once it expires, the collector might not be able to sue you anymore. But you could still be responsible for paying back what you owe in addition to any interest that has accumulated.

In addition to the potential legal consequences of unpaid bills, letting old debt pile up can destroy your credit score. Unpaid debts can remain on a credit report for as many as seven years. So if your debt collector is getting on your last nerves, it might be best to stop hiding and face him head on.

2. Saying Too Much Over the Phone

The Worst Ways to Deal With a Bill Collector

If you decide to stop dodging your bill collectors, it’s important to avoid sharing certain details over the phone. You never want to say that you’ll pay a specific amount of money by a deadline or give someone access to your bank accounts. Anything you say can be used against you and agreeing to make a payment can actually extend a statute of limitations that has already run out.

A debt collector’s No. 1 goal is to collect their missing funds. They can’t curse at you or make empty threats, but they can say other things to try and scare you into paying up. Staying calm, keeping the call short and keeping your comments to a minimum are the best ways to deal with persistent bill collectors.

Related Article: Dealing With Debt Collectors? Know Your Rights

3. Failing to Verify That the Debt Is Yours

When you’re talking to a bill collector, it’s also wise to avoid accepting their claims without making sure they’re legitimate. Debt collection scams are common. So before you send over a single dime, you’ll need to confirm that the debt belongs to you and not someone else.

Reviewing your credit report is a great place to start. If you haven’t received any written documentation from the collection agency, it’s a good idea to request that they mail you a letter stating that you owe them a specific amount of money.

If you need to dispute an error you found on your credit report, you have 30 days from the date that you received formal documentation from the collection agency to notify them (in writing) that a mistake was made. You’ll also need to reach out to each of the credit reporting agencies to get the error removed. They’ll expect you to mail them paperwork as proof of your claim.

4. Failing to Negotiate the Payments

The Worst Ways to Deal With a Bill Collector

No matter how big your debts, there’s usually room for negotiation when it comes to making payments. If the payment plan your bill collector offers doesn’t work for you, it’s okay to throw out a number you’re more comfortable with.

Sometimes, it’s possible to get away with paying less than what you owe. Instead of agreeing to pay back everything, you can suggest that you’re willing to pay back a percentage of the debt and see what happens. A non-profit credit counselor can help you come up with a debt management plan if you need assistance. Whatever you agree to, keep in mind that the deal needs to be put in writing.

Related Article: All About the Statute of Limitations on Debt

5. Failing to Keep Proper Documentation

Whenever you communicate with a bill collector, it’s a good idea to take notes. Jotting down details about when you spoke with a collector and what you discussed can help you if you’re forced to appear in court or report a collector who has broken the law. Collecting written notices from bill collectors and saving them in a folder can also help your case.

Bottom Line

Dealing with bill collectors can be a real pain. By knowing how to interact with them, you’ll be in the best position to get rid of your unpaid loans and credit card debt (that is, if you actually owe anything) on your own terms.

Photo credit: ©iStock.com/Steve Debenport, ©iStock.com/RapidEye, ©iStock.com/JJRD

The post The Worst Ways to Deal With a Bill Collector appeared first on SmartAsset Blog.

Source: smartasset.com

Repossession Credit Scores: What You Need to Know

One of the harsh truths of secured loans is that your asset can be repossessed if you fail to make the payments. In the words of the FTC, “your consumer rights may be limited” if you miss your monthly payments, and when that happens, both your financial situation and your bank balance will take a hit.

On this guide, we’ll look at what can happen when you fall behind on your car payments, and how much damage it can do to your credit score.

What is a Car Repossession?

An auto loan is a loan acquired for the sole purpose of purchasing a car. The lender covers the cost of the car, you get the vehicle you want, and in return you pay a fixed monthly sum until the loan balance is repaid.

If you fail to make to make a payment or you’re late, the lender may assume possession of your car and sell it to offset the losses. At the same time, they will report your missed and late payments to the main credit bureaus, and your credit score will take a hit. What’s more, if the sale is not enough to cover the remainder of the debt, you may be asked to pay the residual balance.

The same process applies to a title loan, whereby your car is used as collateral for a loan but isn’t actually the purpose of the loan.

To avoid repossession, you need to make your car payments on time every month. If you are late or make a partial payment, you may incur penalties and it’s possible that your credit score will suffer as well. If you continue to delay payment, the lender will seek to cover their costs as quickly and painlessly as possible.

How a Repossession Can Impact Your Credit Score

Car repossession can impact your credit history and credit score in several ways. Firstly, all missed and late car payments will be reported to the credit bureaus and will remain on your account for up to 7 years. They can also reduce your credit score. 

Secondly, if your car is repossessed on top of late payments, you could lose up to 100 points from your credit score, significantly reducing your chances of being accepted for a credit card, loan or mortgage in the future. 

And that’s not the end of it. If you have had your car for less than a couple of years, there’s a good chance the sale price will be much less than the loan balance. Car repossession doesn’t wipe the slate clean and could still leave you with a sizable issue. If you have a $10,000 balance and the car is sold for $5,000, you will owe $5,000 on the loan and the lender may also hit you with towing charges.

Don’t assume that the car is worth more than the value of the loan and that everything will be okay. The lender isn’t selling it direct; they won’t get the best price. Repossessed vehicles are sold cheaply, often for much less than their value, and in most cases, a balance remains. 

Lenders may be lenient with this balance as it’s not secured, so their options are limited. However, they can also file a judgment or sell it to a collection agency, at which point your problems increase and your credit score drops even further.

How Does a Repo Take Place?

If you have a substantial credit card debt and miss a payment, your creditor will typically take it easy on you. They can’t legally report the missed payment until at least 30-days have passed and most creditors won’t sell the account to a collection agency until it is at least 180-days overdue.

This leads many borrowers into a false sense of security, believing that an auto loan lender will be just as forgiving. But this is simply not true. Some lenders will repo your car just 90-days after your last payment, others will do it after 60 days. They don’t make as many allowances because they don’t need to—they can simply seize your asset, get most of the money back, and then chase the rest as needed.

Most repossessions happen quickly and with little warning. The lender will contact you beforehand and request that you pay what you owe, but the actual repo process doesn’t work quite like what you may have seen on TV. 

They’re not allowed to break down your door or threaten you; they’re not allowed to use force. And, most of the time, they don’t need to. If they see your car, they will load it onto their truck and disappear. They’re so used to this process that they can typically do it in less than 60-seconds.

It doesn’t matter whether you’re at home or at work—you just lost your ride.

What Can You Do Before a Repo Hits Your Credit Score?

Fortunately, there are ways to avoid the repo process and escape the damage. You just need to act quickly and don’t bury your head in the sand, as many borrowers do.

Request a Deferment

An auto loan lender won’t waste as much time as a creditor, simply because they don’t need to. However, they still understand that they won’t get top dollar for the car and are generally happy to make a few allowances if it means you have more chance of meeting your payments.

If you sense that your financial situation is on the decline, contact your lender and request a deferment. This should be done as soon as possible, preferably before you miss a payment.

A deferment buys you a little extra time, allowing you to take the next month or two off and adding these payments onto the end of the term. The FTC recommends that you get any agreement in writing, just in case they renege on their promise.

Refinance

One of the best ways to avoid car repossession, is to refinance your loan and secure more favorable terms. The balance may increase, and you’ll likely find yourself paying more interest over the long-term, but in the short-term, you’ll have smaller monthly payments to contend with and this makes the loan more manageable.

You will need a good credit score for this to work (although there are some bad credit lenders) but it will allow you to tweak the terms in your favor and potentially improve your credit situation.

Sell the Car Yourself

Desperate times call for desperate measures; if you’re on the brink of facing repossession, you should consider selling the car yourself. You’ll likely get more than your lender would and you can use this to clear the balance. 

Before you sell, calculate how much is left and make sure the sale will cover it. If not, you will need to find the additional funds yourself, preferably without acquiring additional debt. Ask friends or family members if they can help you out.

How Long a Repo Can Affect Your Credit Score

The damage caused by a repossession can remain on your credit score for 7 years, causing some financial difficulty. However, the damage will lessen over time and within three or four years it will be negligible at best.

Derogatory marks cease to have an impact on your credit score a long time before it disappears off your credit report, and it’s the same for late payments and repossessions.

Still, that doesn’t mean you should take things lightly. The lender can make life very difficult for you if you don’t meet your payments every month and don’t work with them to find a solution.

What About Voluntary Repossession?

If you’re missing payments because you’ve lost your job or suffered a major change in your financial circumstances, it may be time to consider voluntary repossession, in which case there are no missed payments and you don’t need to worry about repo men knocking on your door or coming to your workplace.

With voluntary repossession, the borrower contacts the lender, informs them they can no longer afford the payments, and arranges a time and a place to return the car. However, while this is a better option, it can do similar damage to the borrower’s credit score as a voluntary repossession, like a traditional repossession, is still a defaulted loan.

Missed payments aside, the only difference concerns how the repossession shows on the borrower’s credit report. Voluntary repossession will look better to a creditor who manually scans the report, but the majority of lenders run automatic checks and won’t notice a difference.

Summary: Act Quickly

If you have student loan, credit card, and other unsecured debt, a repo could reduce your chances of a successful debt payoff and potentially prevent you from getting a mortgage. But it’s not the end of the world. You can get a deferment, refinance or reinstate the loan, and even if the worst does happen, it may only take a year or so to get back on track after you fix your financial woes.

Repossession Credit Scores: What You Need to Know is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

What is Credit Card Churning? Dangers and Benefits

Credit card issuers have consumers right where they want them, lending money at high-interest rates and earning money from many different fees. Even reward cards benefit the issuers, because all the additional perks and rewards they provide are covered by the increased merchant fees, which essentially means the credit card company offers you extra money to incentivize you to spend, and then demands this money from the retailers.

It’s a good gig, but some consumers believe they can beat the credit card companies and one of the ways they do this is via something known as credit card churning.

What is Credit Card Churning?

Many reward cards offer sign-up bonuses to entice consumers to apply. Not only can you get regular cash back, statement credit, and air miles, but you’ll often get a reward just for signing up. For instance, many rewards credit cards offer a lump sum payment to all consumers who spend a specific sum of money during the first three months.

Credit card churning is about taking advantage of these bonuses, and getting maximum benefits with as little cost as possible.

“Churners” will sign up for multiple different reward cards in a short space of time, collect as many of these bonuses as they can, clear the card balance, and then reap the rewards.

Does Credit Card Churning Work?

Credit card churning does work, to an extent. Reward credit cards typically don’t require you to spend that much money to receive the sign up bonus, with most bonuses activated for a spend of just $500 to $1,000 over those first three months. This is easily achievable for most credit card users, as the average spend for reward cards is over $800 a month.

If you have good credit, it’s possible to sign up to multiple credit cards, collect bonus offers without increasing your usual spend, and get everything from hotel stays to free flights, cash back, gift cards, statement credit, and more.

However, it’s something that many credit card companies are trying to stop, as they don’t benefit from users who collect sign-up bonuses, don’t accumulate debt, and then pay off their balance in full. As a result, you may face restrictions with regards to how many bonuses you can collect within a specified timeframe. 

What’s more, there are several things that can go wrong when you’re playing with multiple new accounts like this, as all information is sent to the credit bureaus and could leave a significant mark on your credit report.

Dangers of Churning

Even if the credit card companies don’t prevent you from acquiring multiple new credit cards, there are several issues you could face, ones that will offset any benefits achieved from those generous sign-up bonuses, including:

1. You Could be Hit with Hefty Fees

Many reward credit cards have annual fees, and these average around $95 each, with some premium rewards cards going as high as $250 and even $500. At best, these fees will reduce the amount of money you receive, at worst they will completely offset all the benefits and leave you with a negative balance.

Annual fees aren’t the only fees that will reduce your profits. You may also be charged fees every time you withdraw cash, gamble, make a foreign transaction or miss a payment,

2. Your Credit Score Will Drop

Every time you apply for a new credit card, you will receive a hard inquiry, which will show on your credit report and reduce your FICO score by anywhere from 2 to 5 points. Rate shopping, which bundles multiple inquiries into one, doesn’t apply to credit card applications, so credit card churners tend to receive many hard inquiries.

A new account can also reduce your credit score. 15% of your score is based on the length of your accounts while 10% is based on how many new accounts you have. As soon as that credit card account opens, your average age will drop, you’ll have another new account, and your credit score will suffer as a result.

The damage done by a new credit card isn’t as severe as you might think, but if you keep applying and adding those new accounts, the score reduction will be noticeable. You could go from Excellent Credit to Good Credit, or from Good to Fair, and that makes a massive difference if you have a home loan or auto loan application on the horizon.

Your credit utilization ratio also plays a role here. This ratio is calculated by comparing your total debt to your available credit. If you have a debt of $3,000 spread across three credit cards with a total credit limit of $6,000, your credit utilization ratio is 50%. The higher this score is, the more of an impact it will have on your credit score, and this is key, as credit utilization accounts for a whopping 30% of your score.

Your credit utilization ratio is actually one of the reasons your credit score doesn’t take that big of a hit when you open new cards, because you’re adding a new credit limit that has yet to accumulate debt, which means this ratio grows. However, if you max that card out, this ratio will take a hit, and if you then clear the debt and close it, all those initial benefits will disappear.

You can keep the card active, of course, but this is not recommended if you’re churning.

3. You’re at Risk of Accumulating Credit Card Debt

Every new card you open and every time your credit limit grows, you run the risk of falling into a cycle of persistent debt. This is especially true where credit card rewards are concerned, as consumers spend much more on these cards than they do on non-reward credit cards.

Very few consumers accumulate credit card debt out of choice. It’s not like a loan—it’s not something they acquire because they want to make a big purchase they can’t afford. In most cases, the debt creeps up steadily. They pay it off in full every month, only to hit a rough patch. Once that happens, they miss a month and promise themselves they’ll cover everything the next month, only for it to grow bigger and bigger.

Before they realize it, they have a mass of credit card debt and are stuck paying little more than the minimum every month. 

If you start using a credit card just to accumulate rewards and you have several on the go, it’s very easy to get stuck in this cycle, at which point you’ll start paying interest and it will likely cost you more than the rewards earn you.

4. It’s Hard to Keep Track

Opening one credit card after another isn’t too difficult, providing you clear the balances in full and then close the card. However, if you’re opening several cards at once then you may lose track, in which case you could forget about balances, fees, and interest charges, and miss your chance to collect airline miles cash back, and other rewards.

How to Credit Churn Effectively

To credit churn effectively, look for the best rewards and most generous credit card offers, making sure they:

  • Suit Your Needs: A travel rewards card is useless if you don’t travel; a store card is no good if you don’t shop at that store. Look for rewards programs that benefit you personally, as opposed to simply focusing on the ones with the highest rates of return.
  • Avoid Annual Fees: An annual fee can undo all your hard work and should, therefore, be avoided. Many cards have a $0 annual fee, others charge $95 but waive the fee for the first year. Both of these are good options for credit card churning.
  • Don’t Accumulate Fees: Understand how and why you might be charged cash advance fees and foreign transaction fees and avoid them at all costs. The fees are not as straightforward as you might think and are charged for multiple purchases.
  • Plan Ahead: Make a note of the bonus offer and terms, plan ahead, and make sure you meet these terms by the due dates and that you cover the balance in full before interest has a chance to accumulate.
  • Don’t Spend for the Sake of It: Finally, and most importantly, don’t spend money just to accumulate more rewards. As soon as you start increasing your spending just to earn a few extra bucks, you’ve lost. If you spend an average of $500 a month, don’t sign up for a card that requires you to spend $3,000 in the first three months, as it will encourage bad habits. 

What Should You do if it Goes Wrong?

There are many ways that credit card churning could go wrong, some more serious than others. Fortunately, there are solutions to all these problems, even for cardholders who are completely new to this technique:

Spending Requirements Aren’t Met 

If you fail to meet the requirements of the bonus, all is not lost. Your score has taken a minor hit, but providing you followed the guidelines above, you shouldn’t have lost any money.

You now have two options: You can either clear the balance as normal and move onto your next card, taking what you have learned and trying again, or you can keep the card as a back-up or a long-term option. 

Credit card churning requires you to cycle through multiple issuers and rewards programs, never sticking with a single card for more than a few months. But you need some stability as well, so if you don’t already have a credit card to use as a backup, and if that card doesn’t charge high fees or rates, keep it and use it for emergency purchases or general use.

Creditor Refuses the Application

Creditors can refuse an application for a number of reasons. If this isn’t your first experience of churning, there’s a chance they know what you’re doing and are concerned about how the card will be used. However, this is rare, and in most cases, you’ll be refused because your credit score is too low.

Many reward credit cards have a minimum FICO score requirement of 670, others, including premium American Express cards, require scores above 700. You can find more details about credit score requirements in the fine print of all credit card offers.

Your Credit Score Takes a Hit

As discussed already, credit card churning can reduce your credit score by a handful of points and the higher your score is, the more points you are likely to lose. Fortunately, all of this is reversible.

Firstly, try not to panic and focus on the bigger picture. While new accounts and credit length account for 25% of your total score, payment history and credit utilization account for 65%, so if you keep making payments on your accounts and don’t accumulate too much credit card debt, your score will stabilize.

You Accumulate Too Much Debt

Credit card debt is really the only lasting and serious issue that can result from credit card churning. You’ll still earn benefits on a rolling balance, but your interest charges and fees will typically cost you much more than the benefits provide, and this is true even for the best credit cards and the most generous reward programs.

If this happens, it’s time to put credit card churning on the back-burner and focus on clearing your debts instead. Sign up for a balance transfer credit card and move your debt to a card that has a 0% APR for at least 15 months. This will give you time to assess your situation, take control of your credit history, and start chipping away at that debt.

What is Credit Card Churning? Dangers and Benefits is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Perch unveils impressive credit building app

Perch is a new mobile app available for iOS that can improve your credit score by incorporating your rent history and recurring subscriptions such as streaming services.

Currently, Perch is only available through the Apple Store. There are some similar offerings out there, but I think this one is better. It’s completely free and it reports to more credit bureaus.

Read more from our credit card experts.

Ask Ted a question.

Rent

Typically, your rental payment history does not appear on your credit reports. That’s a shame, because rent is the largest monthly expense for many households. It would be great if paying your rent on time helped you build your credit score.

There are some existing services that facilitate reporting your rent to the credit bureaus, but they typically charge fees. They can also get complicated, since many require your landlord to respond to the tracking company each month or mandate that they receive your payments through their platform). With Perch, you provide your lease details and grant read-only access to your bank account via Plaid’s secure API. That allows Perch to verify your payment history – without bugging your landlord or forcing you to change your payment method.

Even better, Perch can retroactively add up to 24 months of rental payment history to your credit reports with all three major bureaus. This could jumpstart your credit score in a big way. The company tells me their average customer improves their credit score between 60 and 160 points. And many who were previously unscorable instantly land between 670 and 690 – placing them in the “good credit” category. That’s incredible!

See related: How to pay rent with a credit card

Subscriptions 

Perch also has a novel approach to monitoring subscriptions. Users notify the company which recurring subscriptions they want to include, and Perch provides them with a virtual debit card loaded up to that pre-approved amount. The user pays Netflix, Hulu, Spotify, Apple Music or another subscription service with that virtual card number. They then pay Perch back. Perch reports this virtual card payment activity as an additional tradeline on users’ credit reports (note that Perch currently reports subscriptions to Equifax and TransUnion; it plans to add Experian by July).

See related: I signed up for Experian Boost. This is what happened

I asked Perch founder and CEO Michael Broughton what happens if someone doesn’t pay them back – would that end up hurting their credit score? He said no. Perch really wants to help their users build credit, so it will not place a negative mark on a customer’s credit report in that situation – or even charge a late fee.

Instead, Perch relies on proactive measures such as cash flow underwriting and warnings if your account balance falls too low. If you don’t pay, they’ll eventually prevent you from making future purchases. Broughton explained that their liability is very limited because they pre-approve these virtual card purchases and the eligible subscription services tend to charge modest amounts. He assured me that no one can get away with buying $500 Nikes and skipping town.

About Perch

Broughton is a 21-year-old graduate of the University of Southern California. He was inspired to found Perch after he had difficulty securing a loan for a $10,000 tuition shortfall. One of seven children born into a military family, Broughton was the first member of his family to attend college. He’s now assisting others who wish to improve their financial lives. The company’s investors include heavy hitters such as Citi, Sequoia Capital, SoftBank and Y Combinator.

The market is huge. FICO reports that 79 million Americans have subprime credit and another 53 million can’t be scored because they lack a sufficient credit history. Broughton told me Perch’s initial sweet spot is 18-25 year-olds, but he also noted that many older adults could benefit, particularly immigrants and people rebuilding their credit after a misstep. He has big plans for expansion and believes Perch can benefit 100,000 people in 2021. The app formally launched in late January and is onboarding new customers in weekly batches.

See related: How to build credit

Broughton’s ultimate goal is to spread the gospel of financial literacy and credit building. He wants to help people obtain their first credit cards and other financial products. “We want to launch you into the credit world on a better foot,” he said. The way I see it, Perch is off to an excellent start.

Have a question about credit cards? E-mail me at ted.rossman@creditcards.com and I’d be happy to help.

Source: creditcards.com

How Often Can You Check Your Credit Score, and How Do You Get It?

A woman sits on a couch with her laptop in her lap.

Do you keep a close eye on your personal finances? Or maybe you’ve never given them much thought. Either way, it’s time to start paying more attention to your credit score. Your credit score can control a lot—what loans you qualify for, the credit cards that are available to you, etc. To keep on top of it all, it’s important to check your credit score. But how often can you check your credit score, exactly?

You know what they say: knowledge is power. Find out how often you can check your credit score below so you can arm yourself with knowledge about your personal finances.

The Difference Between Your Credit Score and Credit Report

Before looking into how often you can check your credit score, it’s important to understand the difference between a credit score and a credit report. They can be easy to confuse, so you might think they’re the same—but they’re not.

Your credit report is a detailed document about your credit history. It shows active and past accounts, whether you paid on time and how much credit you’ve used compared to open balances. Other information might include names of your past employers if you’ve ever included them on a credit application, as well as negative records such as collections accounts and bankruptcies.

Your credit score is a three-digit number, typically between 300 and 850, that’s calculated based on all the information in your credit report. There are many credit scoring models, including popular models such as FICO and VantageScore.

While credit scoring models all work toward the same goal—providing an overall picture of how likely you are to pay your debts—they do so with slight variations in the formulas. That means your credit scores might vary between these models.

You also have more than one credit report. Not every lender or business reports to all three of the major credit bureaus, for example. So the information in your credit file can also vary slightly. That also means that you have different credit scores, too.

How Often Can You Check Your Credit Score for Free?

Here’s where the difference between credit score and credit report comes in. You can get your free credit report from each of the three major bureaus via AnnualCreditReport.com.

Usually, the reports are available once every year. Which means you could get a look at your credit information every four months by spreading out your requests for each of the bureaus. However, due to personal financial stress related to COVID-19 and to help consumers best manage credit and finances during this time, AnnualCreditReport.com and the three credit bureaus are making reports available weekly through April 2021.

Unfortunately, a free credit report doesn’t mean a free credit score. When you order your report you get the detailed information in your file. You don’t get the score the bureau might show lenders when you apply for credit. To get regular access to your credit scores, you typically have to pay for it.

Reasons to Check Your Credit Report and Score

So why do you need to keep tabs on your credit score and credit report? Here are a few reasons:

  • Keeping a regular eye on your credit report helps you identify inaccurate negative items that might be dragging down your score. The faster you catch and challenge the accuracy of these items, the more likely you’re able to prove they’re not correct. The credit bureaus have to remove them if they can’t be proven correct.
  • Checking your credit report regularly helps you see whether suspicious activity is occurring, which can indicate that you’re a victim of identity theft or fraud. Again, knowing and acting early can save you a lot of hassle in the long run.
  • Knowing your credit score and how it moves up and down over time can also help you understand whether there might be issues with your report. If you see the score moving in a negative direction and aren’t sure why, you can investigate further.
  • You might want to check your credit before you apply for a loan, especially one with greater qualification requirements such as a mortgage. That way, you can fix any possible issues before a lender evaluates you for approval.
  • You may also want to ensure there aren’t any surprises on your report before you apply to rent an apartment, get auto insurance quotes or send your resume in for a job opportunity, as some of these opportunities can depend in part on your credit history.
  • If you’re working to improve your credit history and score, you may want to see that your efforts are having a positive impact.

How Can You Get Your Credit Score?

You might have access to your credit score via your credit card provider. If this is a benefit you get as a card holder, you can typically see the score by logging into your credit card account online or via a mobile app. The downside is that this is only one possible version of your score.

You can see another version of your score by signing up for Credit.com’s Credit Report Card. You’ll get a score that updates every 14 days as well as information about the five major factors that go into determining credit scores and how you’re faring with each.

If you want to get more bang for your buck, it might be time to look at ExtraCredit. You’ll get access to five useful services, including TrackIt, which will give you a look into 28 of your FICO Scores. 

How Many Points Does Your Credit Score Go Down for an Inquiry?

Requesting your own score or credit report doesn’t impact your score at all. That’s because this is considered a soft inquiry. Only hard inquiries impact your credit score. Hard inquiries occur when a lender pulls your credit to evaluate you for a loan or other credit.

So, whether you’re requesting your credit report via AnnualCreditReport.com or investing in a service such as ExtraCredit, get as much information about your credit as you can. It won’t hurt your score to do so.

Sign up for ExtraCredit today!

The post How Often Can You Check Your Credit Score, and How Do You Get It? appeared first on Credit.com.

Source: credit.com

Why It’s Harder to Get Credit When You’re Self-Employed

Around 6.1% of employed Americans worked for themselves in 2019, yet the ranks of the self-employed might increase among certain professions more than others. By 2026, the U.S. Bureau of Labor Statistics projects that self-employment will rise by nearly 8%. 

Some self-employed professionals experience high pay in addition to increased flexibility. Dentists, for example, are commonly self-employed, yet they earned a median annual wage of $159,200 in 2019. Conversely, appraisers and assessors of real estate, another career where self-employment is common, earned a median annual wage of $57,010 in 2019.

Despite high pay and job security in some industries, there’s one area where self-employed workers can struggle — qualifying for credit. When you work for yourself, you might have to jump through additional hoops and provide a longer work history to get approved for a mortgage, take out a car loan, or qualify for another line of credit you need.

Why Being Self-Employed Matters to Creditors

Here’s the good news: Being self-employed doesn’t directly affect your credit score. Some lenders, however, might be leery about extending credit to self-employed applicants, particularly if you’ve been self-employed for a short time. 

When applying for a mortgage or another type of loan, lenders consider the following criteria:

  • Your income
  • Debt-to-income ratio
  • Credit score
  • Assets
  • Employment status

Generally speaking, lenders will confirm your income by looking at pay stubs and tax returns you submit. They can check your credit score with the credit bureaus by placing a hard inquiry on your credit report, and can confirm your debt-to-income ratio by comparing your income to the debt you currently owe. Lenders can also check to see what assets you have, either by receiving copies of your bank statements or other proof of assets. 

The final factor — your employment status — can be more difficult for lenders to gauge if you’re self-employed, and managing multiple clients or jobs. After all, bringing in unpredictable streams of income from multiple sources is considerably different than earning a single paycheck from one employer who pays you a salary or a set hourly rate. If your income fluctuates or your self-employment income is seasonal, this might be considered less stable and slightly risky for lenders.

That said, being honest about your employment and other information when you apply for a loan will work out better for you overall. Most lenders will ask the status of your employment in your loan application; however, your self-employed status could already be listed with the credit bureaus. Either way, being dishonest on a credit application is a surefire way to make sure you’re denied.

Extra Steps to Get Approved for Self-Employed Workers

When you apply for a mortgage and you’re self-employed, you typically have to provide more proof of a reliable income source than the average person. Lenders are looking for proof of income stability, the location and nature of your work, the strength of your business, and the long-term viability of your business. 

To prove your self-employed status won’t hurt your ability to repay your loan, you’ll have to supply the following additional information: 

  • Two years of personal tax returns
  • Two years of business tax returns
  • Documentation of your self-employed status, including a client list if asked
  • Documentation of your business status, including business insurance or a business license

Applying for another line of credit, like a credit card or a car loan, is considerably less intensive than applying for a mortgage — this is true whether you’re self-employed or not. 

Most other types of credit require you to fill out a loan application that includes your personal information, your Social Security number, information on other debt you have like a housing payment, and details on your employment status. If your credit score and income is high enough, you might get approved for other types of credit without jumping through any additional hoops.

10 Ways the Self-Employed Can Get Credit

If you work for yourself and want to make sure you qualify for the credit you need, there are plenty of steps you can take to set yourself up for success. Consider making the following moves right away.

1. Know Where Your Credit Stands

You can’t work on your credit if you don’t even know where you stand. To start the process, you should absolutely check your credit score to see whether it needs work. Fortunately, there are a few ways to check your FICO credit score online and for free

2. Apply With a Cosigner

If your credit score or income are insufficient to qualify for credit on your own, you can also apply for a loan with a cosigner. With a cosigner, you get the benefit of relying on their strong credit score and positive credit history to boost your chances of approval. If you choose this option, however, keep in mind that your cosigner is jointly responsible for repaying the loan, if you default. 

3. Go Straight to Your Local Bank or Credit Union

If you have a long-standing relationship with a credit union or a local bank, it already has a general understanding of how you manage money. With this trust established, it might be willing to extend you a line of credit when other lenders won’t. 

This is especially true if you’ve had a deposit account relationship with the institution for several years at minimum. Either way, it’s always a good idea to check with your existing bank or credit union when applying for a mortgage, a car loan, or another line of credit. 

4. Lower Your Debt-to-Income Ratio

Debt-to-income (DTI) ratio is an important factor lenders consider when you apply for a mortgage or another type of loan. This factor represents the amount of debt you have compared to your income, and it’s represented as a percentage.

If you have a gross income of $6,000 per month and you have fixed expenses of $3,000 per month, for example, then your DTI ratio is 50%.

A DTI ratio that’s too high might make it difficult to qualify for a mortgage or another line of credit when you’re self-employed. For mortgage qualifications, most lenders prefer to loan money to consumers with a DTI ratio of 43% or lower. 

5. Check Your Credit Report for Errors

To keep your credit in the best shape possible, check your credit reports, regularly. You can request your credit reports from all three credit bureaus once every 12 months, for free, at AnnualCreditReport.com

If you find errors on your credit report, take steps to dispute them right away. Correcting errors on your report can give your score the noticeable boost it needs. 

6. Wait Until You’ve Built Self-Employed Income

You typically need two years of tax returns as a self-employed person to qualify for a mortgage, and you might not be able to qualify at all until you reach this threshold. For other types of credit, it can definitely help to wait until you’ve earned self-employment income for at least six months before you apply. 

7. Separate Business and Personal Funds

Keeping personal and business funds separate is helpful when filing your taxes, but it can also help you lessen your liability for certain debt. 

For example, let’s say that you have a large amount of personal debt. If your business is structured as a corporation or LLC and you need a business loan, separating your business funds from your personal funds might make your loan application look more favorable to lenders.

As a separate issue, start building your business credit score, which is separate from your personal credit score, early on. Setting up business bank accounts and signing up for a business credit card can help you manage both buckets of your money, separately. 

8. Grow Your Savings Fund

Having more liquid assets is a good sign from a lender’s perspective, so strive to build up your savings account and your investments. For example, open a high-yield savings account and save three to six months of expenses as an emergency fund. 

You can also open a brokerage account and start investing on a regular basis. Either strategy will help you build up your assets, which shows lenders you have a better chance of repaying your loan despite an irregular income. 

9. Provide a Larger Down Payment

Some lenders have tightened up mortgage qualification requirements, and some are even requiring a 20% down payment for home loans. You’ll also have a better chance to secure an auto loan with the best rates and terms with more money down, especially for new cars that depreciate rapidly.

Aim for 20% down on a home or a car that you’re buying. As a bonus, having a 20% down payment for your home purchase helps you avoid paying private mortgage insurance.

10. Get a Secured Loan or Credit Card

Don’t forget the steps you can take to build credit now, if your credit profile is thin or you’ve made mistakes in the past. One way to do this is applying for a secured credit card or a secured loan, both of which require collateral for you to get started.

The point of a secured credit card or loan is getting the chance to build your credit score and prove your creditworthiness as a self-employed worker, when you can’t get approved for unsecured credit. After making sufficient on-time payments toward the secured card or loan, your credit score will increase, you can upgrade to an unsecured alternative and get your deposit or collateral back.

The Bottom Line

If you’re self-employed and worried that your work status will hurt your chances at qualifying for credit, you shouldn’t be. Instead, focus your time and energy on creating a reliable self-employment income stream and building your credit score.

Once your business is established and you’ve been self-employed for several years, your work status won’t matter as heavily. Keep your income high, your DTI low, and a positive credit record, you’ll have a better chance of getting approved for credit. 

The post Why It’s Harder to Get Credit When You’re Self-Employed appeared first on Good Financial Cents®.

Source: goodfinancialcents.com