5 Best Personal Loans for Fair Credit for 2020

Are you wondering if there are personal loans for fair credit out there?

If you are, then the answer is a resounding “Yes.” There are, indeed, personal loans for fair credit available to you.

If you have fair credit, expect your credit history to be under the microscope by lenders when applying for a personal loan. But that shouldn’t stop you from getting a personal loan.

So, how do you get a personal loan when you have a fair or average credit?

While you may have fewer options, the best way to know for sure what’s available to you is to shop around and compare.

In other words, there are lenders that are willing to get you a personal loan even if your credit is simply average. You just have to know where to look.

A simple internet search of “personal loans for fair credit” can return thousands of results. That can be overwhelming to go through everything.

But don’t worry.

This guide will provide you a selection of the best personal loans for fair credit. It will also show you ways to fix a fair credit score to a good or excellent credit score.

What is a fair credit score for purposes of getting a personal loan?

Before we offer you a list of personal loans for fair credit, you need to know what a fair credit score is.

A fair credit score, according to Credit Sesame, is a credit score within the range of 640 and 680. It sits “between bad and good credit.”

With an average credit score in the mid 600’s, you more likely to get a personal loan than those who have a poor or bad credit score (which usually ranges between 300 to 600).

But you will not enjoy the same interest rate that someone with an excellent credit score would.

Great interest rates are reserved for people with excellent credit score.

What is a personal loan and what can it be used for?

A personal loan is a lump sum of money you borrow from an institution, and then repay that amount (with interest) over a set period of time.

There are two types of personal loans: secured and unsecured. For example, if you’re taking a personal loan to pay off credit card debts or to go on a vacation, that loan is an unsecured debt.

On the other hand, if you’re taking a personal loan to finance a car, you’ve taken a secured loan that is guaranteed by collateral, which is the car your purchase. 

Unsecured loans have more risks for lenders, because there is no collateral. So, they have to rely solely on your credit history and other aspects of your financial life. That’s why it may be harder to get qualified for an unsecured personal loan with bad or fair credit.

Can I get a personal loan with a fair credit?

The answer is “yes.”

While there are plenty of personal loans for fair credit out there, it’s not always the best idea to apply. One reason is that you’ll often be charged a higher interest rate than someone with a good or excellent credit score. 

In that case, it could be worth raising your credit score first before applying for a personal loan.

So while there are lenders who are willing to offer personal loans to people with fair credit if you’re struggling to get approved for a personal loan with a fair credit, you may want to consider improving your credit score first.

Click to get approved for a personal loan now

5 Best Personal Loans for Fair Credit

The better your credit score, generally the higher your chance is for getting approved for a personal loan.

If you’ve got an average credit, you may still get a loan but you will get a high interest rate.

Check out the list below to see some personal loans you may be eligible for.

Part of your search for the best personal loans for fair credit should start with LendingTree.

That is because LendingTree is not a direct lender of personal loans, but instead it’s an online marketplace that matches borrowers to lenders based on your individual qualifications.

It saves you time. Instead of applying to several lenders, with LendingTree you can shop around and compare the best personal loans on one website. It’s an all-in-one platform.

It just connects you with multiple lenders, you can get a personal loan with even a 600 credit score. 

Avant targets people with bad and fair credit. So, that means even if you have a credit score as low as 580, you may still get qualified for a personal loan. The loan amount ranges from $2,000 to $35,000.

Plus, Avant provides quick funding for personal loans.

Just like Lendingtree.com, BadCreditLoans.com is another online lending network that connects you to a huge selection of lenders.

These lenders specialize in lending personal loans to people with bad or fair credit. You can get a personal loan from up to $5,000.

Payoff provides loans to borrowers who have a tons of credit card debts. If you have high interest credit card debts, a Payoff loan can help you consolidate them.

While you can get a Payoff personal loan with fair credit, the minimum credit score is around 640, which is on the higher end of a fair credit score.

So if you have a less-than-stellar credit, you may postpone your personal loan application.

Another peer-to-peer lender to get a personal loan with fair credit is Prosper. With Prosper, not only can you get loan approval the same day, you can also get funding the same day.

But the main downside is that Prosper requires a minimum credit score of 640, which is on the higher end of a fair credit score range.

Other ways to find personal loans for fair credit

When you’re applying for a personal loan, don’t underestimate banks. The options above are online lenders. But banks and credit unions do provide personal loans to people with an average credit.

Banks.

This includes all the major banks, such as Chase, Wells Fargo, Citibank, Bank of America, plus other small banks.

The main benefit of visiting a bank when applying for a personal loan, especially with a fair credit, is that you get to speak with a human being and has the opportunity to explain your financial situation.

For example, you might be able to explain that the reason for an average credit score is due to an unexpected medical bill.

That is not possible with online lenders where it is an automated system that’s reviewing your finances.

It’s even better to get approved for a personal loan even with a fair credit if you have an account with that bank. They can see your transaction history.

The disadvantage, however, is that a bank may not offer the most competitive personal loan rate, especially with a fair credit.

Credit Unions

Part of your search for a personal loan with fair credit should also include credit unions.

Credit unions are not for profit organizations and are more willing to approve you.

But to get access to the best rate, you’ll have to become a member.

Peer-to-peer (P2P) Lenders

Another alternative to banks and credit unions, P2P lenders can provide you with a personal loan even if your credit is average.

For example, LendingClub, a popular P2P, can get you a personal loan with a credit score as low as 600 — which is considered fair credit.

However, your rate may not be as competitive.

Tips to fix a fair credit if you can’t get a personal loan

Holding off applying for a personal loan to improve your fair credit to an excellent one is a good idea.

Not only will you get qualified, but you’ll also get a better interest rate.

Follow these tips to improve your credit score.

1. Get a copy of your credit report

The first step is to obtain a copy of your credit report.

The three main ones to get it from are Transunion, Equifax, and Experian.

By law, you can request a credit report once every 12 months.

But if you want to do so more frequently, you can request it from free credit monitoring services such as Credit Sesame or Credit Karma.

2. Make sure there aren’t any mistakes

Once you get a free copy of your report, make sure there aren’t any inaccurate information or listings.

If you find something that you’re not familiar with, dispute it immediately.

Sometimes it can be a harmless mistake such as a misspelling or an issue that has already been resolved. Some other times, it can be something more serious such as a credit card or a loan taking out in your name.

So it’s important to always check so you’re not a victim of identity fraud.

3. Pay off any credit card debts

Some debts like student loans (as long as you’re not in default) may not have an impact on your credit score.

But if you have outstanding credit card debts, make it a priority to pay them off.

Or at the very least, pay them down until your balance is at or below 30%. That’s called “credit utilization rate,” which is a big factor in calculating your credit score.

4. Pay your bills on time

Nothing will tarnish your credit score like late payments. That is because payment history accounts for 35% of your total credit score.

Before a lender can provide you with a personal loan, (whether you have fair credit or not) they look at your entire credit history.

A late payment history does not look good. It tells them that you’re not responsible with your money. 

So make an effort to pay your bill on time, even if you can only make the minimum payment.

5. Don’t apply for new credit

When you’re improving a fair credit to good credit in order to get a personal loan, the last thing you want to do is to apply for new credit.

That’s because each time you do, you rack up what’s called a “hard inquiry.” Each hard inquiry is recorded on your report. And hard inquiry accounts for 30% of your credit score.

One hard inquiry is nothing to worry about. But when you make several within a short amount of time, you’ll hurt your credit score. It also tells lenders that you are desperate for credit.

Consider a co-signer

While it makes sense to raise your credit score before applying for a personal loan, sometimes you just need the money right away. 

If that’s the case and can’t get approved on your own, then you will need to use a co-signer with good credit.

With a fair credit, using a co-signer should be able to get you qualified for a personal loan.

But, bear in mind that this is a big financial burden you’re putting on them. By accepting to co-sign a loan, they are also responsible to pay off the loan if you cannot. So don’t take it personal if they say “no.”

Summary

Can I get a personal loan with fair credit? The answer is “yes.”  Personal loans for fair credit are available. And the list above have the best personal loans if you have fair credit.While there are several personal loans for fair credit, it’s not always the best idea as you will often charged a higher interest rate and fees. In this case, it makes sense to improve your credit score first before applying.

Click to get approved for a personal loan now

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Source: growthrapidly.com

How to Build Credit with Fingerhut

  • Raise Credit Score

If you’ve been wanting to make a big purchase, but your credit is less than spectacular, you might have looked into Fingerhut as an option. 

Fingerhut is an online catalog and retailer that showcases a multitude of products. On this website, customers can shop for anything from electronics to home décor to auto parts. Fingerhut offers financing through their own line of credit, making it appealing to shoppers with poor credit or a nonexistent credit history. Many consumers have a better chance of getting approved by Fingerhut, than they might have of getting approved through most other credit card companies. It’s an option worth looking into if you want to improve your credit score through credit utilization.  

The major difference between Fingerhut and credit cards that cater to low credit scores is that Fingerhut credit is exclusively available for use with its own company’s products and authorized partners. You’ll also find that the company’s products are pricier than they would be through most other retailers, while also bearing the weight of higher interest rates. While it might seem like a good idea if you don’t have good credit, it’s best to familiarize yourself with the ins and outs of the company beforehand so that you know what you’re signing up for. 

How Fingerhut credit works

When you apply for a Fingerhut credit account, you can get approved by one of two accounts:

  • WebBank/Fingerhut Advantage Credit Account.
  • Fingerhut FreshStart Installment Loan issued by WebBank.

As it happens, by submitting your application, you are applying for both credit accounts. Applicants will be considered for the Fingerhut FreshStart Installment Loan issued by WebBank as a direct result of being denied for the WebBank/Fingerhut Advantage Credit Account. In other words, you won’t have a way of knowing which one you will be approved for prior to applying. Both credit accounts are issued by WebBank and are set up so that customers can purchase merchandise by paying for them on an installment plan with a 29.99% Annual Percentage Rate (APR). These are the only things that the different Fingerhut credit accounts have in common.

The WebBank/Fingerhut Advantage Credit Account

The WebBank/Fingerhut Advantage Credit Account works very much like an unsecured credit card, except that it’s an account that you can only use it to shop on Fingerhut or through its authorized partners. 

This credit account features:

  •  No annual fee.
  • A 29.99% interest rate.
  • A $38 fee on late or returned payments.
  • A possible down payment; it may or may not be required. You won’t know prior to applying. 

If you get denied for this line of credit, your application will automatically be reviewed for the Fingerhut FreshStart Credit Account issued by WebBank, which is both structured and conditioned differently.

Fingerhut FreshStart Installment Loan issued by WebBank

If you get approved for the Fingerhut FreshStart Installment Loan, you must follow these three steps to activate it:

  • Make a one-time purchase of no less than $50.
  • Put a minimum payment of $30 down on your purchase, and your order will be shipped to you upon receipt of your payment. You may not use a credit card to make down payments, but you can use a debit card, check, or a money order. 
  • Make monthly payments on your balance within a span of six to eight months.

You can become eligible to upgrade to the Fingerhut Advantage Credit Account so long as you are able to pay off your balance during that time frame or sooner without having made any late payments. Keep in mind that paying for the entire balance in full at the time you make your down payment will result in you not qualifying for the loan as well as being ineligible for upgrade. 

How a Fingerhut credit account helps raise your credit score

The fact that it can help you improve your credit is one of the biggest advantages of using a Fingerhut credit account. 

When you make your payments to Fingerhut in full and on-time, the company will report that activity to the three major credit bureaus. This means that your good credit utilization won’t go unnoticed nor unrewarded. If you use Fingerhut to improve your credit score, you will eventually be able to apply for a credit card through a traditional credit card company—one where you can make purchases anywhere, not just at Fingerhut. 

Additional benefits of a Fingerhut credit account

Besides using it as a tool to repair your bad credit, there are a few other benefits to using a WebBank Fingerhut Advantage Credit Account such as:

  • No annual fee.
  • Fingerhut has partnerships with a handful of other retailers, which means you can use your Fingerhut credit line to make purchases through a variety of companies. Fingerhut is partnered with companies that specialize in everything from floral arrangements to insurance plans.
  • There are no penalties on the WebBank Fingerhut Advantage Credit Account when you pay off your balance early.

How to build credit with Fingerhut

Fingerhut credit works the same way as the loans from credit card companies work: in the form of a revolving loan. 

A revolving loan is when you are designated a maximum credit limit by your lender, in which you are allowed to spend. Whatever you spend, you are expected to pay back in full and on-time through a series of monthly payments. This act of borrowing money and paying off bills using your Fingerhut account causes your balances to revolve and fluctuate, hence, its name. 

Your credit activity, good or bad, gets reported to the three major credit bureaus and in turn, will have an effect on your credit report. Revolving loans play a large role in your credit score, affecting approximately 30% of your score through your credit utilization ratio. If your credit utilization ratio, the amount of available revolving credit divided by your amount owed, is too high then your credit score will plummet. 

When using a Fingerhut account, the goal is to try to keep your amounts owed as low as you possibly can so that you can maintain a low utilization ratio, and as a result, have a higher credit score.

Alternatives to Fingerhut

If you’ve done all your research and decided that Fingerhut isn’t the right choice for you, there are other options that might serve you better, even if you have bad credit. There are a variety of secured credit cards that you can apply for such as:

  • The OpenSky Secured Visa Credit Card: You will need a $200 security deposit to qualify for this secured credit card, but you can most likely get approved without a credit check or even a bank account. It can also be used to improve your credit, as this card does report to the three major credit bureaus. While this card does come with an annual $35 fee, you can use it to shop anywhere that will accept a Visa. 
  • Discover it Secured:  For all those opposed to paying an annual fee of any sort, this card might just be the one for you. With a $0 annual fee and the ability to earn rewards through purchases, there’s not much to frown about with this secured credit card. One of the best perks, is that it allows you the chance to upgrade to an unsecured card after only eight months. 
  • Deserve Pro Mastercard: This card is a desirable option for those with a short credit history. There is no annual fee and no security deposit required and, if your credit history isn’t very long-winded, that’s okay. The issuers for this card may use their own process to decide whether or not you qualify for credit, by evaluating other factors such as income and employment. This card is especially nifty because you can get cash-back rewards such as 3% back on every dollar that you spend on travel and entertainment, 2% back on every dollar spent at restaurants, and 1% cash back on every dollar spent on anything else. 

Final Thoughts 

Fingerhut is an option worth looking into for those with bad credit or a short credit history. If you want to use a Fingerhunt credit account to improve your credit score, be sure to use it wisely and make all of your payments on time, just as you would with any other credit card.

Even though it might be easy to get approved, the prices and interest rates on items sold through Fingerhut are set higher than they would be at most other retailers, so it’s important to consider this before applying. 

There are a ton of options available, regardless of what your credit report looks like, if you are trying to improve your credit. If the prices of Fingerhut’s merchandise are enough to scare you away, you might want to consider applying for a secured credit card. 

Source: pocketyourdollars.com

How does refinancing a student loan affect credit? – Lexington Law

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

If you’re considering refinancing a student loan, you need to have answers to all of your questions. For starters, does refinancing student loans affect credit? Fortunately, student loan refinancing doesn’t have to negatively affect your credit, but you need to know how to go about the process carefully and fully informed. Since refinancing comes with several benefits, it’s nice to know that you can consider this option without it killing your credit. 

What is a student loan refinance?

Student loans can come from two sources: federal funding and private funding. Federal student loans come with some benefits, such as subsidized interest while you’re in school and the potential to apply for a loan forgiveness program.

Unfortunately, you can’t refinance a federal student loan with the government. Refinancing is always done through a private lender. While going to a private lender may sound scary, refinancing can save you money. 

When you refinance, you take your student loan(s) to a lender and negotiate a better interest rate or a more manageable monthly payment. This can help you save thousands during the life of your loan, but how much money you save depends on a number of factors—such as fees for refinancing, the decrease in interest rate and the length of your new repayment term. 

Protect your credit during a student loan refinance

Credit inquiries and missed or late payments are the two factors that might impact your credit when you go through student loan refinancing. But if you’re careful, you can minimize the damage done to your score during a refinance.

Credit inquiries

When you initially approach a lender about refinancing, they’ll conduct a soft inquiry on your credit to see if you’re eligible. However, once you officially apply with a lender for a refinance, there will be a hard check on your credit. A hard inquiry can lower your credit score by a few points.

These few points are easy to recover if you continue to be responsible with your credit. But if you have multiple hard inquiries within a relatively short period of time, your credit score may drop significantly—potentially up to 10 points per credit inquiry. 

To avoid this situation, try to submit as few applications as possible. To be clear, that doesn’t mean you shouldn’t compare your options. It’s in your best interest to approach several lenders to see who can offer you the best terms and lowest interest rate. You can still shop around and compare lenders—just don’t fully apply with every lender.

Lenders should be able to give you a good idea of your options when they pull a soft inquiry on your credit. Let your lenders know you’re comparing rates so they’ll begin to offer you more competitive terms. 

In addition, most credit bureaus have a 14 to 45 day “shopping period.” If you have multiple hard inquiries within this time frame, a credit bureau may count it as only one inquiry. Whenever possible, try to keep your inquiries to this small window of time, ideally ranging between two and four weeks.

Payments

Your student loans are tied to your credit. Every time you miss or make a late payment, it negatively impacts your credit history and your credit score. If you’re considering refinancing, you must make all your payments on both your past loan and your refinanced loan until you’re absolutely certain the previous loan has ended. After you know the transfer is complete, you can make payments on the refinanced loan only. 

When should you refinance?

When it comes to refinancing a student loan, timing can be everything. For this process to be worth it, you need to have a decent credit score and a stable income. These two factors will ensure that when you go to lenders for refinancing, they’ll offer you a lower interest rate than the one you currently have. 

Two downsides of refinancing a student loan

Refinancing isn’t the best choice for everyone, and there are two main downsides you should know about. 

Your interest rate might not decrease by much

Student loan interest rates have remained relatively low in recent years. This means private lenders don’t have much leeway and may not be able to offer you an interest rate that’s much lower. 

That being said, even a small decrease in interest can make a significant difference over the lifetime of a loan. For example, let’s say you had a $30,000 student loan with a 10-year payment period. Your initial loan interest is five percent, and a refinancing lender offers to lower your interest to four percent. A one percent difference may not sound like a lot, but it’ll save you $1,736 in interest over 10 years. 

One thing to note is to take into account any fees for refinancing when comparing your loans. If your refinance lender is charging you a $200 sign-up fee, that will eat into your savings. 

You’ll lose access to benefits of federal funding

You can only refinance with a private lender, which opts you out of any benefits of federal funding. If you opt out of federal student loans, you lose access to federal repayment options such as the income-driven repayment plan. 

You also lose the ability to apply for federal loan forgiveness programs. Several federal loan forgiveness programs for candidates such as teachers, military service members and public servants may forgive a portion or all of a loan under specific conditions. These programs are often difficult to qualify for, but it may be worth sticking to it if you were already on this path. 

Who shouldn’t refinance

If you have poor credit or unstable income, you’ll likely be denied refinancing or get an interest rate that isn’t better than your current interest rate. If this is the case for you, focus on improving your credit score and reapply for refinancing later on. 

Additionally, people who are close to the end of their loan term typically won’t see any benefit from refinancing. If you’re almost done paying off your student loan, simply focus on getting to your end goal. 

Is refinancing the best option for you?

Ultimately, the decision to refinance should be made on a case-by-case basis. You need to weigh all the pros and cons of refinancing before making a decision.

A useful tool when evaluating refinancing is a loan calculator. These online calculators help you determine just how much you can save if you refinance a loan. Don’t forget to subtract any fees from your savings to depict your actual savings accurately. 

Your student loan will impact your credit for many years to come, and your credit has a long-reaching impact on other areas of your life. Whether you refinance or continue with your regular student loan, make sure you build responsible habits with your loan repayment. Sign up for auto-pay, make additional payments if you can and track your progress. 


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Truth About Reward and Store Credit Cards

  • Credit Card Debt

On the surface, reward cards are a great way to make a few extra dollars or grab some air miles without increasing your spending or your debt. If you spend a lot of money at a particular shop, store cards will seem like an equally beneficial prospect. But these cards exist for a reason—they’re there to make more money for the providers and the retailers, not you.

Sure, reward/store cards have other benefits if you use them properly, but there are a host of disadvantages and hidden terms that you need to be aware of before signing on the dotted line. 

What are Store Cards?

Store cards are tied to specific stores and offered by chains of retailers. These cards work just like traditional cards and are often branded by networks like Visa and MasterCard. The difference is that they can only be used in the issuing stores and their rewards are tied to those stores.

In essence, they are store loyalty cards that come with a lien of credit attached. 

What are Reward Cards?

Reward cards are also tied to credit card networks, including American Express and Discover, as well as Visa and MasterCard. They award points every time they’re used for qualifying purchases and these points can then be swapped for air travel and other benefits. 

Some reward schemes award a specific amount of cash back, often fixed to 1% or 2% of purchases made on specific items, such as groceries or utility bills.

How Can Providers Offer These Rewards?

If a provider offers you cash back every time you spend money on your credit card, someone has to foot the bill. Many consumers assume that the credit card network covers the cost, and to an extent, they do. But it’s not quite as simple as that.

Every time you use your credit card to make a purchase, the retailer is charged a fee, often between 1% and 3% of the purchase. This is the network’s charge. With reward cards, this fee increases, and the extra money is used to fund the rewards program.

As a result, retailers are not exactly happy with these programs as they drive their costs up and reduce their profits. The only way around this, is to increase the cost of the product or, more likely, to reward customers who pay with cash/debit. Retailers are not allowed to add a surcharge for credit card use, but there’s nothing stopping them from choosing which cards they do and don’t accept.

Your local Mom & Pop enterprise isn’t being antiquated and old-fashioned by refusing credit cards. They just can’t cover the costs. 5% may not sound like a big deal, but for retailers with minimal buying power and the massive overheads of running a brick-and-mortar store, 5% can be a deal breaker.

Smaller retailers are fighting back against reward cards while bigger ones are embracing them by adopting their own store cards. With a store card, they have more say, more control, and they know that those small losses will be offset by the increased purchases.

Issues with Store Credit Cards

Store cards carry a big risk and have far few benefits than reward cards. The advantages of these cards are obvious: If you shop a lot in a particular place, you can save money via the cash back schemes. 

They can also help with emergency purchases, providing you clear the balance in full. But, while the benefits are obvious, the same can’t be said about the disadvantages.

Con 1: They Have High Interest Rates

The average credit card interest rate in the United States is around 16%. The average rate for store cards is over 20%. That 4% may not seem like much, but if you don’t repay your balance every month that interest will compound, grow, and cost you a small fortune. 

At 16% with a $10,000 balance and a 60-month repayment term, you’ll pay $243 a month and over $4,000 in total interest.

Increase that rate to 20% and your monthly payment grows by $20 while your total interest increases by nearly $1,500. The longer you leave it and the smaller your monthly payments are, the greater that difference will be.

For example, if you repay just $200 a month on that balance, the difference between 16% and 20% is 26 extra months and close to $5,000. Of course, store cards rarely offer such high limits, but this is just as example to show you how much of a difference even the slightest percentage increase can cause.

It’s worth keeping this in mind if you ever apply for a traditional rewards card. Getting rewards in return for a higher APR is great if you repay your balance in full every month and terrible if you don’t.

Con 2: They Have High Penalty Rates

If you miss a payment on your store credit card you could be hit with a penalty APR as high as 29.99%, as well as a late payment fee of $39. The rates are high to begin with, but these penalty rates are astronomical and will make a bad situation worse.

That’s not all, as some providers are known to be very unforgiven when it comes to missed and late payments. In some cases, your account will default even if you underpay just once and just by a few dollars. 

Con 3: They Have Low Credit Limits

Retailers are not lenders. They don’t have the time, funds or patience to chase debts and deal with collection agencies. As a result, they don’t offer high credit limits and generally you’ll get a fraction of what an unsecured credit card might provide you with.

This might not seem like much of an issue. After all, a smaller credit limit means you’re less likely to accumulate large amounts of debts. However, this has a massively negative impact on your credit score that few borrowers consider.

30% of your credit score is based on something known as a credit utilization ratio. This looks at the total available credit and compares it to the debt that you have accumulated. If you have several cards with a combined credit limit of $10,000 and a balance of $5,000, then your ratio is 50%, which is considered to be quite high.

If a store card is your only account and you spend $450 on a $500 limit, then you have a credit utilization ratio of 90%, which will reduce your score. Your credit report is also negatively affected by maxed-out credit cards, a feat that’s much easier to achieve when you have a low credit limit.

Con 4: There Are Better Options

It’s better to have one good reward card than multiple store cards. The former will provide you with far better interest rates and terms, while the latter will hit your credit report with several hard inquiries and new accounts. 

A rewards card will still benefit you when shopping at those stores and will also provide you with a wealth of other benefits.

Con 5: You May Spend More

Store cards are not designed to make your life easier and give you a few freebies. Regardless of what the store tells you, they’re not made to reward loyalty, they’re made to encourage spending. 

This doesn’t always work, and research suggests that many individuals use reward cards just like they would normal cards. But for a small minority, the idea of acquiring points is enough to convince them to spend more than they usually would.

Some good can be good debt, such as when it’s used to acquire an asset or something that won’t depreciate. But very rarely do we use credit cards for this purpose and generally, if you’re spending more on a store card it means you’re wasting more money on things you don’t need.

Con 6: You Can’t Use Them Anywhere Else

A store card can only be used in that particular store. This renders it redundant as an emergency card and also means you’re encouraged to shop in that one place. You don’t have a chance to shop around and find the cheapest price; you may spend more just to use your card and get the benefits, with those benefits rarely covering the additional money you spend.

What About Reward Cards?

Some reward cards have very high rates as these rates are used to offset the rewards program. However, this isn’t always the case, because, as discussed above, networks often charge retailers more to offset these purchases and therefore don’t always need to cover the costs themselves.

Some credit cards, such as the Discover It, offer solid reward schemes and would also be included on any list of the best non-reward credit cards. It’s a solid all-rounder and it’s not alone. However, many reward cards charge high annual fees and penalty rates, just like you’ll find with a store card.

It’s important to study the small print and make sure the card is viable. If you’re going to clear the balance every month, a slightly higher interest rate won’t hurt, especially if it comes with some generous rewards. But if there is any doubt and even the slightest chance that you won’t clear the balance, it’s always best to focus on a low-interest rate first.

Even the most generous 5% cash back reward card will not offset the losses occurred by paying a few more percentage points of interest.

Will Reward/Store Cards Affect my Credit Score?

Credit cards trigger hard inquiries, which can reduce your credit score by up to 5 points. This is true for every credit card that you apply for. Rate shopping can combine multiple inquiries into one if they are for the same type of credit, but this doesn’t apply to credit cards.

A new account will also impact your score. This impact is often minimal and if you keep up with your repayments then it will vanish in time. However, if you miss a payment, max-out your card or increase your credit utilization score, it could have a detrimental effect on your score and your finances.

Keep store cards to a minimum and only sign up if you’re 100% sure you’re getting a good deal that will benefit you in the short-term and the long-term.

Source: pocketyourdollars.com

Experian Credit Score vs. FICO Score

January 14, 2021 &• 7 min read by Barry Paperno Comments 17 Comments

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When you think “credit score,” you probably think “FICO.” The Fair Isaac Corporation introduced its FICO scoring system in 1989, and it has since become one of the best-known and most-used credit scoring models in the United States. But it isn’t the only model on the market.

Another popular option is called VantageScore, the product of a collaboration between the three major credit reporting agencies: Experian, Equifax, and TransUnion. It uses similar scoring methods to FICO but yields slightly different results.

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Each scoring model has multiple versions and multiple applications—you don’t have just one FICO score or one VantageScore. Depending on which bureau creates the score and what type of agency is asking for the score, your credit score will vary, sometimes siginifcantly. One credit score isn’t more “accurate” than another, they just have different applications. Learn more about the different types of credit scores below.

When you sign up for ExtraCredit, you can see 28 of your FICO scores from all three credit bureaus. Your free Credit Report Card, on the other hand, will show you your Experian VantageScore 3.0.

What Is a VantageScore?

VantageScore was created by the three major credit reporting agencies—Experian, Equifax, and TransUnion. It uses similar scoring methods to FICO but yields slightly different results.

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One of the primary goals of VantageScore is to provide a model that is used the same way by all three credit bureaus. That would limit some of the disparity between your three major credit scores. In contrast, FICO models provide a slightly different calculation for each credit bureau, which can create more differences in your scores.

FICO vs. VantageScore

So, what are the differences between an Experian credit score calculated using VantageScore and one calculated via the FICO model? More importantly, does the score used matter to you, the consumer? The answer is usually no. But you might want to look at different scores for different needs or goals.

Is Experian Accurate?

Credit scores from the credit bureaus are only as accurate as the information provided to the bureau. Check your credit report to ensure all the information is correct. If it is, your Experian credit scores are accurate. If your credit report is not accurate, you’ll want to look into your credit repair options.

Our free Credit Report Card offers the Experian VantageScore 3.0 so you can check it regularly. If you want to dig in deeper, you can sign up for ExtraCredit. For $24.99 per month, you can see 28 of your FICO scores from all three credit bureaus. ExtraCredit also offers rent and utility reporting, identity monitoring and theft insurance, and more.

Features of ExtraCredit

Understanding the Scoring Models

FICO and VantageScore aren’t the only scoring models on the market. Lenders use a multitude of scoring methods to determine your creditworthiness and make decisions about whether or not to give you credit. Despite the numerous options, FICO scores and VantageScores are likely the only scores you’ll ever see yourself.

Here’s what FICO uses to determine your credit score:

  • Payment history. Whether or not you pay your bills in a timely manner is critical, as this factor makes up around 35% of your score.
  • Credit usage. How much of your open credit you have used—which is called credit utilization—accounts for 30% of your score. Keeping your utilization below 30% can help you keep your credits core healthy.
  • Length of credit. The average age of your credit—and how long you’ve had your oldest account—is a factor. Credit age accounts for around 15% of your score.
  • Types of credit. Your credit mix, which refers to having multiple types of accounts, makes up around 10% of your score.
  • Recent inquiries. How many entities have hit your credit history with a hard inquiry for the purpose of evaluating you for credit is a factor for your score. It accounts for about 10% of your credit score.

VantageScore uses the same factors, but weighs them a little differently. Your VantageScore 4.0 will be most influenced by your credit usage, followed by your credit mix. Payment history is only “moderately influential,” while credit age and recent inquiries are less influential.

Each company also gathers its data differently. FICO bases its scoring model on credit data from millions of consumers analyzed at the same time. It gathers credit reports from the three major credit bureaus and analyzes anonymous consumer data to generate a scoring model specific to each bureau. VantageScore, on the other hand, uses a combined set of consumer credit files, also obtained from the three major credit bureaus, to come up with a single formula.

Both FICO and VantageScore issue scores ranging from 300 to 850. In the past, VantageScore used a score range of 501 to 990, but the score range was adjusted with VantageScore 3.0. Having numerical ranges that are somewhat consistent helps make the credit score process less confusing for consumers and lenders.

Your score may also differ across the credit bureaus because your creditors aren’t required to report to all three. They may report to only one or two of them, meaning each bureau likely has slightly different information about you.

Variations in Scoring Requirements

If you don’t have a long credit history, VantageScore is the score you want to monitor. To establish your credit score, FICO requires at least six months of credit history and at least one account reported to a credit bureau within the last six months. VantageScore only requires one month of history and one account reported within the past two years.

Because VantageScore uses a shorter credit history and a longer period for reported accounts, it’s able to issue credit ratings to millions of consumers who wouldn’t yet have a FICO Score. So, if you’re new to credit or haven’t been using it recently, VantageScore can help prove your trustworthiness before FICO has enough data to issue you a score.

The Significance of Late Payments

A history of late payments impacts both your FICO score and your VantageScore. Both models consider the following.

  • How recently the last late payment occurred
  • How many of your accounts have had late payments
  • How many payments you’ve missed on an account

FICO treats all late payments the same. VantageScore judges them differently. VantageScore applies a larger penalty for late mortgage payments than for other types of credit payments.

Because FICO has indicated that it factors late payments more heavily than VantageScore, late payments on any of your accounts might cause you to have lower FICO scores than your VantageScores.

Impact of Credit Inquiries

VantageScore and FICO both penalize consumers who have multiple hard inquiries in a short period of time. They both also conduct a process called deduplication.

Deduplication is the practice of allowing multiple pulls on your credit for the same loan type in a given time frame without penalizing your credit. Deduplication is important for situations such as seeking auto loans, where you may submit applications to multiple lenders as you seek the best deal. FICO and VantageScore don’t count each of these inquiries separately—they deduplicate them or consider them as one inquiry.

FICO uses a 45-day deduplication time period. That means credit inquiries of a certain type—such as auto loans or mortgages—that hit within that period are counted as one hard inquiry for the purpose of impact to your credit.

In contrast, VantageScore only has a 14-day range for deduplication. However, it deduplicates multiple hard inquiries for all types of credit, including credit cards. FICO only deduplicates inquiries related to mortgages, auto loans, and student loans.

Influence of Low-Balance Collections

VantageScore and FICO both penalize credit scores for accounts sent to collection agencies. However, FICO sometimes offers more leniency for collection accounts with low balances or limits.

FICO 8.0 also ignores all collections where the original balance was less than $100 and FICO 9.0 weighs medical collections less. It also doesn’t count collection accounts that have been paid off. VantageScore 4.0, on the other hand, ignores collection accounts that are paid off, regardless of the original balance.

What Are FAKO Scores?

FAKO is a derogatory term for scores that aren’t FICO Scores or VantageScores. Companies that provide FAKO scores don’t call them this. Instead, they refer to their scores as “educational scores” or just “credit scores.” FAKO scores can vary significantly from FICO scores and VantageScores.

These scores aren’t completely valueless, though. They can help you understand where your credit score stands or whether it’s going up or down. You probably don’t want to shell out money for such scores, though, and you do want to ensure the credit score provider is drawing on accurate information from the credit bureaus.

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Source: credit.com