Credit 101: What is a Good Credit Score? How to Get it.

Whether you can qualify for a loan, how much you can borrow, and how much you pay to borrow money depends in large part on your credit score. Most top lenders use a credit scoring method known as FICO, which was developed by Fair Isaac and Company more than a quarter century ago. This scoring method takes into account a number of different factors, including your payment history, your percentage of credit utilization, as well as the number and type of accounts that you have open.

Credit Score Ranges:

While there are several different versions of the FICO score, the model used by most lenders ranges from a low of 300 to a high of 850. A higher credit score gives you access to more credit products as well as lower interest rates.

  • A FICO score of 300 to 629 is typically considered poor credit. You may still be able to find lenders willing to extend credit even with a credit score in the 500s; however, these loans typically come with high interest rates or other stipulations. A low credit score can even affect how much you pay for car insurance or the size of the deposit required for an apartment or utilities.
  • FICO scores between 630 to 689 are considered average. Most mortgage lenders require minimum credit scores within this range to be considered for a home loan.
  • You are considered to have good credit if your score is between 690 and 719. If your score is within this range, you should be able to qualify for mortgages, credit cards, and other loans relatively easily.
  • If your FICO score is 720 or greater, you have excellent credit. Individuals with scores above 750 can typically qualify for zero percent interest on credit cards and car loans.

A second scoring algorithm called VantageScore, which was developed by the credit bureaus, was unveiled in 2006 and is becoming increasingly popular. Both FICO and VantageScore look at comparable criteria, so your score should be similar regardless of the method used.

It is normal for your credit score to fluctuate slightly over time. As long as the score does not fall outside of a healthy range, you should not notice any difference in your overall financial well-being.

If you are considering applying for credit card, mortgage, or car loan, it is important to remember that your credit score is just one piece of the puzzle. Potential lenders will also look at your income, amount of debt, and other assets in determining whether to extend you credit. If you need help improving your credit score you may have to use credit repair services if it isn’t something you can do on your own.

Questions To Ask For A Lower Mortgage Rate

Buying a home is a big financial commitment. If you are a new homebuyer, the process can be overwhelming. Taking your time to consider the following questions will help you to understand how to get a low mortgage rate on your new home.

Should I Go With A Fixed Or An Adjustable Mortgage Rate?

When you take out a mortgage the lender will give you two options for financing the amount. These include a fixed rate and an adjustable mortgage rate.

Fixed Rate

A fixed rate mortgage is when your monthly payments are locked into a set amount. Your payment rate will never change over the life of the loan. A set percentage of each payment is put towards the principal, while the remaining is put towards the interest owed. It’s important to note that insurance and property taxes may fluctuate, as they are separate from the mortgage loan.

Adjustable Mortgage Rate (AMR)

An AMR is when your monthly mortgage payment fluctuates throughout the life of the loan. Your rate can go up or down depending on the specific interest rate index that your bank chooses to go by. AMRs have gained in popularity among new homeowners because many offer low introductory rates for the few months up to the first year of the mortgage.

It’s important to consider the pros and cons of each of these two options. While a lower introductory rate with an AMR may sound appealing, especially at the time of purchase when you have so many other costs, your mortgage payments can go up. It’s a good idea to see how much a rate increase would affect your payment to get an idea of how much your budget can handle.

Should I Pay For Points?

Mortgage points are offered to a new homebuyer at the time of the mortgage closing. These points are a way to reduce the interest rate offered by the lender. Each mortgage point is equal to one percent of the total amount of the loan.

For example, let’s assume you were offered a mortgage loan of $100,000 at an interest rate of 4 percent. At the time of closing your mortgage lender tells you a point will be worth .25 percent of your interest rate. If you decide to pay for one point, you would owe the lender $1,000 upfront, which is 1 percent of the $100,000 mortgage amount. The interest rate for your mortgage would drop by .25 percent, making your new interest rate for the term of the loan 3.75 percent.

The major factor to consider when deciding to buy points is the length of time you intend on staying in your home. If you know that you will be selling your home in a few short years, then paying this extra money up front isn’t worth it to your finances. However, if you plan on staying in your home for a long period of time, then the decrease in interest rate is a good idea.

These are two very important questions you need to ask when looking to get a lower mortgage rate. By being knowledgeable about these opportunities you can make an informed decision that will benefit your financial future.

Using Credit Cards to Pay for Medical Bills & Devices

At times, it can seem cumbersome to apply to credit cards. There are myriad of credit cards out there and they call come with qualification stipulations. While having excellent credit will definitely increase your chances of getting approved for a credit card, those who have fair or poor credit often worry about whether or not they will be able to get approved. Those with fair or poor credit should be more strategic with how they go about applying to credit cards. What will you be using this card to pay for? Are you you using it to pay for bills such as medical devices? Knowing well in advanced the types of financial institutions and banks that cater towards your credit criteria will increase your chances of getting approved for a card. Here are a few things to consider when you are looking to apply to a credit card and ensure approval.

Know your credit history

First and foremost, you shouldn’t blindly apply to credit cards without at least having a solid understanding of your credit report. You should pull credit reports from all three major bureaus such as Equifax, TransUnion and Experian and make sure that there aren’t any mistakes, errors or any outstanding issues that could pose a problem with you applying for a credit card. By law, consumers are allowed to get a copy of their credit report every year for free. Take advantage of this to ensure that creditors are accurately reporting information the major bureaus.

Know your credit score

On top of knowing your credit history, you should also get to know your credit score. When you apply for a credit card online, most financial institutions and banks will generally give you a score they generally look for. Some may not disclose this information, but if you know your score in advance, you can be more strategic about the types of cards you apply to. This isn’t to say you will automatically be disqualified if your score doesn’t meet the financial institution’s score threshold of approval, but your chances surely will be diminished the lower your score.

Be accurate with application information

One of the most common mistakes that people make when they are applying to credit cards is that they often do not fully disclose potentially helpful information to strengthen their credit card application. While it may seem intrusive that a bank would want to know how much you pay for rent or if you graduated from college, these questions are designed to assess the likelihood that you would default on credit card payments. Generally, the more money you make and the more education you have, the more likely it is you will get approved for a credit card. Be truthful with all information, because even lying may hurt you if the bank decides to call your place of employment to verify information.

Do not shotgun your credit

Lastly and most importantly, one thing to consider to ensure approval is to avoid shot-gunning your credit score to multiple banks all at the same time. This goes back to being very thoughtful and strategic about how you apply to credit cards. Applying to multiple credit cards all at the same time will not only place multiple hard inquiries on your report, but will also look bad to prospective lenders.

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How to Get a Personal Loan With Good or Bad Credit

The need for extra cash is common, and many people will have multiple needs for funding over the course of their lives. In some cases, funding is available through their own savings or investment accounts, and some people may also draw on credit cards from time to time. However, when you need more significant cash or when these sources are not ideal, you may consider using a personal loan. With a closer look at what a personal loan is and how you can apply for a personal loan, you may be ready to move forward with your loan application.

What Is a Personal Loan?

Before you apply for a personal loan, it is important to understand what this type of loan is. It essentially is a financial product that describes a loan that is intended for personal use. It may encompass an unsecured loan, such as a personal consumer loan or a student loan. It may also encompass a secured loan, such as car loan, a boat loan or another loan secured by an asset. Generally, these are fixed term loans as opposed to revolving terms, which are common with credit cards. The loan amounts may vary dramatically from a few thousand dollars to tens of thousands of dollars.

Deciding Between a Secured and Unsecured Loan

Before you can begin shopping for a personal loan, you must first decide if you are going to apply for a secured or unsecured loan. With a secured loan, you are pledging collateral that will be linked to the loan. If you fail to make payments on the loan as agreed, the collateral can be repossessed. You can typically use an asset that you own free and clear and that has significant value, such as a boat or a car that you do not have loans on. You can also use an asset that you are purchasing with the loan. The other option to consider is an unsecured loan. This type of loan may require you to have a better credit rating, and you can expect a higher interest rate and shorter term in most cases with an unsecured personal loan.

Shopping for Great Loan Terms

After you have determined whether you want to apply for an unsecured loan or a secured loan, you can begin shopping for the right loan to apply for. Most banks and credit unions offer both types of personal loans to consumers. Furthermore, most publish their best rates and terms available online. If you have excellent credit, you can reasonably expect to qualify for the published rates. If you have bad credit, you may need to talk to each lender directly to learn more about the rates and terms that may apply to you.

After you have decided on a specific loan program you want to move forward with, you simply work with your lender to complete the loan application and to provide the required documentation. By doing so, you may quickly learn about your loan approval status and may have access to the funds you need.

How to Choose the Best Mortgage

Buying a home is a big deal not only because you’re now a homeowner but also because you’re probably going to need a mortgage. Mortgage loans are probably the biggest loans you’ll ever have in your life. Therefore, it’s important to choose the best mortgage for you. Here are some important tips to help decide which type of mortgage you need and want.

Types of Mortgages

As you’re probably learning, there are several types of mortgages. Mortgage loans are generally either fixed rate or adjustable rate, which is explained below, followed by the different types of mortgages.

Fixed Rate – Fixed-rate mortgages offer a fixed or consistent rate of interest and this rate continues for the term of the loan. Fixed-rate mortgages are a good choice if current interest rates are lower because you won’t have to worry about paying higher interest rates in the future, which will equate to higher monthly payments. Typical fixed rate mortgages are for 15 years or 30 years. Fixed mortgages are good for individuals who want the security of always knowing how much their mortgage payment will be.

Adjustable Rate – Adjustable rate mortgages (ARMs) start with an interest rate based on current market rates. The interest rate will adjust after a certain period and may go up or down based on the market rates. ARMs may be short-term loans or may be for 15 years or more. However, ARMs are typically used on short-term loans. There is both advantages and disadvantages to ARMs depending on the condition of the housing market. If you have reason to believe the interest rates may be going down in the future, an ARM may be a good choice. MyFICO.com also states that ARMs are a good choice if you plan to sell your home in the near future.

Government-Backed Loans

One of the most popular government-backed loans are FHA loans. Although originally used by first-time homebuyers, FHA loans are now used by other homeowners as well. FHA loans are very popular because the offer lower interest rates than conventional loans and typically require lower down payments. FHA loans do have specific guidelines that must be followed. FHA loans, like VA loans and USDA/RHS loans are government-backed loans aimed at helping people become homeowners by offering good rates and terms.

Conventional Bank Loans

These are the type of loans homebuyers get at banks and lending institutions. The lenders typically offer ARMs and fixed loans. They require a deposit, usually at least 20 percent. You’ll also be required to have good credit scores. Your debt-to-income ratio and ability to repay will determine what type of loan you want.

Are Credit-Repair Companies Legitimate?

If you have been in debt over your head it’s likely that your credit rating took quite a beating. This bad credit score can brand you as a high risk for potential lenders. This could result in declined credit applications or high-interest rates.

Fixing your credit is the first step in making sure you are in good financial standing for all your future funding needs. The problem is that many agencies which boast about helping individuals with bad credit are truly looking to pull one over on these individuals. They end up making their credit worse. In order to avoid this outcome, it’s important to understand what credit repair companies are and what they do, so that you can spot a scam from a mile away.

 What Are Credit Repair Agencies?

Also referred to as debt management organizations, credit repair companies help individuals increase their credit rating and get out of debt. Alternative names also include debt negotiation and debt settlement companies.

 What Do Credit Repair Agencies Do?

These agencies work with your creditors to negotiate payment plans and lower interest rates. They will educate you on finances and help craft a budget plan that will lead you to be debt free in the future.

In some cases, the credit repair agency will act as the middleman to distribute money to your creditors on your behalf. This works by you paying the agency a lump sum of money to cover all your bills through one payment each month. This helps to simplify the debt repayment approach as you only have to worry about one payment and one due date each month.

Credit repair agencies also work to dispute negative items on your credit report. They will draft dispute letters for all three of the major credit bureaus on your behalf. Anything found on your record that is inaccurate, is misleading, unverifiable, or biased can be disputed.

If the credit bureau can’t verify the truth of the disputed item, they’re required by law to remove it from your credit report. In some cases where a creditor went out of business, these agencies are easily able to dispute any negative recordings as the bureaus can no longer verify the correctness of the information with the creditor.

 How To Catch A Scam

If you don’t want to fall scam to credit repair agency schemes that take your money, then you should be doing the following things.

  • Google Search The Company – While this one should be pretty obvious, many people forget to do a simple search because they get too distracted in the financial process. Take the time to search the company and make sure they have a well-established site. If they have been in business for a while there should be notations about the business on review sites as well.
  • Verify The Business Age – When your finances are at risk it’s a good idea to verify a potential credit repair company has been in business for a while. You don’t want to sign up with some fly by night company that will be gone once they get your money.
  • Advertising Of Instant Results – Any knowledgeable credit consultant knows that rebuilding credit takes time. While there are some small things you can do to help boost your credit score a few points, the majority of the work is in the consistency of paying bills on time. Avoid companies promising overnight solutions.

Tips For Finding The Best Mortgage Lender

Buying a house is no small feat. You will be locked into a 15, 20, or even 30-year mortgage. Taking the necessary time now to ensure you find an ideal lender is imperative to your future financial health. We’ve compiled a list of the top tips to help you find the best mortgage lender for your situation.

 Understand How Much You Need To Borrow

Before you even start looking for a mortgage lender you need to get your finances in order. This means boosting your credit score where possible and saving money. You should have enough money to supply a 20 percent or more down payment, closing costs, your first year of homeowners insurance, and your first year of property taxes.

While the specific amount of these figures will change depending on the size of the house, it’s a good idea to have a rough estimate ahead of time. This will help you decide what amount you will need to borrow from the mortgage lender.

 Get Recommendations From Others

One of the best ways to find out about a company’s services is through its customers. While you can’t take every word to heart, you can get a pretty good idea of what most people are saying about their experiences with a lender. Ask friends, coworkers, family and even your financial advisor for recommendations. Be sure to record both the good and bad companies.

 Online Research And Preliminary Inquires

Doing some online research to check out available lenders is a valuable use of time. You can obtain a lot of information about current rates. We suggest looking at specific banking websites for posted rate schedules.

Avoid entering in any of your personal information to get an instant quote or approval. Many lenders will buy your personal information from these sites. This means get ready to have both your inbox, mailbox, and voicemail flooded with calls from lenders who want your business.

One other stealthy tactic for checking on rates is to call up local institutions. Do an over the phone inquiry about what the rates would be for a suggested loan amount. If at any point the institution representative asks for your personal information, decline giving it out. Explain that you are just doing a preliminary inquiry as this will help you avoid unwanted calls later.

 Talking With Loan Officers

Talking with loan officers, the representatives from the lending companies, is a necessity to get your loan. Once you have narrowed down your list of lending institutions it’s time to schedule some meetings. Pick a good four or five lending institutions.

When you are meeting with each loan officer there are a few things to keep in mind. Have the officer break down all the charges for you. You should know exactly what your money is being spent on. If the loan officer doesn’t take the time to fully explain the costs or tries to rush through an explanation than ditch them.

You should only apply with a lender that has a good attitude along with good loan terms. Again you will be working with your mortgage company for many years, so having a productive relationship is key.

How To Refinance Your Mortgage

Many homeowners will make the strategic decision to refinance their home mortgage within a few years after taking ownership of their home. Refinancing allows you to combine first and second lien loans. This can help you to save money on mortgage payments, pay off the debt more quickly and enjoy other benefits. You may also be able to lock in a lower rate, take out equity and more. If you have never refinanced your mortgage, you may be wondering what steps you need to take to get started with the process.

Determining if You Can and Should Refinance

As a first step, you should carefully review your current loan terms, including the rate, term and outstanding balance. If you will be refinancing a first and second lien, compare all of the terms together. Most refinance loans require you to have at least 20 percent equity in the home. Therefore, review the current value to determine that you can comply with this. Some homeowners may find that they need to wait longer before refinancing. In addition, think about the loan fees to determine if you want to absorb the cost of a refinance.

Exploring the Loan Options

Refinancing your home mortgage gives you the incredible ability to adjust your loan rate and term. For example, some homeowners who originally applied for a 30-year term may now want to apply for a 15-year term to pay the debt off more quickly. Because they have paid off some principal, a shorter term loan may now be more affordable than it was previously. By learning more about what the loan options are and what the rates are, you can more easily determine the best course of action. You can also compare lenders to determine which lender you want to apply for your loan with. While rates and fees are important to compare, it is also critical to find a lender that is responsive and easy to work with.

Moving Forward With the Loan Process

After you have finalized your plans to refinance your mortgage and selected your lender, you can begin the loan process. Your lender will provide you with a loan application to complete, and you may also need to agree to have your credit report reviewed. After an initial pre-qualification, your lender may ask you for similar documentation that was required when you originally applied for your current mortgage, such as bank statements, tax returns and more. A new appraisal may also be ordered if the old one is dated.

Many homeowners will refinance their mortgage at least once or twice. A home mortgage is one of your most significant debts, and refinancing allows you to more strategically manage this debt, to align it with your future plans and to obtain equity from the home. Refinancing can be a lengthy, stressful process because it is similar to applying for a purchase loan. If you are preparing to refinance your loan, you can easily take these preliminary steps to get the process started on the right foot.

How To Get A Mortgage

Depending on where you live, the average cost of a home may be several hundred thousand dollars or more. Many people share the common dream of owning their own home, but it can be impossible for many to pay the full cost of a house outright. A home mortgage provides you with a more convenient way to buy a home because it enables you to stretch out the purchase over monthly payments for several decades. If you have never applied for a mortgage, you may be wondering what you need to do to get started with the process.

Determining What Loan Amount is Right for You

One of the most important steps you need to take to prepare for the mortgage application process is to determine what loan amount you need and what loan amount you can afford. You can easily use a loan calculator online to estimate the maximum loan amount you can qualify for and what funds you may need for a down payment and closing costs. However, you also need to take the additional step of reviewing these figures with your personal budget. Just because you can qualify for a specific loan amount does not mean that the payment or closing costs will be affordable for you.

Selecting the Right Type of Mortgage

This step is often done in conjunction with determining the right type of mortgage to apply for. A 30-year fixed rate loan is most common. This will provide you with the longest term possible as well as even monthly payments throughout the life of the loan. However, if you plan to retire soon, a shorter term length may help you to pay off your house more quickly. On the other hand, if you plan to relocate in a few years, an adjustable rate loan may yield a lower interest rate.

Finding a Reputable Lender

After you have thoroughly compared the loan options and determined which loan amount and loan type you want to apply for, you are ready to shop for a lender. You can begin by comparing rates and terms. However, when you are getting firm loan quotes, you also want to pay attention to which lenders are most responsive to your calls and emails as well as which ones are more knowledgeable and helpful.

Walking Through the Loan Process

When you decide which lender you want to work with, your lender will guide you through the loan process. It usually begins with you submitting a loan application and agreeing to have your credit report reviewed. If all appears acceptable to the lender, the full loan process will begin. You will be asked to submit tax returns, pay stubs, bank statements and other documents. In addition, an appraisal and property inspection may be ordered, and a title report may be requested.

The entire loan process often takes approximately four to six weeks, but there is variation in this. Your lender can provide you with more detailed information about their specific loan process before you complete the loan application.