Fall in Love with Your Credit Score

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With Valentine’s Day around the corner, you’re probably thinking about your plans for the big day. Whether you’re celebrating with your significant other or friends, love is definitely in the air. But do you feel that love for your credit score? That’s right—it’s time for you to fall in love with your credit score. And we’re here to help. 

What Is a Credit Score?

A credit score is a single number that reflects the overall state of your credit history. It’s used by lenders to determine your eligibility for a loan. The score is calculated and reported by the three major credit bureaus, which are Experian, Equifax and TransUnion. Every bureau calculates its own score, so you can have a different score with each agency.

What’s an Excellent Credit Score?

Credit scores are broken into ranges. Scores in higher ranges are considered good or excellent. People with these higher scores can typically get approved for more loan options and may get better terms, interest rates, APRs, etc.

How credit scores are broken up depends on which model is used. Firstly, there’s FICO. This credit score range was developed by FICO, a company that specializes in predictive analytics. FICO uses your credit information to create your credit score, which will help lenders predict your behavior. Here’s the FICO score range:

  • 800 to 850: excellent
  • 740 to 799: very good
  • 670 to 739: good
  • 580 to 669: fair
  • 300 to 579: very poor

Then there’s VantageScore, which is a result of a joint venture from the three major credit bureaus. Here’s the VantageScore credit score range:

  • 750 to 850: excellent
  • 700 to 749: good
  • 650 to 699: fair
  • 600 to 649: poor
  • 300 to 599: bad

Don’t forget that Experian, Equifax and TransUnion each have their own credit score. That’s why it’s important to check them out whenever you can! 

How to Feel the Love for Your Credit Score

You wouldn’t settle for a mediocre date, so why settle for a mediocre credit score? If you’re ready to fall head over heels for your score, it might be time to improve your credit. We’ve got some tips on how to love your credit score the right way—by treating it right. 

1. Educate Yourself About Credit

You know how people like to say “What you don’t know can’t hurt you”? That definitely doesn’t apply to your finances. Take time to educate yourself about credit—especially your credit.

First, learn about the five factors that play into your credit score:

  • Payment history: Making up 35% of your score, this refers to how often you have late payments.
  • Credit utilization: This refers to the amount of your credit that you use. Your credit utilization ratio should be less than 30%. This also makes up 30% of your credit score.
  • Average age of accounts: If you have some older accounts, it’ll show lenders that you have great financial management skills. This makes up 15% of your credit score.
  • Account types: It’s best to have a good mix of accounts, such as revolving accounts and installment accounts. This makes up 10% of your score.
  • Inquiries: When you apply for credit, it’s common for lenders to do a hard pull on your credit. This results in an inquiry on your report. Inquiries only make up 10% of your score. 

You should also learn about your own credit. Order your free credit report to see exactly where you stand so you can start improving your credit.

2. Get Organized and Pay Your Billson Time

Timely payments—which means never being late with loan payments or defaulting on loans—is the biggest factor in your credit score. This accounts for almost a third of your score.

Sure, getting organized and being on the ball financially sounds like a chore. But it also means that you’ll be caught up on all your payments. You’ll feel freedom when you know you paid all the bills for the month.

Get a month ahead on bills so you’re never rushing to pay anything. You get the added benefit of a cushion that can be helpful if emergencies do arise. Plus when you make on-time payments your, credit score could rise. 

3. Work with Professionals to Clear Up Errors

Finding an error on your credit report can feel like finding skeletons in your significant other’s closet. Are they real? Is it a false alarm? The best way to tackle an error on your credit report is to go to a professional to help clear the air. 

If you’re feeling ready to dump your credit score over a mistake, it might be time to call in the professionals. Instead of a couple’s counselor, you need a credit repair agency. Sure, they can do the things you could do yourself—but with a lot of time and effort on your part. But the professionals can intervene for you to provide experienced guidance and resources to help get errors on your credit report fixed.

Get to Know Your Credit Score Now

Every good relationship starts with getting to know each other. Before you can fall in love with your credit score, you need to get to know what’s going on with it now and understand your own goals for the future. Start by getting your free credit report card to understand your score and how you rank on each of the five factors that play into it. 

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Help, I Need to Get the Cosigner Off My Car Loan!

how to get a cosigner off a car loan

We’ve had many readers write in after a divorce and ask how to split their assets with an ex-spouse. One of the most common questions is how to remove an ex or another cosigner from a car loan and title. Here’s how to go about it.

What’s the Role of a Cosigner?

It can be challenging to remove a cosigner from a loan. To gain a better understanding of why, let’s look at why a cosigner is used at all. Essentially, a cosigner is needed when the borrowers own credit and/or income isn’t enough to qualify for the loan by himself or herself. The cosigner, presumably, has stronger credit and income, and is required by the lender or creditor to help guarantee that the loan will be repaid.

Loans involving a cosigner include a cosigners notice. The notice asks that the cosigner guarantee the debt. This means that if the original borrower fails to make payments on the debt, then the cosigner becomes responsible for the balance. The cosigner then is obligated to make payments until the debt is paid when the borrower can’t.

Co-signing a loan is risky for the cosigner, because it can affect the cosigner’s credit if the borrower doesn’t satisfy the debt and the cosigner has to take over. The debt can ultimately affect the cosigner’s credit scores and access to revolving credit, such as credit cards.

Before co-signing a loan, a cosigner should be sure that he/she is able to comfortably take on the monthly payments if it comes to that. The cosigner should also make sure he/she doesn’t need to get a loan of his/her own over the course of the cosigned loans terms.  Cosigning on the borrower’s debt will affect the cosigner’s overall credit utilization and ability to secure other credit opportunities in the meantime.

Now that you know the role of a co-signer let’s look at what you can do to remove them from a car loan if needed.

Refinance the Car Loan to Get the Cosigner Off

You may be able to refinance a car loan in your own name to get your cosigner off the loan. In essence, you’ll buy the car from your ex-spouse and go through the car buying process again.

The spouse who is responsible for the car loan payments, the primary signer, should ideally assume credit liability for the loan. It’s a also good idea to go through this process right away, regardless of what your divorce decree states.

Divorce decrees (or court orders) don’t release either person from his/her obligations under the original contract of the loan. That means that if you and your ex-spouse have a joint account, like a car loan, and if the spouse who is supposed to pay doesn’t, the negative credit history will end up on both of your credit reports, and those late payments will damage both of your credit ratings. In fact, the other person may not know about the unpaid account until a collection agency calls.

Removing your ex from the car’s title, if the car already paid for, is similar and requires working with the Department of Motor Vehicles (DMV). You’ll both need to sign a change of title/vehicle ownership form and return it for processing. You can check online or call your state’s DMV for details and forms.

In some states you can file a transfer of title between family members, if the divorce has not been finalized yet. A transfer of title lets you avoid getting any needed inspections or certifications and paying taxes on the vehicle based on the purchase price. (If you live in the state of California, for example, research changing vehicle ownership versus transferring a car title.)

See if You Have a Cosigner Release Option

Some car loans include conditions that remove the cosigner’s obligation after a specified number of on-time payments are made by the primary borrower.

If you’re unsure if this is an option, talk to the lender and check any loan documents you have. The cosigner release option is probably one of the easiest methods of taking a co-signers name off a car loan.

Pay Off the Loan

Another option to get a cosigner off a car loan is to pay off the loan either directly or by selling the car. If you sell the car, you can use the money to pay off the loan. With luck, the sale value of the car will be sufficient to cover the remainder of the loan.

Be aware that if you are the cosigner, and the primary borrower fails to make payments, you can likely seize the asset and sell it.

This article was originally published February 20, 2013, and has since been updated by another author.

Image: iStockphoto

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How Much Cash Do You Really Need to Buy a Home?

Are you ready to buy a home? You’re not alone—in 2019, more than five million people bought an existing home. And that doesn’t even include the number of people who purchased new construction.

The point is, the housing market is always bustling and busy. And if it’s your first time buying a home, it might seem a bit daunting. You might have a couple of questions—how much money do you need to buy a home? And how can you even get those funds?

Overwhelmed? Don’t be. We’re here to guide you towards saving up, so hopefully you’ll be able to afford your dream home. Keep reading to learn more!

How Much Do You Need for a Down Payment?

Let’s start with one of the first payments you might have to make—a down payment. When someone takes out a mortgage loan, they’ll put down a percentage of the home’s price. That’s the down payment.

You might’ve heard that down payments are about 20% of the total cost of your new home. That can be true, but it really just depends on your mortgage. There are mortgage options that require little to no down payment, and how much you need often depends on your eligibility for different programs. Here are some different loan options:

1. USDA Mortgage

The USDA guarantees mortgages for eligible buyers primarily in rural areas. These loans do not have down payment requirements. To qualify for a USDA loan:

  • The property must meet eligibility requirements as to where it’s located.
  • Your household must fall within the income requirements, which depend on your state.
  • You must meet credit, income and other requirements of the lender, though they may be less rigorous than loans not backed by a government entity.

2. Conventional Mortgage

Conventional mortgages are financed through traditional lenders and not through a government entity. Depending on your credit and other factors, you may not need to put down 20% on such loans. Some lenders may allow as little as a five percent down payment, for example. But you’ll have to pay private mortgage insurance (PMI) if you put down less than 20%.

3. FHA Mortgage

FHA loans, like USDA loans, are partially guaranteed by a government agency. In this case, it’s the Federal Housing Administration (FHA). A down payment on these loans may be as low as 3.5%. Requirements for an FHA loan can include:

  • You’re purchasing a primary home.
  • The home in question meets certain requirements related to value and cost.
  • A debt-to-income ratio between 43% and 56.9%.
  • You meet other credit requirements, though these may not be as strict as with conventional loans.

How much do you need to make to buy a $200K house?

Given the above information, here’s what your down payment might look like on a home worth $200,000:

  • USDA loan: Potentially $0
  • Conventional loan: From $10,000 to $40,000
  • FHA Loan: As low as $7,000

These are just some options for mortgages with low down payment requirements. Working with a broker or shopping around online can help you find the right mortgage. In addition to the down payment, you do need to ensure that you can afford the mortgage and make the monthly payments.

Don’t Forget the Cash You’ll Need for Closing

Closing costs are typically between three and six percent of your mortgage’s principal. That’s how much you’re borrowing, so the less you put down, the more your closing costs might be.

Here’s a range of closing costs assuming a cost of three percent of the low range home purchase, when buying with less than 20% down:

  • For a home purchase between $500,000 and $600,000, you’ll need at least $15,000 for closing costs
  • Between $300,000 and $500,000, at least $9,000 for closing costs
  • Between $150,000 and $300,000, at least $4,500 for closing costs

Where Can You Get the Money to Buy a Home?

These numbers should give you an idea of how much cash you’ll need for a home purchase. Acceptable sources for procuring cash to close on a house can be one or any of the following:

  • Stocks
  • Bonds
  • IRA
  • 401(k)
  • Checking/ savings
  • A money market account
  • Retirement account
  • Gift money

The key here is that the money needs to be documented. You have to be able to prove you had it and didn’t borrow it simply for the purpose of making your down payment or covering closing costs.

Don’t have cash available from any of the above-mentioned sources? There are other sources you can use as long as they can be paper-trailed, such as your tax refund or a security deposit refund on your current home rental.

Plan for Other Important Costs

While down payments and closing costs are the biggest out-of-pocket expenses involved in buying a home with a mortgage, you may need to cover other costs. There might be some additional home buying and moving-in costs. Those could include inspections, the cost of any necessary repairs not covered by the sellers and moving fees.

Are You Ready to Buy a Home?

Saving up the right amount of money is just one step in buying a home. You must also ensure your credit score is in order. Lenders look at different credit scores when they consider someone for a mortgage. Sign up for ExtraCredit to get a look at 28 of your FICO Scores to understand how lenders might see you as a borrower. Once you check your scores, you can decide whether you need to build your score or start shopping for your mortgage.

Sign up for ExtraCredit today!

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New Student Loan Models Attract Borrowers & Investors

New Student Loan Models Attract Borrowers & Investors

It was bound to happen.

So-called alternative financing sources for student loans have been popping up all over the place. Some take a peer-to-peer (P2P) approach, where individuals with a few bucks to spare and hopes of a better-than-market return lend to others who are looking for a good deal on a loan.

P2P companies serve as matchmakers of sorts. The firms pair pre-screened applicants with investors who set the credit and pricing ground rules for the loans they’re eager to make. The fees that the P2Ps earn may come from arranging the match and babysitting (servicing) the offspring (loans) over time.

The more traditional alternative lenders are somewhat less paternalistic.

A number of high-powered professional investment companies—including private equity and hedge fund firms—are backing a string of nonbank lending operations that are busy staking out market positions in a variety of business sectors.

Higher education is one of these.

The reason for the interest is obvious: More than $1 trillion worth of student loans, a portion of which will make its way into the private market at some point. For example, some borrowers may require additional financing after maxing out the amount they can get from federal programs. Others may need to combine and refinance their government and private student loan debt later on.

What’s less obvious is the lenders’ control over the selection process, and the fact that even if a bad deal were to slip through anyway, all student loans—government and private alike—continue to be virtually impossible to discharge in bankruptcy.

The selection process is attracting a bit of attention these days. Some lenders are seeking to improve upon their already good repayment odds by exclusively marketing to those students who are pursuing historically high-paying areas of study at premier colleges and universities. As for the rest, their rates are typically higher and their loans may need to be co-signed by deep-pocketed parents or other close relatives.

To paraphrase Orwell, all students are equal, but some are more equal than others.

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Meantime, there’s news that the first of these alternatively-originated loans are ending up in securitizations.

Fundamentally speaking, this form of structured finance serves two key purposes: It broadens lending capacity by recycling previously originated loans, thereby freeing up the lenders to grant new credit. It also locks in the originating lender’s profit, which is typically expressed in terms of the difference between the interest rates that borrowers are charged and those that are paid to investors to whom the loans are ultimately sold through one of these complex transactions.

The integrity of the investors’ rate of return depends on three things: an originally agreed-to payment stream that will not change, a loan value that can be expected to amortize as it was intended and a repayment term that will also remain intact.

Reduce the payment amount, forgive a portion of the loan value or extend the duration and the investor’s rate of return could get hammered—which explains the strong reluctance on the part of their agents (loan servicers) to meaningfully restructure or permanently modify securitized loans for distressed borrowers, whether for home mortgages or education debt.

So, as securitizations and other forms of structured-finance transactions begin to crank up in the education-loan sector, what should be done differently this time around?

As long as Congress continues to do nothing about the free pass in bankruptcy court that education lenders and investors enjoy today (including the feds), lawmakers should, at the very least, mandate two things.

First, that the governing documentation for all after-the-fact financing transactions (securitizations, in particular) makes it clear to all concerned that troubled debts will be promptly restructured or modified in a manner that is consistent with the student-loan relief programs the government has in place at the time.

Second, that everyone that’s involved in this financial conga-line — lenders, investors and loan servicers alike — will be held equally accountable for that as well.

More on Student Loans:

  • How Student Loans Can Impact Your Credit
  • Can You Get Your Student Loans Forgiven?
  • A Credit Guide for College Graduates

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.

Image: Robert Churchill

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How to Protect Your Credit While in the Military

Around a third of active military service members in 2019 said they didn’t pay all their bills on time, and close to that number of military spouses said the same. Military service can require some serious financial planning. But many service members might not realize how joining the military impacts their credit—and how their credit can impact their military career.

Find out more about the
relationship between a military career and credit below. Plus, get some
information about resources that can help military members protect their
credit.

How Your Credit Can Impact Your Ability to Join the
Military

No matter which branch of the
military you want to join, you have to meet certain eligibility requirements.
Specific requirements vary by service branch as well as the level of security
needed for the job.

The military does conduct background checks to determine factors such as whether you have a criminal background. A credit check is often included by some branches because the state of your financial situation can help provide a picture about your overall reliability. And if you’re dealing with a great deal of debt or have negative items on your credit report, it could make you vulnerable. Someone in financial distress could be at greater risk of illegal or questionable activity to generate money.

You can be denied military enlistment if you’re in financial trouble, such as if you have a number of collections in your credit history. But it’s actually more likely that poor credit will impact your ability to move up within a military career. That’s because Guideline F of the National Security Adjudicative Guidelines outlines financial considerations that may disqualify you from various levels of security clearance.

Failing to meet those requirements could result in revocation of security clearance. And that could mean losing your job with the military. Any time enlistment depends on a security clearance, the same could be true for simply joining up.

How Joining the Military Affects Your Credit

Joining the military doesn’t
have a direct impact on your credit. You won’t get points on your score because
you’re a service member, for example. However, you might want to pay attention
to your credit because you could be subject to greater financial monitoring
depending on your position and security clearance.

Being in the military can also create some challenges that relate to credit. The National Foundation for Credit Counseling notes some common financial trends and challenges experienced by military members and their families, including:

  • Struggling to pay bills on time. According to NFCC, service member households are more
    likely to pay bills late than other US households. In some cases, this might
    simply be due to challenges associated with managing daily activities, such as
    bills, when you’re deployed or moving from place to place regularly.
  • Putting major decisions on hold. More than 70% of service members or their spouses say they
    put major decisions, including buying a new home, on hold during military
    service.
  • Sticking to a budget.
    More than 50% of active military members and/or their spouses say they don’t
    manage a regular budget.

Protecting Your Credit While You Serve

That doesn’t mean it’s
impossible to maintain a strong credit score while you serve in the military.
In fact, a number of resources are available to help you do just that. Here are
just a few tips for protecting your credit while you’re in the military,
particularly when you’re deployed.

1. Place an Active Duty Alert on Your Credit Reports

An active duty alert is like a fraud alert. It’s a notice on your credit reports that encourages lenders to take extra precautions when approving credit in your name. In some cases, creditors may be required to contact you directly or otherwise verify your identity when approving credit. This makes it harder for someone to pretend to be you and apply for a loan or credit card.

Active duty alerts also remove you from insurance and credit card offers for up to two years. That means that providers can’t do a soft pull on your credit report and send you a preapproved offer in the mail. This reduces the potential for someone to take that preapproved offer and open credit in your name without you knowing about it.

Active duty alerts are free.
You can request one from any of the three major credit bureaus and ask that it
let the other two know to do the same. Active duty alerts last for one year, so
you’ll need to request them annually if desired.

2. Understand Your Rights Under the Servicemembers Civil
Relief Act

The SCRA offers some protection for military members when it comes to civil legal action, including those related to financial matters. Some of the protections under this act include:

  • Rate cap. In some cases, if military members have high-interest debt from before they joined, they may be able to get the interest rates reduced to no more than 6%.
  • Default judgment protection. In civil cases, a default judgment occurs when one person doesn’t show up to a scheduled hearing. If default judgments are allowed, the judge decides in favor of the party that showed up. Due to the nature of their occupation, military members may be protected from default judgments if they aren’t able to make a hearing due to their military service.
  • Repossession and foreclosure. In certain cases, creditors must get court orders to repossess or foreclose on property of an active service member. This typically requires that the military service person took out the loan on the property before enlisting or otherwise going into active duty status.

3. Understand Your Rights Under the Military Lending
Act

The Military Lending Act provides a number of protections for active military members who are seeking credit during their service. Some provisions of the act include:

  • Capping interest, including
    finance charges and fees, on loans to 36% regardless of credit score and other
    factors.
  • Limiting what creditors can ask you to agree to, such as mandatory arbitration clauses and mandatory
    payments from your paycheck.
  • Protection against prepay penalties if you pay the loan back early.

For any
questions about your individual circumstance regarding FCRA or the MLA contact
your military branch’s legal office for guidance.

Credit-Related Perks for Military Members

As a current or former
military service member, you may also have access to perks that help you build
and manage your credit and personal finances. Here are just a few.

  • Special credit card or loan offers. Military members have access to several credit card offers that others do not, including USAA cards with low interest rates. And you might qualify for a home loan backed by the VA, which can help you gain access to potentially better terms or lower down payment requirements.
  • Free credit monitoring. Starting October 31, 2019, military members can access free credit monitoring via the credit bureaus.
  • Access to Personal Financial Managers or Personal Financial Counselors. These are individuals trained to help military members and their families manage money and credit in a positive and proactive way.
  • The Department of Defense Savings Deposit Program. If you’re deployed to an active combat zone and receiving Hostile Fire Pay, you can build your savings with this program. You can deposit up to $10,000 and earn 10% interest on it.

NOTE: The CARES Act specifically provides some protections to military personnel and veterans during the COVID-19 coronavirus pandemic. This includes protections for VA-guaranteed loans for those experiencing financial hardships.

Check Your Credit After Deployment

Understanding your rights and
what resources you have available—as well as taking proactive approaches—can
help protect your credit while you’re in the military. But no plan is
foolproof, and mistakes can happen. So, it’s important to check your credit
reports whenever you return from deployment and regularly even when you’re not
deployed.

If you find anything on your credit that isn’t correct, you have a right to challenge it. DIY credit disputing is possible, but it takes more time than active duty military members might have. Consider working with a credit repair firm such as Lexington Law, which has tools to focus verification and challenges for military personnel. Working to challenge inaccurate negative items can help you protect your credit so you can protect your security clearance and your financial future as well.

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Disclosure: Credit.com is owned by Progrexion Holdings Inc. John C Heath, Attorney at Law, PC, d/b/a Lexington Law Firm is an independent law firm that uses Progrexion as a provider of business and administrative services.


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