June’s Fed meeting came and went without any change in the Federal funds rate. The decision reflects a growing problem: the economic indicators the Fed relies on are increasingly pointing in opposite directions.

Slowing economic growth and rising unemployment typically call for lower rates, but renewed inflation concerns are pulling the other way. This tug-of-war is leaving 2025 interest rates in limbo.

The Fed expects economic signals to move further apart

After the Federal Open Market Committee met on June 17 and 18, it released updated projections showing greater conflict between key economic indicators.

On one side, the Fed lowered its expectations for GDP growth and raised its unemployment forecast. That indicates it expects the economy to weaken more than previously thought.

At the same time, it raised projections for inflation in 2025 and the two years that follow. That means it sees price pressures remaining higher than hoped.

The Fed tries to balance two main goals: encouraging employment and limiting inflation. Lower interest rates can support job growth, while higher rates are often used to control inflation. Because those two responses are at odds with each other, tension between the Fed’s goals is not new. But now that tension appears to be growing.

Interest rates remain unchanged

At the end of its June meeting, the Fed announced it was holding the Federal funds rate steady at a target range of 4.25% to 4.5%.

This decision disappointed some, including President Trump, who has repeatedly called for cuts. However, Fed Chair Jerome Powell does not act alone. The rate-setting committee voted unanimously to leave rates unchanged, reflecting broad agreement that the economic situation does not support a move right now.

As recently as September, the Fed expected to lower rates to 3.4% by the end of this year. Instead, its latest projection shows a year-end rate of 3.9%, which is half a percentage point higher. It has also raised its rate expectations for 2026 and 2027.

Inflation uncertainty continues to weigh heavily on rate decisions. The Fed is not raising rates at this point, but it does not believe conditions justify lowering them either.

Inflation concerns have not gone away

One reason the Fed is drawing criticism for holding off on rate cuts is that inflation has remained relatively calm in recent months. Inflation remained calm with modest monthly price increases through much of 2024.

However, the Fed bases its decisions on where the economy is going, not just where it is now. Tariffs that have been announced are not yet fully reflected in prices. There are delays between when tariffs take effect and when their impact reaches consumers. Retailers often have existing stock to sell through first.

On top of that, ongoing conflict in the Middle East creates the possibility of rising oil prices, which can drive up costs across many sectors.

The Fed also considers how inflation can build on itself. Higher import prices can lead to domestic price increases. Companies may raise prices due to rising input costs, and employees may push for higher wages in response. This feedback loop can create lasting inflation that is harder to reverse.

To provide some perspective, the current rate is lower than the historical average. Over the past 50 years, the Federal funds rate has averaged 4.69%. Today, it sits at 4.33%.

Since August of last year, the Fed has lowered rates by a full percentage point, from 5.33% to 4.33%. So while it has not made deep or frequent cuts in 2025, it has already moved rates below the long-term norm.

The criticism is not that the Fed has done nothing. It is that it has not gone as far as some would prefer.

Consumer interest rates often move independently

From a consumer perspective, the Fed’s decisions may not matter as much as headlines suggest. Even when the Fed does cut rates, the impact on what consumers actually pay can be small.

For example, between mid-2019 and early 2020, the Fed cut rates by 2.25%. During that same period, the average interest rate on credit card balances dropped by only 0.53%.

In the second half of last year, the Fed cut rates by 1.0%, but 30-year mortgage rates fell by just 0.01%.

That is because consumer rates do not track the Federal funds rate exactly. Both are influenced by broader market factors, including credit risk and inflation expectations.

As the economy slows, lenders tend to raise rates to account for higher risk, especially on unsecured debt like credit cards. For borrowers with lower credit scores, those increases can be even steeper. Credit conditions may tighten, making it more difficult or expensive for some consumers to access credit at all.

Meanwhile, long-term mortgage rates are often more sensitive to inflation expectations than to short-term interest rate moves.

Broader changes are needed for real consumer relief

The Fed’s projections suggest that concerns about inflation are growing while the economic outlook is weakening. That is a difficult environment for lowering interest rates.

To see meaningful improvement in borrowing costs, several things would need to happen. A stronger economy could reduce credit risk. A shift in trade policy or global tensions could ease inflation pressure.

Until those conditions change, the Fed may have limited ability to affect consumer borrowing costs. The bigger issue is not whether the Fed chooses to cut rates. It is whether the economy provides the conditions that allow those cuts to make a difference.

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Rising home values in your area could be a cause for celebration — but what if you don’t want to sell your home? You may still tap your newfound home equity by borrowing against it. Home equity can be the cheapest way to pull off a remodeling project, consolidate high-interest debt, start a business, or pay for any big-ticket purchase. Here’s what it takes to convert home equity into useful money.

How do home equity loans work?

Home equity is the difference between your property value and the total of loans against it. If you owe $200,000 on a house valued at $350,000, you have $150,000 in home equity. Home equity financing allows you to borrow against some of it.

Home equity loans are mortgages, just like the mortgage you probably took out to buy your house. In fact, one name for home equity loans is “second mortgages.” Most home equity loans come with fixed interest rates and payments. You typically get between five and 20 years to repay these loans, but some programs give you up to 30 years to repay.

When you apply for a home equity loan, you complete the same form you did for your “first” mortgage. You go through a similar underwriting, escrow, and funding process. At closing, you receive a lump sum, which you begin repaying the following month.

Top uses for home equity loans

Home equity is a primary source of wealth for average American families. So, most personal finance advisors don’t recommend spending it casually. However, home equity is ideal for some uses — especially those that improve your financial or personal health. Here are some examples:

• Finance college tuition (assuming the degree pays off in the future)
• Fund a new business (do your homework to make sure it succeeds)
• Cover a remodeling project (consider how much home equity the project will add)
• Add an additional dwelling unit (ADU) for rental income
• Buy a vacation cabin or tiny home
• Pay for an expensive medical procedure like a knee replacement
• Consolidate high-interest debt (only if you address overspending problems first)

Home equity is a popular source of financing because interest rates are lower, and longer loan terms make payments more affordable.

How much can you borrow with a home equity loan?

To see how much cash you can unlock with a home equity loan, you must first understand two terms — loan to value, or LTV, and combined loan to value, or CLTV. Home equity lenders use both of these terms when underwriting your loan application.

Loan to value (LTV) is the ratio of your first mortgage balance to your property value. If you have a $100,000 home with an $80,000 mortgage, your LTV = $80k / $100k = .8, or 80%.

Combined loan to value, or CLTV, equals the total of all loans against your home divided by its current value. So if you took out a $10,000 second mortgage against your $100,000 home, your CLTV = ($80,000 + $10,000) / $100,000 = .9 or 90%.

Most lenders allow CLTVs of 80% to 90% when underwriting home equity loans. Generally, the less risky you are, the more lenders let you borrow. To see how much you could borrow with a home equity loan, take these steps:

• Get an estimate of your home value. You can find many online estimators or ask a local real estate agent.
• Multiply your estimated home value by 80%, 85% or 90%.
• Subtract your current mortgage balance.

If your home is worth $400,000 and you owe $300,000, your maximum home equity loan amounts would be as follows:

• ($400k * 0.80) – $300k = $20,000
• ($400k * 0.85) – $300k = $40,000
• ($400k * 0.90) – $300k = $60,000

Home equity loan costs and interest rates

Home equity loan interest rates are higher than first mortgage interest rates. Second mortgages are riskier than first mortgages because their lenders are in the second position. Here’s how the second position works: if you have one mortgage and don’t make your payments, your lender can sell your home and probably recoup its money. But a lender with a second mortgage only gets repaid after the first lender gets its money — if there’s enough left over.

The fees for a home equity loan run lower than those for a first mortgage. You need title insurance and escrow services, which may cost a few hundred dollars instead of thousands. Your lender may require a full home appraisal, which costs several hundred dollars, or it may use an in-house valuation program or request an inexpensive “drive-by” or “desk” service from a licensed appraiser.

When comparing home equity loan programs, look at the bottom line. You needn’t care what the fees are called, but your total costs and interest rate matter. Compare identical loan programs — 15-year-fixed to 15-year-fixed, etc. Then look at the loans’ APRs, or annual percentage rates. The APR includes the interest charged plus loan fees. That makes it easier to compare offers. Another way is to fix one side of the equation — tell every lender that you want a loan at 6% and see what each lender charges to get it. Or ask for a loan at zero cost and see what rate each lender offers you.

How to get a home equity loan

It takes several simple steps to get a home equity loan. First, do a little homework:

• Check your credit score for free. Lenders need it to give you a meaningful interest rate quote.
• Estimate your home value with one of many online property value estimators or ask a local real estate agent.
• Get your current mortgage balance. It’s probably on your credit report, or you can call your lender.
• Contact several home equity lenders to see if they offer the loan amount and teat you want. Get a written Loan Estimate (LE) disclosure or a loan scenario for those who make the cut.
• Compare loans and costs among programs and choose a lender.

Gather documents proving your income and assets. That probably means a recent pay stub or tax return and copies of all account statements. Next, you complete an application. Usually, that’s Fannie Mae Form 1003. Expect to provide employment and address information going back at least two years. You are asked about debts and assets, including real estate you own and all bank, investment, and retirement accounts. You may have to pay fees for a credit report and/or appraisal.

Your lender will probably use automated underwriting systems (AUS) to get a preliminary decision. If you receive approval (yay), you are given a list of documents and information needed to finalize your approval and close your loan. It’s important to clear these conditions ASAP, or your loan will stall. Once you have final loan approval from a human underwriter, the lender draws up loan documents for your signature. Make sure that the final loan application is correct because you’re responsible for whatever you sign. Double-check the loan amount, interest rate, term, and fees to ensure no surprises.

Once you sign everything, you have three days to rescind (cancel) your loan if you choose. Federal law requires the lender to wait these three days before funding your loan. After the rescission period, you either get a check or an electronic fund transfer. Or, if you’re consolidating debt, the lender might pay off your accounts directly. The county recorder’s office makes it official, and you’re done.

Home equity loan alternatives

In addition to the standard home equity loan, there are other home equity products, the HELOC and convertible HELOC.

The HELOC, or home equity line of credit, is another way to borrow against your home equity. Instead of a lump sum, you get a line of credit to tap and repay as needed. Most HELOCs come with variable interest rates, but some newer products offer fixed interest rates. A HELOC may be better than a home equity loan if you don’t need a lump sum all at once. They let you pay interest only on the amounts you use.

HELOCs, unlike standard home equity loans, have two phases — the draw period and the repayment period. During the draw period, you use the credit line like a credit card, draw on it, and make minimum payments. But once you enter the repayment period, you can’t tap the credit line, and you must repay it in full over the remaining loan term. This can cause the monthly payment to increase sharply.

Convertible HELOCs have variable interest rates but allow you to convert the loan to a fixed home equity loan at one or more times. This can make a HELOC safer and more predictable.

The last way to tap home equity is the cash-out refinance mortgage. Cash-out refinancing means refinancing your current mortgage with a larger home loan and taking the difference in cash. Cash-out refinancing is usually much more expensive than traditional refinancing because fees apply to the entire loan–not just the cash-out. If you want to refinance your current home mortgage and get additional cash, it’s probably cheaper to refinance your first mortgage and then add a home equity loan for the cash.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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A newly released study by the Consumer Financial Protection Bureau (CFPB) suggests that millions of Americans might not realize just how much getting a payday advance can cost them.

How do payday advance products work?

Paycheck advance products are short-term loans that allow you to borrow money against your next paycheck. If you’re short on cash before payday and need funds for emergencies or unexpected expenses, these products can provide quick financial relief. You may be able to do this through your employer or specialist “payday lenders or “payday loan companies.”

According to the CFPB, nearly three-quarters of American workers are paid in arrears every two weeks or once a month. This means they are paid two to four weeks after completing the work.

Paycheck advance products make funds available to workers before payday. That money is then deducted from their next paycheck. For people who struggle to make ends meet from paycheck to paycheck, getting the money they’ve earned a little sooner can make the difference in whether or not they can pay bills on time.

Paycheck advances have become very popular. The CFPB estimates that the number of paycheck advance transactions nearly doubled from 2021 to 2022. In 2022, more than 7 million workers opted for paycheck advances. Advances totaled about $22 billion.

Is there a catch with paycheck advances?

Payday advances are expensive, and fees are deducted from the next paycheck. For regular users, the fees incurred in a typical paycheck advance program are the equivalent of 109.5% per year. This is more expensive than borrowing money with a credit card.

The CFPB has proposed that these advances should be considered loans subject to the Truth in Lending Act. This Act is designed to protect consumers against unfair practices and requires lenders to provide loan cost information so that consumers can comparison shop. This would allow people to make informed decisions about the cost of getting their pay a little early.

What about Buy Now Pay Later (BNPL) programs?

Like paycheck advances, BNPL programs have soared in popularity in recent years. People purchase goods today and worry about paying for them over a period of days, weeks or months.

BNPL services typically do not charge interest on installment payments on standard plans, especially if payments are made on time and within the agreed period. However, longer-term financing may be subject to interest payments, promotional offers may come with deferred interest, and missed payments may be subject to late fees.

Potential impact on credit and consumer protection

While paycheck advances and BNPL programs offer immediate financial relief, they can also have significant implications for consumers’ credit health. Frequent use of these services may lead to a cycle of debt, as high fees and interest rates compound financial strain. For paycheck advances, the high annual percentage rates (APRs) can surpass those of traditional credit cards, making them a costly option for regular use. Missed payments or the inability to repay these advances promptly can negatively impact credit scores, as they may be reported to credit bureaus.

Given these risks, there’s a growing call for regulatory oversight to protect consumers. The CFPB’s proposal to categorize paycheck advances as loans under the Truth in Lending Act is a crucial step in this direction. By enforcing transparency and requiring lenders to disclose the full cost of borrowing, consumers can make more informed financial decisions. This level of oversight would also align paycheck advance products with other credit products, ensuring that users are aware of the potential long-term costs and risks associated with early access to earned wages.

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Using a personal loan for credit building is one way to show a consistent payment history that can lead to good credit scores. Credit builder loans can help you do this even if you have a bad credit history or haven’t yet established credit. There are potential pros and cons to using credit builder loans.

How personal loans help you build credit

Your payment history is the biggest single factor in determining a credit score. You need some record of making payments to establish a credit score. If you consistently make payments on time, it will help your credit score. If you often miss or are late with payments, your score will be dragged down.

Personal loans help build credit because they typically give you a regular monthly schedule with a fixed payment every month. That makes it easy to budget for and manage your payments. When you sign up for a personal loan, you can see exactly how long it will take to pay off the loan and how much it will cost.

Personal loans also help build credit because they are a form of installment debt. That means they have regular, recurring payments. Installment debt differs from revolving credit, which allows you to tap into a line of credit regularly. Most loans are installment debt, while credit cards and home equity lines of credit are examples of revolving credit.

To build credit, it’s best to have a mix of installment and revolving debt. So, if you don’t have any other loans, a personal loan can help you show you can handle installment debt.

How to get a personal loan with bad credit

Of course, the classic problem with establishing or improving bad credit is that it can be hard to get credit unless you have a good credit history. This is where credit builder loans can help.

Credit builder loans are a type of personal loan designed to reduce the lender’s risk and be available to people without a strong credit record.

Not all lenders offer credit builder loans. However, if you search online for them, you should find several options. You can also check with your local community banks or credit unions to see if any of them offer them.

How credit builder loans work

Credit builder loans are different from other loans because the amount you borrow isn’t immediately available for you to use. Instead, the lender will put it in a savings account or certificate deposit on your behalf.

The money in that account is used as collateral for the loan. Lenders are confident in making credit builder loans to people who don’t have great credit because they know the loan proceeds are kept in a secure account.

As with most other loans, you make set payments on a regular schedule – typically over a period of 6 months to 2 years. Part of these payments goes to paying back what you borrowed, and part goes towards paying interest on the loan.

When you’ve repaid the loan, the money put in the secure bank account will be available to you. Meanwhile, the lender will have reported your payments to one or more of the three major credit bureaus. If you’ve made those payments on time, this should help your credit score.

Benefits of credit builder loans

People often feel shut out from credit because no one will give them a chance to prove they can be relied on to make their payments. Credit builder loans can overcome this problem because you don’t need excellent credit to get one.

So, credit builder loans can help you establish credit for the first time. Credit builder loans can also help improve a poor credit score. In other words, they allow people to use a personal loan to build credit even if they don’t have a strong credit history.

Potential drawbacks of credit builder loans

One problem with credit builder loans is that you are paying interest to borrow money without actually getting the use of that money. The proceeds from the loan are not available to you until you’ve made payments on it. It would be more cost-effective to simply put the amount of those payments into a savings account yourself. That way, you’d be earning interest rather than paying it.

Also, the Consumer Financial Protection Bureau (CFPB) found that getting a credit builder loan can make it harder to keep up with other payments. Missing payments on other debts would negate the benefits of making payments on the credit builder loan.

Making a credit builder loan work for you

Here are some tips for successfully using a personal loan for credit building:

• Budget to make all your payments on time. This includes the credit builder loan payments and any other payments you owe. The CFPB found that credit builder loans were most effective in establishing credit and improving scores for people who didn’t have other debts.
• Check who the lender reports payments to. There are three major credit bureaus – Equifax, Experian and TransUnion. To help you build a payment history, the lender must report to at least one of these. Your payment history is most impacted if the lender reports to all three credit bureaus.

As with all credit, you are judged on your payment history. So, it’s vital to establish a positive history.

Alternatives to using a personal loan for credit building

Besides using a personal loan for credit building, there are some alternatives to consider. A secured credit card is another way to establish credit without a strong credit history. As with a credit builder loan, it requires you to commit some money as collateral to build credit. Again, revolving credit and installment loans are two different things, so it’s best to establish a track record with both types of credit.

Loans such as car loans that use a physical asset as collateral are often available to people with less-than-perfect credit. These offer an opportunity to build credit if you can afford the terms. Student loans can also provide an opportunity to establish a credit history.

Whether you use a credit builder loan or another method, getting the chance to build a track record of using credit is just the first step. In the long run, it’s how good a track record you establish that will make the most difference.

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It’s no surprise when a personal loan is declined because of a poor credit history. But getting rejected for a loan despite having a good credit score can be frustrating and confusing. Even individuals with excellent credit can face denials. Here are some obscure reasons why you might be turned down and what you can do about it.

Debt management missteps

There are a couple of ways your credit management habits, even with a good score, might raise red flags for lenders.

• Pyramiding Debt. This refers to the practice of repeatedly paying off existing debt with new credit. Lenders may deny your application if they see a trend indicating that you don’t have the capital to manage your debt effectively. Fix this by reducing your spending and paying down your existing debt to improve your credit utilization ratio. Demonstrating a stable income and responsible credit management will make you a more attractive candidate for new credit.
• Credit utilization maneuvers. While a low credit utilization ratio (amount of credit used compared to total limit) is ideal, drastically increasing your available credit to artificially lower your credit utilization can backfire. It might suggest that you’re constantly seeking more credit. Fix this by consulting with your lender to understand what specific actions they would like to see. This might involve paying down some of your current debt or increasing your income. If you decide to close credit accounts, prioritize closing newer ones since older accounts are more beneficial to your credit score.

Debt-to-income tightrope

The amount of credit you have access to compared to your income can also play a role in loan approvals.

• Too much available credit. Having an excessive amount of available credit with a modest income can be a concern for lenders. They worry about the potential risk of you taking on more debt than you can handle. Fix this by talking to your lender to discuss their specific concerns and see if there are ways to address them, such as reducing your credit limit on certain accounts. If increasing your income is an option, that can improve your loan application’s attractiveness in the long run.

The inactivity trap

Lenders want to see a record of responsible credit usage, not just open accounts.

• Inactive credit lines. Simply having credit cards and loans isn’t enough; they need to be active. If you haven’t used your credit cards in several months or if your loans are in deferment, lenders may view your recent credit history as insufficient to gauge your ability to repay Fix this by using your credit responsibly. Make regular payments on existing loans or use your credit cards periodically. If you need a new credit card, consider applying with local lenders, such as credit unions or your bank.

Economic downturn

Even a good credit score might not be enough in an uncertain economic climate.

• Economic factors. Sometimes, lenders might deny your application due to worsening economic conditions in your area. Even with solid credit and a stable job, lenders may be cautious about issuing loans in a volatile economic climate. Fix this by shopping around for other lenders. While multiple credit inquiries can impact your score, 2 or 3 in a year are considered normal, and any resulting dip will be temporary.

Mortgage loan blues

There are a few additional factors more specific to mortgage applications.

• Down payment shortfall. Most mortgage lenders require a down payment, typically a percentage of the property value. A lower down payment increases the lender’s risk and might lead to rejection. Fix this by saving diligently to increase your down payment. Consider delaying your home purchase to reach your target down payment amount. Explore government loan programs or down payment assistance options that might require a lower down payment.
• Savings slump. Lenders want to see a healthy amount of savings to cover closing costs and unexpected expenses. A lack of savings can raise concerns about your financial stability. Fix this by creating a budget and focusing on saving consistently. Aim to save enough to cover at least 3-6 months of living expenses in addition to closing costs.
• Employment hiccups. Stable employment and a history of consistent income are crucial for securing a mortgage. Recent job changes or gaps in employment can be red flags for lenders. Fix this if you’re self-employed by being prepared to document your income with tax returns and financial statements. Consider waiting to apply for a mortgage until you have established a consistent employment history.

Understanding these potential reasons for loan rejection can help you take steps to improve your creditworthiness and increase your chances of approval in the future.

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A personal loan is an investment in your future self. Other types of loans, such as mortgages or auto loans, must be used for a specific purpose. A personal loan gives you a greater degree of flexibility. Learning how personal loans work helps you manage personal finances, achieve big goals and be a good steward of your credit.

Basic elements of a personal loan

A personal loan is a type of credit that a bank or online lending institution extends to help you meet a financial goal. These goals might include:

• Consolidating several smaller debts into a single account that’s easier to manage with better payback terms
• Covering an unexpected medical expense
• Funding your continuing education
• Paying for a small to mid-size home improvement project

Personal loans offer flexibility and financing capacity. They can be used broadly and are negotiated between you and a lender. You’ll likely have more credit to spend with a personal loan than a credit card.

This financial tool has clearly defined edges. Your lender determines the interest rate – often fixed – you pay and the period you pay it back.

Types of personal loans

Some personal loans are secured, while others are unsecured. Understanding this principle helps you decide how much risk to take on while meeting your lender’s expectations.

A secured personal loan means if you cannot pay your debt, the lender can take something of value from you. This might include a vehicle, a home or another asset. It gives the lender greater confidence that they can recover their money with interest if your financial situation changes. Secured personal loans often have lower interest rates because of this added financial security for the lender.

If you have limited assets of value, you might opt for an unsecured personal loan. This means the lender gives you funding without collateral backing you up if you cannot pay. To cover its bases, your lender might require a higher interest rate.

Many personal loans offer a fixed interest rate. This helps you predict precisely how much is owed each month. Some personal loans have a variable interest rate, which means you might owe less this month and more next month as the market fluctuates.

Advantages and disadvantages of personal loans

A personal loan can be attractive if you need money to cover expenses beyond your savings. Personal loans are available from various trustworthy lenders, both conventional and online only. You can shop around for interest rates, terms and other criteria that fit your financial situation best.

Personal loans can help you remain calm amid stress. An unexpected medical bill might normally throw off your budget for months. A personal loan could reduce stress because it lets you make payments over time versus all at once.

A final advantage of a personal loan is that you can manage it with other financial accounts. These include checking and savings accounts. You already know the ins and outs of your banking website or app. This can make tracking your personal loan and payoff progress a breeze.

On the other hand, personal loans come with potential disadvantages. Personal loans can become an excuse for spending beyond your means. Never pursue a personal loan unless you have mapped out how it impacts your monthly budget. Know the payback period and plan on fully paying what you owe each month so the loan doesn’t add more stress to your life. Paying extra is even better.

Another downside of personal loans is interest. If you can pay for something with cash savings, it might be best to start there versus opening an interest-bearing personal loan. A small-scale bathroom remodels funded with cash leaves you with a completed project and no debt. By contrast, a personal loan might mean you complete your remodel yet continue making payments for months or years to come.

A third watch-out with personal loans is their possible impact on your credit report and score. People with solid credit tend to have at least a couple of types of debt, so a personal loan can, in theory, be beneficial. Yet it’s important to make timely payments and avoid taking out too much new credit too quickly. Apply for a personal loan only when you understand how it could impact your credit health. Avoid falling behind on payments, which could negatively affect your score, and, in the worst-case scenario, send your bill to collections.

Tips for choosing the right loan and avoiding pitfalls

Several practical tips can help you ensure a successful personal loan experience. These tips include:

1. Identify your need.

Understand why you’re seeking a personal loan. Creatively examine all possible paths for covering that expense. Consider whether you need such a loan or might fund all or part of the cost with cash.

2. Do your homework.

Use Credit Sesame and other free resources to explore the types of personal loans available. Determine who offers the lowest interest rates and best overall terms. Avoid lenders that charge fees that seem unusually high or without a clear explanation. Your job at this stage is to limit risk to your personal finances while meeting a financial need.

3. Place inquiries.

Apply for a personal loan through one or two different lenders. See whose features best fit your need and your budget. Place these requests around the same time to avoid a negative impact on your credit report. An even better option might be to seek preapproval for a personal loan. This might not ding your credit at all.

4. Review proposed terms.

Assuming you qualify, the lender responds with an overview of the personal loan for which you are eligible. Take this opportunity to read slowly and carefully. Understand the interest rate you’ll pay, whether that rate is fixed or variable, and the timeframe for paying back the debt in full. Scan all documents to see whether the lender includes additional fees. Ask any questions to make sure you understand the numbers and your responsibilities once you have the loan. You can ask your financial adviser to take a look and give you a second opinion. Once these steps are complete, and you are sure you want and need a personal loan, you can sign the documents and make the loan official.

5. Use your loan and begin payments.

Once your loan paperwork has been signed, you should have access to funds within a few business days. This enables you to use the personal loan for the expenses you’ve earmarked and triggers the start of your monthly payments. Honor the terms you’ve agreed to and make payments on time.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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You want your special day to be absolutely right. For many couples, the joy of a wedding often competes with the dread of figuring out how to pay for it. According to Zola, a wedding planning website, the average cost of a wedding in 2023 is $29,000 up from $28,000 in 2022. Most people don’t keep nearly $30,000 hanging around and a personal loan can be a helpful option. It can cover expenses, maintain flexibility and keep your budget intact.

What are the benefits of a personal loan for your wedding? How do you choose the right loan? What terms should you consider? How can you minimize overall expenses along the way?

Key benefits of a personal loan to fund your wedding

If you do not love financial drama, a personal loan can save you time and headaches. There are several reasons why.

You have lots of choices with personal loans. Your existing bank likely offers these products. Many more options are available online via personal loan providers.

Personal loans offer flexibility. You can use the funds from a personal loan for a wider range of expenses than for other loan types, such as auto loans (used to purchase vehicles) and mortgages (used to purchase houses). This extends to cover costs such as dress and tuxedo rentals, catering, facility fees, honorariums for your officiant, and so on.

Personal loans offer compatibility. This means a personal loan can pair well with cash savings or a credit card. That provides full-circle financial resources to fund your wedding.

Finally, personal loans generally can be obtained more quickly than other types of loans, such as a mortgage. If you’re newly engaged and holding your wedding in the next few months, the accessibility of a personal loan can help you expedite the planning process.

How to shop for a personal loan to fund your wedding

As with other types of debt, it’s important to consider your financial objectives and personal boundaries when shopping for a personal loan. Keep these criteria top of mind.

• Interest rates. Determine the interest rate and whether it is likely to increase. Ask for a fixed rate whenever possible. This ensures a predictable monthly payment. Most personal loans have a fixed rate, but it’s always a good idea to double-check.
• Term. This refers to the number of months you spend paying off your personal loan. Generally speaking, ask for a shorter term with higher monthly payments so long as you can afford to make them in full. This helps you pay off your personal loan sooner with less interest.
• Fees. Depending on your personal loan provider, you might have additional costs to assess. For example, some banks or online services might charge processing fees or expenses for getting copies of statements via physical mail.

Fund your wedding without breaking the bank

You can plan an incredible wedding without losing sleep over how the dollars flow. Follow a few steps to ensure peace of mind throughout the planning process.

1. Start with the end in mind

Write down a number that represents your preferred all-in wedding cost. Factor in everything, including food, photography, clothing, travel, lodging and everything else. Talk through the full budget with your partner and agree on that target number. No matter how you end up financing your nuptials, it is wise to have a unified purpose and a clear goal to guide the rest of your decisions.

2. Check all your money pots

Options are always an advantage when you’re planning for a big expense. Consider all of the ways you might fund your wedding to keep costs in check and cover all expenses. For example, do you have some cash set aside in savings? Do you have a credit card that could be used for smaller-scale purchases? These can supplement a personal loan and help you focus on borrowing only what you need.

3. Avoid too many personal loan inquiries

From a credit perspective, remember that it’s good to have several types of debt, it’s not good to make too many applications for loans in a short period of time. Do your research and assess all possible lenders before applying for a personal loan. This works in your favor. You apply only for a loan that fits your personal financial situation. And you avoid too many credit inquiries, which can damage your credit score.

4. Evaluate repayment options

Your personal loan specifies exactly what you owe each month. That doesn’t mean you need to stick with the minimum payment, though. Work with your partner to determine if you can afford to pay a little extra. This can help you get out of debt sooner, leaving you basking in the glow of a fully funded wedding.

5. Look two steps ahead

Most big life events have a few unexpected turns along the way. Perhaps that venue is more expensive than you realized. Or maybe additional family and friends plan to attend your after-wedding dinner. Whatever the case, think ahead about the possibility of extra costs or hidden savings. This can give you and your partner the confidence to keep taking the next step in the wedding planning process without extra heartache or heartburn.

Whatever your wedding adventure brings, a personal loan can help you shore up your budget, anticipate the costs and create an experience to remember.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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Your credit score is a significant factor when mortgage lenders underwrite your loan application. While very few mortgage programs exist for homebuyers with credit scores as low as 500, some options may be available to you:

• FHA home loans
• Non-prime loans
• Seller financing
• Hard money loans

We’ll take a closer look at each of these options, their advantages and drawbacks, and how to improve your chances of getting a mortgage with a 500 credit score.

FHA home loans for low credit scores

The Federal Housing Administration (FHA) is a government agency that insures loans made by FHA-approved lenders. The FHA home loan is one of the most popular loan programs for homebuyers with low credit scores. FHA mortgage guidelines allow scores as low as 500 with a 10% down payment. However, very few applicants are approved with a credit score this low.

Your ability to get an FHA mortgage with a 500 credit score depends on the reasons for your poor credit score. If it’s low because you have a limited credit history or high credit usage, you have less trouble than if it’s bad because of serious blemishes like missed payments, collections, charge-offs, bankruptcies, foreclosures or repossessions.

Borrowers should also understand that many FHA lenders apply “overlays” when they underwrite loans. Overlays are guidelines that are stricter than those set by the FHA. For instance, many lenders set their own minimum credit scores between 580 and 640.

FHA compensating factors

For borrowers with credit scores under 580, FHA requires lenders to underwrite the loan manually using a scorecard.

To get an FHA mortgage with a 500 credit score, you probably need exceptional “compensating factors,” to strengthen your application. Here is a list of common compensating factors that FHA underwriters may be able to use to justify approving a mortgage with a 500 credit score:

• Housing expense payments: The borrower has successfully demonstrated the ability to pay housing expenses greater than or equal to the proposed monthly housing expenses over the past 12-24 months.
• Down payment: The borrower makes a large down payment of 10% or higher toward the purchase of the property.
• Accumulated savings: The borrower has demonstrated the ability to accumulate significant savings.
• Conservative use of credit: The borrower does not use credit excessively (this would be reflected in the debt-to-income ratio).
• Substantial cash reserves: The borrower will have, after closing on the home purchase, enough cash to cover at least three months of payments in the event of a financial emergency.
• Additional income: Some income may be available to pay a mortgage but not counted for underwriting. For instance, income from a second job, commissions or bonuses received for less than two years.
• Trailing spouse: A borrower’s spouse’s income is a compensating factor if one borrower moves for a new job and the spouse works but has not yet found a new job.
• Substantial non-taxable income: If a borrower’s income is not taxable, underwriters can adjust the income upward.
• Potential for increased earnings: The borrower can reasonably expect to earn significantly more in the future because of acquired training and experience — for example, a recent medical school graduate.

FHA mortgage pros and cons

The FHA loan offers a few advantages for borrowers with smaller down payments, higher debt-to-income ratios or low credit scores. First, you can use gifted funds for your down payment. Acceptable gifts can come from a family member, employer, or charitable organization. Second, the program allows home sellers to cover some or all of your closing costs. And third, FHA home loans allow you to bring in a non-occupying co-borrower or co-signer to boost your approval chances.

The main drawback to FHA home loans is the mortgage insurance premium (MIP). When you borrow with an FHA mortgage, you incur a 1.75% upfront MIP and an annual MIP of .5% to .7% for 30-year loans with at least 10% down. You can usually wrap the upfront MIP into your mortgage. For a $500,000 loan, the upfront MIP would be $8,750. If you add that to your home loan, your mortgage amount becomes $508,750, and the annual MIP would be .5% per year or $212 per month. However, the MIP on an FHA loan may be cheaper than higher interest rates charged for other types of loans.

Non-prime loans

What used to be called subprime loans are now called “non-QM” mortgages or “non-prime” loans. Non-prime loans are another option for homebuyers with a 500 credit score. Non-prime lenders specialize in providing mortgages to borrowers who don’t qualify for traditional home loans. These lenders charge higher interest rates and fees than traditional lenders, but they are more flexible in their lending criteria.

Non-prime lenders typically require a larger down payment, at least 20-30%. Documentation may be different from a traditional mortgage — for instance, you might be able to prove your income with bank statements instead of tax returns. Non-prime lenders often don’t require a waiting period following a bankruptcy, foreclosure or another serious event.

Non-prime lenders may allow loans with a co-signer or co-borrower. A co-signer agrees to be responsible for the loan if the borrower defaults, while a co-borrower shares the responsibility for the loan and is equally liable for the payments. Having a co-signer or co-borrower with good credit doesn’t make up for bad credit with a traditional loan, but it can help with a non-QM lender.

Non-QM loans are harder to find than FHA mortgages and they are not standardized. A lender can set its own underwriting guidelines as long as they comply with mortgage lending laws. Fees and terms vary widely, so expect to contact many lenders to check their guidelines and compare costs.

Non-prime loan pros and cons

Non-prime lenders often move faster than traditional mortgage lenders. They may allow alternative ways of documenting your income or let you add a co-signer or co-borrower to qualify. Non-QM loans may allow trickier properties like condotels and kit homes or let you use roommate income or short-term rental income to qualify. Most non-prime loans don’t require mortgage insurance.

However, non-prime loans typically have higher interest rates and fees. This can make paying them a challenge and increase your risk of foreclosure.

Seller financing

While not common, some sellers are willing to finance the sale of their homes. Often, they have no mortgage balance to pay off with the proceeds of the sale, and they may prefer a series of payments and some interest income. Your real estate agent may be able to help you find sellers willing to finance your purchase.

Sellers are exempt from most consumer protection laws that lenders must obey, so you need to do your own due diligence. Even though your lender won’t require an appraisal, for instance, you should hire a licensed appraiser to ensure you’re not overpaying for the property. Similarly, you probably want a property inspection to avoid unexpected defects. And it’s smart to have a real estate attorney look over any seller financing agreement for your protection.

Your seller financing may not be a traditional 30-year loan. You might get a five-year term with a balloon payment, for instance. In that case, you must pay off the seller’s loan in five years by refinancing or selling.

Seller financing pros and cons

Seller financing can be a lifesaver, especially if your seller charges lower rates and fees than a mortgage company or private lender. However, sellers who finance understand that your options are limited and can drive a harder bargain — charging more because you can’t negotiate aggressively. They may also push you to forego inspections and an appraisal or charge very high interest rates and fees. And if your loan has a balloon payment, make sure you can refinance or sell if needed.

Hard money loans

“Hard money” lenders are individuals or groups of investors who specialize in expensive, short-term mortgages to nontraditional buyers. Hard money loans are also called “private money” mortgages.

Most hard money buyers are real estate investors like home flippers who borrow and repay money very quickly. However, hard money lenders also make loans to borrowers with poor credit.

Hard money lenders operate under different rules from traditional mortgage lenders. They are less concerned with the borrower’s credit scores because they protect themselves by requiring a larger down payment. This minimizes the chance of losing money if they have to foreclose.

Hard money interest rates and fees

If you borrow using hard money, expect to pay 12% to 25% interest. Your actual rate depends on factors like your credit history, real estate investment experience and the extent of repairs needed to the property. If you have severe derogatory credit history like bankruptcies, foreclosures, judgments, or collections, expect to get an offer on the higher end of the spectrum.

Hard money pros and cons

You may be able to finance with a hard money loan in just days rather than weeks. Hard money is typically used as a bridge loan or for a fast transaction. However, hard money lenders can finance primary residence purchases if they abide by consumer protection laws.

Most hard money lenders, however, do not lend for non-business purchases. If you do finance your home with a hard money loan, exercise caution.

Hard money loans:

• Have much shorter terms, usually anywhere from one to three years. If you cannot qualify to refinance by then, you may have to sell your home or risk losing it to foreclosure.
• Have interest rates and payments that are significantly higher than they’d be with an FHA or other traditional loan. That increases the chance of falling behind on your payments and losing the property.
• Require 25% to 40% down. That’s a lot to lose if you default and end up in foreclosure.

Be careful if planning to get a mortgage with a 500 credit score. Most consumers would be far better off putting off a home purchase until their credit score, income, debts and savings are good enough to qualify them for a traditional mortgage. Credit Sesame’s educational content and credit-builder service can help you accomplish this goal sooner.

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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Think getting a personal loan requires a lot of effort today? Imagine being an ancient Sumerian. Back then, you needed something more tangible than a good credit report. They preferred silver for big expenses, such as land and houses, according to the book “Mesopotamia: Civilization Begins.” That’s just one of many examples illustrating the strange-but-true history of personal loans. Read on if you need a little encouragement or inspiration that personal finance has improved.

Loans of the distant past

Back to the Sumerians for a moment. Remember how big-ticket items required some high-class coin? Well, rest assured: if you needed to move quickly on a smaller purchase between 4,500 and 2,004 B.C., you had options. Lots of options. You could have used grain such as barley, copper or wool, according to various sources.

In Bible times, God gave Moses and the Israelites specific instructions about lending and the ethics of conducting financial transactions. Personal loans weren’t supposed to be a money-grab for the lender. Exodus 22:25-26 (NKJV) notes:

“If you lend money to any of My people who are poor among you, you shall not be like a moneylender to him; you shall not charge him interest. If you ever take your neighbor’s garment as a pledge, you shall return it to him before the sun goes down.”

Loan retribution in Rome

Not everyone extended grace to borrowers who took out personal loans. The Romans mastered the fine art of pay up or else. A fascinating if grisly summary of the Roman perspective on debt can be found in an article titled “The Loans of Ancient Rome,” by Kenneth S. Most of Florida International University.

It turns out Roman citizens typically didn’t need long-term debt like the modern personal loan. Short-term loans, good for a year or less, covered expenses for a primary occupation: farming. Once farmers harvested the crops, they could pay their loan in full. They didn’t have fancy bathroom projects or giant medical bills at the hospital, evidently.

It’s also likely that Roman punishments for nonpayment played a role. Today, bankruptcy and collections await borrowers who default on a loan. Back then, failing to pay a debt triggered a harrowing series of events.

First, the borrower went to debtor’s prison. Heavy chains limited their freedom to move. They could either find a way to pay the money or try to find some poor sap to serve the conviction for them. The Romans even subjected debtors to public humiliation. Borrowers had to stand in the square and say the amount of their debt out loud. Empathetic family or friends might hear the plea and cough up the cash.

Second, borrowers whose cries went unheard and whose pockets remained empty faced grim fate. They could be sold into slavery. They could be executed. And if they had multiple loans to settle, their corpse could be split into pieces.

Guilty consciences in the Middle Ages

It seems that morality didn’t make much of a comeback for personal loans from the 1100s to the 1300s, according to an article available from The Ohio State University’s history department.

People who made loans–known as usurers–occupied among the lowest positions in society. Church leaders condemned them for extracting money from borrowers without working for those earnings.

“The usurer found himself, in time, linked to the worst ‘evildoers’, the worst occupations, the worst sins, and the worst vices; for he was an evildoer of the highest degree, a pillager and robber,” the article notes.

Lenders who died clinging to their occupation faced the prospect of hellfire, according to a belief common at the time. More people in the early 1200s embraced the concept of purgatory, a place where people are said to get a second chance to make amends and get to heaven. Yet some still didn’t think these interest-grubbing professionals would make the cut. The bodies of people who made personal loans often found themselves buried in cemeteries apart from the general public.

The 1700s and 1800s: ‘Please, may I have a loan, sir?’

As humanity advanced its financial system, the personal loan managed to find itself embroiled in further weirdness.

In the 1700s, people had to get character witnesses to take out a bank loan, historian Sean Trainor notes in a report for TIME. (This was for shopkeepers, mind you. But the odd mental picture deserves inclusion here. Bizarre business loans left people seeking personal loans with the financial dregs. We’ll explain in a moment.)

Even into the early 1830s, banks focused on lending to businesses, not your average person on the street, according to an article by Amy Farber, a research librarian at the Federal Reserve Bank of New York. And lest you think businesses got the royal treatment, be assured they had strict rules you likely wouldn’t want to follow. Loans tended to be doled out and paid back in a span of three months. You didn’t get the full loan amount. The bank took its interest, then handed you the rest, printed on its own special paper. Good luck cashing that at the ATM!

Meanwhile, people seeking personal loans found their neighborhood banks’ doors sealed shut.

So they turned to the next best thing: Rich people.

Quoting from the records of a Massachusetts museum that studied early banking trends, Farber shares: “People in the 1830s who wanted a personal loan or a mortgage usually went to wealthy individuals with money to lend (such as Salem Towne, the prosperous farmer and businessman who owned the large white house on our common) … .”

The next time you consider a personal loan, just imagine the alternative: going door to door in your community, knocking on the doors of nice homes and hoping someone shows you mercy.

Nah, we’re good.

Post-World War II and the rise of crypto lending

Personal loans took on fresh adventures in the 20th century and continue into the present.

One unusual type of personal loan happened in 1947. Well, it actually involved a lot of people. Specifically, the entire country of France.

World War II left extensive damage throughout the European nation, so the World Bank agreed to extend its first-ever loan. Back then, the people of the country got $250 million for rebuilding, an article on the bank’s website notes. In today’s terms, that’s the equivalent of $2.6 billion. The bank hasn’t made such a large loan since.

Fast forward to today, and cryptocurrency continues to grow in popularity. Digital money has several things going for it, including the ability to trace every penny’s provenance from its point of origin.

But there’s more: Crypto lending is on the rise, according to a Reuters report. Fans say crypto lending benefits borrowers because it’s faster to secure a loan. Plus: fewer piles of paperwork! Companies making crypto loans include BlockFi, Celsius, Genesis and Nexo. Be aware, though, that regulation of crypto industry hasn’t caught up to the fast-changing financial environment. Crypto holdings can disappear with market shifts or if lenders leave the crypto economy for good.

Some things never change. Whether you’re seeking a personal loan at the dawn of history or in cyberspace, borrower discretion is advised.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post The weird history of personal loans appeared first on Credit Sesame.

You might feel angry, disappointed or embarrassed, but it’s not the end of the world. It’s important to understand that lenders tend to focus on different types of borrowers and turn down people who don’t fit their box. One company might reject you while another begs for your business. The roadmap below shows you how to get over rejection, choose the right lender and put your best foot forward.

Step 1: Read your adverse action notice

Your first step after being denied a loan is to read your “adverse action notice.” The Fair Credit Reporting Act and the Equal Credit Opportunity Act require lenders to issue this notice orally, electronically or in writing when they deny your credit application or offer less favorable terms like a lower loan amount.

By law, adverse action notices must contain this information:

• The name, address and phone number of the credit bureau (including a toll-free number for nationwide agencies) that supplied the report.
• A statement that the credit bureau doesn’t make underwriting decisions and can’t explain why the lender declined your application.
• Notice that you have the right to a free copy of the credit report used if you request it within 60 days.
• Notice of your right to dispute the accuracy or completeness of any information on the credit report.
• Your credit score, if a score was used.

The lender is also required by law to provide the specific reason(s) you were turned down for a loan or explain where to get that information (you must request it within 60 days).

Common reasons for loan denial

Once you understand the reason for your loan denial, you can address it. Here are the top reasons lenders deny credit:

• Poor credit history. If your track record with previous lenders features missed payments, charge-offs, collections or other blemishes, future lenders will be reluctant to trust you.
• Insufficient credit history. While having no history is better than bad history, it’s still a big hurdle to overcome. Lenders can’t predict your future behavior without some past behavior to analyze.
• High debt-to-income ratio. Your debt-to-income ratio (DTI) shows lenders how much of your income is available to repay a new loan. If you already owe more than you can safely repay, you may have difficulty borrowing additional funds.
• Spotty employment history. It takes income to pay bills, and if your earnings are inconsistent, lenders worry that you won’t be able to repay your loans. Lenders like to see stable, consistent, healthy income and not big gaps between jobs, frequent employer or industry changes or income that’s dropping.
• Incomplete or inaccurate application. Lenders can’t make a decision if you don’t complete the application and supply all requested documentation.

Don’t be discouraged. You can address these issues, improve your profile, and probably get loan approval.

Step 2: Fix what you can

Once you know why a lender turned you down, you can work to improve your chances.

Credit report errors

Review your credit report for accuracy and correct errors if needed. Contact the company that reported incorrectly or report the error to the credit reporting agency on its website. If your application is for a mortgage, your lender may be able to help you correct errors very quickly by using a rapid rescoring service.

Application issues

Go through your loan application and make sure that you provided complete and truthful information. Look at your debts. Many times, lenders take the balances and payments right off of your credit report. If the actual balances and payments are lower, document them for your lender. Make sure your income is also calculated correctly.

Employment issues

A spotty work history with gaps and changes raises red flags with lenders. There are a few acceptable reasons for such changes, for example being in school, switching to part-time after having a baby, moving for a spouse’s job, or changing careers after completing your education. You may be able to overcome job instability with a stellar credit history, conservative use of debt, or a healthy emergency fund. If you have had job changes in the last two years, try to tie them together to build a picture of steady work doing a similar job or working in the same industry.

Minimum credit score

If your credit score is the problem, you can (and should) work toward improving it over time. But you should also look for a lender with lower minimum credit score requirements. Check your credit score and ask lenders what their guidelines are before applying. Or seek out lenders that offer a loan prequalification without pulling your credit.

Debt to income

If your issue is debt-to-income, you can fix that by paying down debt, increasing your income (side gig?), or choosing a lender that allows higher ratios.

To calculate your DTI, add up your housing costs (mortgage payment or rent) and your monthly debt payments including credit card minimums, auto loans, student debt, etc. Don’t include living expenses like utilities or food. Divide that total by your monthly before-tax income. To approve you, a conservative lender won’t want your DTI over 36%, an average lender maxes out at 43% and a generous one at 50%.

Step 3: How to get a loan with bad credit or high DTI

Of course, you want to improve your financial management and credit score for future borrowing. But what if you need money now?

Consider non-prime lenders

There are lenders and credit card issuers that specialize in riskier borrowers. They might be willing to accept a lower credit score if your income is sufficient to afford the loan. Some personal loan companies are willing to accept credit scores as low as 580 for otherwise-qualified applicants. Shop carefully for non-prime loans because interest rates and terms vary wildly. Make sure you can afford the payments and that you have a plan for paying off the loan. Missing payments can drag your credit score even lower and get you into more financial trouble.

Pledge collateral

Loans backed by collateral that the lender can take are less risky to lenders. You may be able to get financing by pledging something valuable like real estate, a car, electronics or jewelry. Beware of auto title loans, however. They often have extremely high rates and your balance increases very quickly if you don’t repay it right away. You can even lose your vehicle.

Get a co-borrower or co-signer

If you have loved ones with good credit, you might be able to bring in a co-signer or co-borrower. Lenders consider all applicants’ income and debts, so another borrower can help if your income is low. And adding someone with better credit to the application could get you a better deal.

However, co-signing or co-borrowing can be extremely dangerous for your friend or family member. If you miss a payment, it will likely hurt their credit score. If you default on (don’t pay) your loan, your lender may pursue your loved one for payment, even into court if necessary. Co-signing also creates contingent liability for your cosigner, which means they might have to pay your debt. This can make it harder for them to get credit in the future. If your friend or relative is willing to take this on, cherish them and do not abuse their trust. Such a relationship is worth more than any amount you can borrow.

Does being declined for a loan hurt your credit score?

Being denied credit does not directly harm your credit score. Lenders do not report their underwriting decisions to credit bureaus.

That said, applying for credit triggers a “hard” inquiry when the lender pulls your credit report, and a hard inquiry causes your credit score to drop a few points. So-called “soft” inquiries happen when you check your own credit or prequalify for credit without applying. Soft inquiries don’t harm your credit score.

So, if you apply for loans everywhere and get denied repeatedly, you have a batch of hard inquiries. Statistically, consumers with at least six inquiries are eight times more likely to go bankrupt, so they raise red flags with lenders. It’s smart to prequalify for loans without a hard inquiry or ask lenders what their guidelines are before applying for credit.

How long do inquiries hurt your credit score? They remain on your credit report for two years but only impact your score for 12 months.

Understand that credit bureaus treat inquiries for auto loans and mortgages differently. That’s because you often don’t know what interest rate and terms you may be offered until you apply. And it’s common for consumers to apply with several lenders when shopping for financing. So as long as you do your shopping within a short timeframe (14 to 45 days depending on the scoring model version), your credit score reflects only one inquiry.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Turned down for a loan? Here’s what to do next appeared first on Credit Sesame.