In this guide we’ll answer the top 7 questions we’ve been asked about bankruptcy.

1. Should I Keep Paying Off Debt or Go Bankrupt?

Because bankruptcy can have so many serious known and unknown ramifications on your life, you should first thoroughly consider your other options, including renegotiating debt outside of bankruptcy.

For example, most federal student loans are eligible for income-based repayment, or IBR, which caps your monthly payments at a fixed percentage of your monthly income after certain deductions.

Private student lenders may also be willing to defer payments in the case of personal hardship.

Unsecured lenders like credit card companies and hospitals that know they’ll receive little or nothing if you file for bankruptcy, so they may be willing to settle your account for less than the full amount you owe.

Unfortunately, they may only be willing to negotiate once you’ve missed several payments.

Between the missed payments and the mark on your credit report that the account was settled for less than the amount owed, your credit score is likely to take a serious beating if you go this route.

In other words, a bankruptcy hit to your credit may not be much worse.

Once you’ve decided to file for bankruptcy, you should immediately stop making payments on the debt that you plan to discharge. That’s just throwing good money after bad.

2. What’s the Difference between Bankruptcy and Debt Management Plans?

If you are unable to pay your bills, you may start to receive mail or phone calls from companies offering “debt management plans.”

Debt management plans are privately negotiated agreements between creditors, lenders, and the debt management company.

The goal of a debt management plan is for creditors to be repaid, and for debtors to avoid bankruptcy.

The key difference between bankruptcy and a debt management plan is that bankruptcy is a legal process, overseen by a judge and administered by a bankruptcy trustee, with the goal of discharging debts that a debtor is unable to repay, while a debt management plan is a privately negotiated agreement, sometimes administered by a for-profit company, with the goal of repaying creditors and avoiding bankruptcy.

Unlike bankruptcy, a debt management plan won’t discharge your debts or give you the legal right to stop calls from debt collectors.

A debt management plan may be right for you if you have fallen behind on repaying your debts, but you think you will have enough income to repay your debts in the next 3-5 years.

Under a debt management plan, lenders may agree to reduce or eliminate late fees and penalties your accounts have incurred in order to receive full repayment.

Lenders may also agree to a lower interest rate on the remaining debt.

Secured debts can’t be brought into a debt management plan, so if you only have secured debts like car loans or home mortgages, a debt management plan won’t help you get caught up.

Student loans also won’t be included in a debt management plan.

Be realistic about your ability to repay your debts. If you have no chance of earning enough money to repay your debts in full, don’t enter into a debt management plan, since it will only prolong your pain before you ultimately file for bankruptcy anyway.

A certified credit counselor can help you decide which option is best for your situation. Start at the NFCC’s website to find a counselor in your area.

3. What are the Different Kinds of Personal Bankruptcy?

Once you’ve decided to file for bankruptcy, you need to decide whether to file for Chapter 13 or Chapter 7 bankruptcy.

A Chapter 13 bankruptcy is designed to let you keep your assets, while settling your debts with your creditors by negotiating a payment plan that lasts between 3 and 5 years.

At the end of the payment plan, your remaining debts are discharged, unless you’ve reaffirmed (promised to pay) your secured debts and received the approval of your bankruptcy judge.

In a Chapter 7 bankruptcy, your assets (with some exceptions) are liquidated and used to repay your creditors. At the end of the process, all of your debts are discharged.

Liens against collateral used to secure debt, like car loans and home mortgages, will not be discharged, and that property can be repossessed or foreclosed on unless you continue to make payments or are able to reach a new agreement with your lender.

4. How to Decide between Chapter 13 and Chapter 7 bankruptcy

A bankruptcy attorney licensed in your state can help you sort through these and other issues related to filing for bankruptcy.

It may seem counterintuitive to pay for help if you can’t afford to pay your bills, but professional help may get you better results than you can get on your own.

First, you must determine if you’re eligible to file for Chapter 7 bankruptcy.

Eligibility for Chapter 7 depends on your “ability to pay,” which is based on your income in the preceding 6 months and the median income in your state.

If your income in the preceding 6 months was lower than the median income in your state, you’re eligible for Chapter 7.

If it was higher, you may still be eligible, but will need to do some additional calculations to know for sure. You can start with an online means test calculator.

Additionally, in order to file for Chapter 7 bankruptcy, you must not have filed for Chapter 7 bankruptcy in the last 8 years or Chapter 13 bankruptcy in the past 6 years.

Even if you’re not eligible for Chapter 7 bankruptcy, you are probably still eligible for a Chapter 13 bankruptcy filing.

In Chapter 13 bankruptcy, your debts are reorganized and a payment plan is developed that will bring your payments in line with your ability to pay. At the end of the payment plan, your remaining debts are discharged.

In order to be eligible for Chapter 13 bankruptcy, you must not have already filed for Chapter 13 bankruptcy in the past 2 years or Chapter 7 bankruptcy in the past 4 years.

Besides eligibility, the next most important consideration in deciding which kind of bankruptcy to file for is the amount of equity you have in your home and whether you intend to continue making mortgage payments.

That’s because in a Chapter 7 bankruptcy your “nonexempt” home equity — the amount of equity you have in your home in excess of your state’s homestead exemption — can be used by the bankruptcy trustee to pay off your other creditors, which unfortunately involves selling your house.

In a state with a high or unlimited homestead exemption you may be able to keep your house if you own it outright or if you keep up your mortgage payments.

If you have little equity in your house, or live in a state with a low homestead exemption, a Chapter 13 bankruptcy may allow you to keep your home or car by continuing to make on-time payments according to the terms of your original loan, and making up any missed payments according to your Chapter 13 payment plan.

After you exit bankruptcy, your lender can’t foreclose on your home or repossess your car as long as you continue to make your payments on time.

5. Does Bankruptcy Hurt Your Credit Score?

Bankruptcy appears on your credit report as a derogatory remark, and all else being equal has a strong negative effect on your credit score.

In other words, a person with a perfect credit score who suddenly files for bankruptcy will see his credit score immediately crash.

In reality, by the time most people file for bankruptcy they have already fallen behind on their payments, gone into default or foreclosure, or had legal judgments entered against them.

Those negative marks will have already ruined their credit score, and bankruptcy may or may not reduce it any further.

According to Credit Sesame’s data, users with a bankruptcy on their credit report actually have slightly higher credit scores, on average, than users with negative marks like tax liens or legal judgments against them.

That’s partly because consumers with bankruptcies on their credit report are scored differently than users without bankruptcies; a bankrupt consumer with a sterling record of on-time payments may have a higher credit score than a person on the verge of bankruptcy who has dozens of missed payments, charge-offs, collections, and liens.

6. How Long Does a Bankruptcy Stay on Your Credit Report?

How long a bankruptcy will stay on your credit report depends on which chapter of the bankruptcy code you decided to file under.

A Chapter 13 bankruptcy remains on your credit report for 7 years from the date of your filing.

A Chapter 7 bankruptcy filing remains on your credit report for 10 years.

7. How to Rebuild Credit after Bankruptcy

Building credit after bankruptcy takes time, but it can be done.

First, request a credit report and review it carefully to make sure that all the debts you discharged in bankruptcy have been properly reported on your credit report.

The law entitles you to one free copy of your credit report every twelve months from each of the major credit bureaus. You can access these free copies at AnnualCreditReport.com. You can get them all at once or one at a time.

To see how you’re doing in each of the major factors that affect your credit score, look at your free credit report summary on Credit Sesame.

If you want to see your credit reports more often, you can access one or all three on Credit Sesame for a fee.

Lenders are prohibited from trying to collect on discharged debt, including by incorrectly reporting your loans as past due or charged off in order to coerce you into paying.

Second, reestablish good credit habits as soon as possible.

Since most student loans won’t be discharged in bankruptcy unless the bankruptcy judge determines you would face undue hardship if forced to repay them, make all student loan payments on time and ensure the payments are shown correctly on your credit report.

Consider opening one or more low-fee secured credit cards in order to establish a history of on-time payments (and be sure to pay your bills in full in order to avoid interest charges).

You may be able to take out a car loan a year or two after filing for bankruptcy.

If your credit score leaves you with a high interest rate on your car loan, borrowing just a small amount of the car’s purchase price is a way to establish another trade line on your credit report that can report ongoing payments.

Finally, the most important key to rebuilding your credit is patience.

Your discharged loans may drop off your credit report before the bankruptcy itself, depending on how long you waited to file after falling behind on payments.

Then either 7 or 10 years after filing for bankruptcy, the filing itself will drop off your credit report and, assuming you’ve maintained a history of on-time payments on multiple tradelines, your credit score should see an immediate boost.

The post How Does Bankruptcy Affect Your Credit? Top 7 Questions Answered appeared first on Credit Sesame.

What is a CD, and how does it work?

A Certificate of Deposit is a special kind of savings account offered by most banks and credit unions (credit unions usually call them “share certificates,” but the product is the same). In exchange for agreeing to lock up your money for a specified period of time, financial institutions will pay a higher rate of interest than they do on traditional savings accounts.

At the end of your CD’s term, the amount you deposit and any interest earned will either be deposited into a bank account or rolled over into a new CD of the same length (although the interest rate on the new CD may be higher or lower depending on prevailing interest rates).

What are the advantages of a CD?

The most important difference between a CD and other kinds of investments is that your deposit, including any interest that accrues on it, is guaranteed by the full faith and credit of the United States government. The FDIC insures bank deposits and its sister organization the NCUA insures credit union deposits. That means there is no risk of losing your savings, as there is when buying stocks or bonds.

What are the disadvantages of a CD?

Of course, the federal guarantee of your principle and earned interest comes at a cost: interest rates on CDs are typically lower, in many cases much lower, than the dividends paid out to owners of stocks or the interest payments received by bondholders, neither of which are guaranteed by the federal government or by anybody else.

What should I look for in a CD?

The two most important elements of any CD or share certificate are its interest rate, expressed as an annual percentage yield (APY) and its term, or the length of time your money will be held before you can withdraw it without penalty.

As a general rule, the longer the term, the higher an APY you’ll receive from your bank or credit union. However, certificates with the same term may pay wildly different APY’s at different banks. After comparing CDs online, I found that a 1-year CD in my ZIP code could pay as much as 1.2% APY or as little as 0.1% APY (the latter is one tenth of one percent, or $1 in interest for every $1,000 deposited for an entire year). The lesson here is that no matter how long of a term you are willing to lock into, you should always shop around for the highest APY available.

What kind of savings is a CD right for?

Because of the relatively low interest rates they pay, CDs aren’t for everyone. For example, a young worker saving for retirement will likely be better off in the long run taking some additional risk and investing in a well-diversified portfolio of stocks and bonds.

At times, however, certificates of deposit can offer benefits other investments can’t. If you’re saving towards a large purchase planned for a definite date in the future, a CD can be a great place to stash those savings and earn more than you would in a typical savings account (or under your mattress), without the loss risks associated with stocks and bonds.

A down payment on a house and a child’s future college tuition tab are the kinds of expenses that have a specific due date. By moving your investments into CDs as the due date approaches, you can cut out the risk that a sudden corporate bankruptcy or bear market will lower the value of your investment or delay access to your funds as you create a strategy to recover from the loss.

What’s a CD ladder?

One popular technique for using CDs is to create a “ladder.” A CD ladder refers to the purchase of multiple CDs with durations further and further into the future. For example, a 64-year-old planning to retire at age 65 might purchase a 1-year CD with the money they plan to spend in their first two years of retirement, a 3-year CD with the money they need for years 3 and 4, and a 5-year CD with the money for years 5 and 6. As each CD matures, the retiree can purchase a new 5-year CD. Ultimately, the money is all deposited in CDs at the highest APYs, and every two years a new CD will mature and provide an infusion of cash.

Since the APY paid on a CD goes up as its term gets longer, a CD ladder gives this retiree the benefit of both higher interest rates and regular access to cash. Using CDs instead of stocks or bonds for savings needed in the near-term reduces the risk of a stock market shock depleting the retiree’s savings prematurely.

What are the risks of using a CD?

There are two risks associated with CDs. The first is that you’ll need to withdraw your money before the deposit term is complete. While most CDs do allow early withdrawals, they will almost always charge a penalty, usually expressed as a certain number of months’ worth of interest. Some banks will deduct the penalty from your certificate’s principle if you haven’t earned enough interest to cover it.

The second risk is in some ways more serious: that rising prices and interest rates will erode the value of your deposit and interest before you get a chance to collect it. Inflation has been historically low since the global financial crisis, but may rise. If you make a deposit at 2% APY expecting consumer prices to increase by 1.5% annually, but inflation instead spikes to 3% annually, instead of collecting a small real return after adjusting for inflation, you’ll end up with less purchasing power than you started with. If you’re concerned about that happening, but still want the federal guarantee CDs enjoy, then you should stick to CDs with shorter maturities and the lower yields they offer.

CDs are just one option of many

Certificates of deposit and share certificates are not designed for long term, patient investors. A well-diversified portfolio of domestic and international stocks and bonds is virtually certain, after inflation, to generate higher real returns than even the best-designed CD ladder.

However, CDs do offer a federally-guaranteed return of your principle and accrued interest, and may be worth considering as a savings vehicle for purchases on a definite, short-term horizon. If you’re the kind of person who is constitutionally incapable of riding out a dip in the stock market, then the comfort of a federal guarantee may be what you need to sleep well at night.

Just remember that the lower the return you earn on your savings, the more of your income you’ll need to save each year to assure yourself of a comfortable and dignified retirement.

The post Is a CD the Best Place to Keep Your Savings? appeared first on Credit Sesame.

It turns out, that’s a fantastic question. Even though most of us accept by default that employer-sponsored retirement programs are a good and normal part of a middle-class financial plan, I found very little accessible information out there about how they work or what you’re supposed to do with them. After walking my partner through her retirement plan enrollment, I’m thrilled to share everything I learned in the process.

Why are retirement plans sponsored by employers in the first place?

Today Americans treat 401(k) plans (for private employers) and 403(b) plans (for non-profit employers) as if they were handed down to Moses on Mount Sinai. But they’re actually a very recent development: Section 401(k) of the Internal Revenue Code was only enacted in 1978.

Unfortunately, even today this cornerstone of the American retirement system is only available to employees of companies who choose to offer it. Smaller employers are much less likely to offer employees a 401(k) plan.

What are the advantages of an employer-sponsored retirement plan?

When you contribute to a traditional 401(k) plan or 403(b) plan, your contribution is deducted from your payroll before federal income taxes are withheld (although you’ll still pay Social Security and Medicare taxes on the withheld amount), and you’ll owe no federal income taxes on the withheld amount in the year it’s earned. When you make withdrawals in retirement, you’ll owe federal income taxes on the amount of your withdrawal.

There are two big advantages to this scheme: first, the amount you save on taxes in the year of your contribution becomes part of your retirement savings. A worker in the 25 percent marginal income tax bracket will save $2,500 in taxes on $10,000 in deferred income. That means instead of just $7,500 having the chance to grow and compound over time, the full $10,000 is put to work.

The second advantage is that the overwhelming majority of people earn less money in retirement than they do during their working years. That means withdrawals are likely to be taxed at a lower rate: if your income in retirement puts you in the 10 percent federal income tax bracket, you’ll owe just $1,000 when you withdraw the same $10,000.

My employer offers a Roth 401(k). What’s the difference?

Roth 401(k) and IRA accounts work in the opposite way from traditional 401(k) and IRA accounts: you pay your ordinary federal income tax on contributions in the year the money is earned, but all withdrawals are tax-free in retirement. In general, these accounts work best for folks early in their career, who expect to be in a higher tax bracket in retirement.

Tip: Another way to look at the difference is as a kind of bet: if you think you will be in a lower tax bracket in retirement than you are now, you can use traditional accounts, while if you think your income tax rate will be higher in retirement, you can lock in your lower rate now with a Roth account.

Not all employers offer Roth 401(k)s — again it’s up to your employer what options you have available.

How much should I contribute to my employer-sponsored retirement plan?

When my partner asked me this question, my first answer was, “as much as you can afford to.” Then I thought about it for a moment, and corrected myself: “even more than you can afford to!”

The maximum amount that can be contributed to 401(k) and 403(b) (a similar type of plan offered by certain types of employers) plans is $18,000 per calendar year, or your total earned income — whichever is lower. That means if you start a new job mid-year, you can accelerate your contributions until the end of the year to maximize your total contributions. For example, instead of contributing $1,500 per month for 12 months, if you start a job in July, you can contribute $3,000 per month in order to reach the same $18,000 calendar year tax-advantaged contribution limit.

Many financial advisors will run all sorts of calculations to try to figure out how much you need to save during your working years to be sure of a steady and secure income in retirement. But instead of thinking of how much you need to save, I recommend thinking about how much you can afford to save.

How to do it

1. On your first paycheck at a new job, take a look at your take home pay.

2. Subtract all your regular expenses (it can help to use a budget management tool like the free online service Mint).

3. Add an additional buffer for unexpected expenses.

4. Then have the rest of your pay deferred into your employer-sponsored retirement plan (up to the applicable maximum contribution limits).

Maximizing savings has several obvious advantages. First, aggressive saving over the long-term might put you in a position to retire years earlier than your peers. Second, living on less income is a great habit establish early on that makes it easier to save even more as your income rises. Third, stepping up saving now could help you reach your savings goals even if you take an extended period of time off work later on, such as to care for young children.

Now that I’m saving for retirement, what should I invest in?

First, your employer may offer multiple custodians for your retirement plan. Examples include Fidelity, Merrill Lynch, Vanguard, and TIAA. Vanguard is owned by its mutual funds and is committed to a low-cost approach, while TIAA is operated as a non-profit, returning surplus fees to investors. Other account custodians are for-profit businesses and tend to charge higher fees, reducing the amount of your savings you ultimately get to keep.

Second, once you’ve selected a plan custodian, you’ll also need to select which individual investments to direct your deferred income into. Generally speaking, the younger you are, the more of your portfolio should be dedicated to stocks, which have historically offered higher long-term returns despite experiencing much higher price volatility than bonds.

If you’re the kind of person who would be horrified to see their investments drop 50 percent in value overnight, then add some bonds or cash to your portfolio to keep your balance steadier than an all-stock portfolio (while reducing your long-term returns).

Tip: Virtually all investment houses offer so-called “target retirement date” funds that will gradually shift your portfolio from stocks to bonds as you near retirement, the ultimate “set it and forget it” investment choice.

Vanguard also offers “LifeStrategy” funds which maintain a constant ratio of stocks to bonds. I ultimately recommended this final approach to my partner.

What do I do when the stock market goes down?

Absolutely nothing! Over the course of your saving lifetime, the market is going to do all sorts of things. We’ll see crashes, bubbles, revolutionary technological change, war, and peace. By making the same steady contributions month after month, you can ignore all of them. When investments are expensive, your contribution will buy less of them, and when they’re cheap, your contribution will buy more. Over 20, 30, or 40 years of saving, those differences matter less and less.

Ultimately, you don’t have any control over what the stock market does. Focus on what you can control: the amount of each paycheck you save.

How often should I check my account’s value?

My personal preference would be “never.” The less you check on your investments, the less likely you are to do something stupid, like change them. Still, once a year or so you may want to log in to make sure your contributions are being invested into the funds you specified, and that your mailing address and beneficiary designations are up to date.

What about IRAs?

Individual Retirement Accounts, or IRAs, offer many of the same benefits as employer-sponsored retirement accounts. Traditional IRAs allow contributions to be deducted against income in the year it’s earned, and withdrawals are taxed at ordinary income tax rates in retirement. Roth IRAs, like Roth 401(k)s, allow after-tax contributions and tax-free withdrawals. Roth IRAs are only available to those below certain income thresholds, currently $117,000 for individual filers.

Employer-sponsored retirement accounts and IRAs are two great tastes that taste great together: if you’re already making the maximum contribution to your employer-sponsored plan, additional savings can be directed to an IRA. You can even mix and match a traditional 401(k) with a Roth IRA, or vice versa.

Finally, after you separate from your employer, if you’re unsatisfied with the investment options in your 401(k) you can “roll over” the balance to an IRA at any institution and gain more control over your investment options.

The post Got a New Job and a 401(k) Retirement? The Most Valuable Questions Answered appeared first on Credit Sesame.

Introduction

If you’re trying to rebuild your credit, you’re not alone. As you’ll see from the data below, the percentage of people actively working to improve their credit score is increasing in many credit score ranges. In fact, a 40 percent of individuals with good credit scores say that they were working to improve their credit in 2018.

Percent of Americans Actively Working to Improve Their Credit Score

Actively trying to repair	Members	Non-Members
Poor Credit Score	9.45%	3.56%
Fair Credit Score	35.96%	17.44%
Good Credit Score	40.23%	25.9%
Very Good Credit Score	22.43%	10.63%
Excellent Credit Score	9.61%	4.75%

Source: Survey of 1000 members and non-members who have a credit score.

Why is this happening? We’ve all heard about the importance of our credit score. It is what lenders look at when deciding whether or not to extend you credit for things like mortgages, car loans, and credit cards. The better your score, the more favorable the interest rate you’re able to receive.

But, your credit score is also related to other life milestones like getting your first apartment and the amount of deposit you’ll be asked for, setting up the utilities for that apartment (and the deposits you’ll pay there, too), as well as getting a cell phone contract, car insurance, and more.

Why you should know how to rebuild your credit using credit cards

Your FICO credit score, the most widely used and accepted scoring model, is calculated using a variety of factors. It is this score that helps lenders determine whether or not to extend you credit and what the accompanying interest rate may be. It’s important to understand how your score is calculated in order to make strategic steps that are able to improve your score —like rebuilding your credit with credit cards.

Here are the credit factors that are taken into consideration and how much importance are placed on each when calculating your score:

FICO Scoring Model Calculation (Weight) Factors

Credit Factors	Credit Score Weight
Payment History	35%
Credit Utilization	30%
Credit Age	15%
Different Types of Credit	10%
Number of Inquiries	10%

Source: Data found September 26, 2018. Boeing Employees Credit Union website. Understanding Your FICO Score. Retrieved from https://www.becu.org/articles/understanding-your-fico-score

As you can see, payment history and credit utilization (both of which are directly related to your credit card usage) make up the majority of your score.

Here are some quick definitions to help you understand these various factors:

• Payment History—this is your history of paying on-time and includes any missed or late payments.
• Credit Utilization—this looks at the amount of credit you’re using (the balance of your accounts) vs. your available credit limit. The best practice is to keep the ratio under 30%.
• Credit Age —this looks at the average age of all your open credit accounts.
• Types of Credit—this looks at the mixture of credit types you have open like credit cards vs. mortgage accounts.
• Number of Inquiries—this looks at the number of times lenders have pulled your credit information. It’s best to keep this number as low as possible.

If you have questions about how to best increase your credit score using credit cards, you’re not alone. Here are just a few of the questions that Credit Sesame members had when starting to explore this topic:

Increasing	Credit	Limit	to	Increase	Credit	Scores
Q How does increasing your credit limit help your credit?
A Increasing your credit limit helps your credit score by reducing your overall credit utilization. FICO states that credit utilization is responsible for 30% of your credit score. If consumers keep their credit utilization under 10% they are more likely to have a higher credit score than someone with credit utilization at, or above 30% total utilization.
Q Is adding another credit card the same as increasing the limit on my current credit card?
A No, adding another credit card has both advantages and disadvantages. These factors depend on how many inquiries are made into your credit history, the credit limit and whether or not you keep a high balance, and how often the creditors report your activity. Increasing the limit on your current credit card won’t require any credit checks and will automatically decrease your credit utilization ratio.

If you’re ready to improve or rebuild your credit using credit cards, let’s look at the answers to these questions and the steps you can take to get started!

How to rebuild your credit using credit cards

Now that we’ve established a basic understanding of how your credit score is calculated and why it’s so important to have a good credit score, the strategies for rebuilding your credit score with credit cards will make more sense. Let’s look at some of these strategies:

Check your credit report

The very first step to rebuilding your credit is to check your credit report. Knowing your current credit standing will give you the best picture of where you’re starting from —and where you’d like to go. Each of the three main credit bureaus —Equifax, Experian, and TransUnion— are required to provide you with one free credit report per year.

Here’s a quick list of things you should look for:

• Any accounts that aren’t yours
• Any inquiries into your credit that you didn’t authorize
• Any errors to your address and employer
• Any account history (late payments, etc.) that aren’t correct
• Any open accounts you have that haven’t reported
• Any delinquencies, collections, bankruptcies that are not accurate

If you find an error on your report, you can file a dispute with the bureau to have it cleared up.

Make all payments on time

Once you’ve cleared your credit report of any errors, you can focus on best-practices using credit cards that will help improve your situation. Making all your payments on time may seem like a given, but it is one of the most important steps to improving your credit. Remember: payment history makes up 35 percent of your FICO score.

As you can see from the data below, having on-time payments can increase your score as much as 22 points in just 12 months.

Average Credit Score Improvement for On-Time Payments

Credit Starting Point	3 Months	6 Months	12 Months
Bad (550<)	+6	+9	+22
Poor (550+)	+5	+9	+19
Fair (600+)	+3	+8	+17
Good (650+)	+3	+7	+14
Very Good (750+)	+2	+5	+7
Excellent (800+)	+2	+3	+5

Source: Review of 600 individuals who for the course of a year made all payments on time. The study was conducted in February of 2016 and concluded April of 2016.

If you have a hard time making on-time payments, there are some simple solutions you can try to help make the process easier:

• Set up calendar reminders on your phone a week before your payment is due so you’re reminded and have time to take action.
• Sign-up for automatic payments.
• If the creditor doesn’t have a system for automatic payments, create an automatic “bill pay” with your bank so they can send the payment directly and automatically.

Lower your credit utilization

As you may remember from the data above, your credit utilization makes up 30% of your FICO score. It looks at how much of your available credit you’re using. If you have a total credit limit across your different accounts of $10,000 and your balances are $4,000, then your credit utilization is 40%.

Most experts recommend having a credit utilization below 30%, although people with credit utilization below 10% are more likely to have a higher score.

As you can see from the data below, there is a direct correlation between lowering your credit utilization and increasing your score.

Average Credit Score Improvement from Lowering Credit Utilization

Credit Ranking	Low Credit Utilization 10%<	Moderate Credit Utilization 30%<	High Credit Utilization 31%<
Excellent (800+)	+1%	+1%	-7%
Very Good (750+)	+1.8%	+2.5%	-6.5%
Good (700+)	+3%	+3.25%	-5%
Fair (650+)	+4.5%	+6%	-4.25%
Poor (600+)	+6%	+7%	-2.5%
Bad (550<)	+10%	+12%	-2%

Source: Credit Sesame surveyed 600 Americans on how credit utilization impacts their credit scores. Groups were divided by Credit Rank (Bad, Poor, Fair, Good, Very Good, and Excellent) and then subdivided by Low Credit Utilization, Moderate Credit Utilization, and High Credit Utilization. The study took place October 2015 until November of 2016.

Using credit cards can help you improve your credit utilization in three main ways:

1. You can pay off a portion of your credit card to help you improve your utilization to under 30%
2. You can ask your existing credit card to increase your credit limit, which will improve your credit utilization.
3. You can add a new credit card, which will increase your available credit and, therefore, improve your credit utilization.

Once you improve your credit utilization, it’s important to monitor it and make an effort to keep it in that sweet spot between 10 and 30%.

Diversify your credit mix

Another key component in the calculation of your credit score is your credit mix —or the variety of different types of credit you have. This can include credit cards, store credit cards, auto loans, student loans, mortgage loans, and others.

Lenders look for a credit profile that contains a variety of credit types, which demonstrates your ability to handle (and repay) different types of loans. As you can see from the data below, the most impact on a credit score was made by adding a mortgage loan.

Credit Score Improvements Gained by Diversifying Credit Account

Credit Ranking	Credit Cards	Store Credit Cards	Auto Loans	Mortgage Loans
Bad (550<)	+14	+8	+17	+42
Poor (649<)	+12	+7.5	+15	+36
Fair (699<)	+11	+6.9	+15	+34.4
Good (749<)	+10.6	+6.6	+14.3	+30.8
Very Good 750>)	+5.1	+2.1	+11.1	+19
Excellent (800>)	+1.9	+1.6	+3.2	+4.5

Source: Credit Sesame surveyed 600 Americans on how their credit scores improved with the addition of new financial products. Participants were divided by credit ranking and further categorized by the type of financial product they purchased (credit cards, merchant credit cards, car loans, and mortgage loans). The study was conducted August 2015 and concluded August 2017.

If you do not currently have a wide mix of credit, adding a new credit card or a store card could give you an added boost. And, as we mentioned before, this will also help improve your credit utilization.

Consider becoming an authorized user

Another strategy for improving your credit using credit cards is to become an authorized user on another person’s account. Most often, this is a parent with good credit who trusts you to be a responsible user on their existing credit card.

When you become an authorized user, their credit history (related to that card) is reflected on your credit report —essentially giving you an added boost in credibility. This can also help improve your credit utilization.

Average Credit Score Improvement as an Authorized User

Credit Starting Point	3 Months	6 Months	12 Months
Bad (550<)	+16	+27	+43
Poor (550+)	+10	+21	+32
Fair (600+)	+6	+15	+21
Good (650+)	+6	+11	+17
Very Good (750+)	+8	+9	+12
Excellent (800+)	+4	+6	+8

Source: Review of 600 individuals who for the course of a year after being made an authorized user. The study was conducted in February of 2016 and concluded April of 2016.

As you can see from the data above, consumers of all credit ranges were able to increase their score over time by using this strategy. The biggest increase was among those with bad credit (550-600). They were able to increase their score by 43 points in 12 months.

Apply for a secured credit card

A secured credit card is another great option for rebuilding or improving your credit. A secured credit card is backed by a cash deposit that you make when you open the account. The deposit is typically equal to your credit line. If you make a $500 deposit, you’ll have a $500 limit.

The deposit reduces the risk to the creditor because if you don’t pay your bill, they can take the money from the deposit. Often, secured credit cards are available to people with bad or no credit at all.

Building Credit with a Secured Credit Card

Credit Starting Point	3 Months	6 Months	12 Months
Bad (550<)	+7	+12	+25
Poor (550+)	+5	+10	+19
Fair (600+)	+3	+8	+15
Good (650+)	+2	+7	+11
Very Good (750+)	+0	+5	+9
Excellent (800+)	+0	+2	+7

Source: Review of 600 individuals who for the course of a year who had a secure credit card. The study was conducted in February of 2016 and concluded April of 2016.

As you can see from the data above, adding a secured credit card was a great strategy for those with poor and fair credit. In the case of individuals with poor credit, they were able to increase their score 25 points in 12 months, whereas those with fair credit were able to increase their score 19 points in the same timeframe
.

Review and monitor your credit report

As we previously discussed, it’s important to check your credit report so you are aware of what it contains, but it’s also important to review and monitor your credit periodically as you’re trying to rebuild or improve it.

As you can see from the data below, 17% of Credit Sesame members found credit report inaccuracies when they checked their report. Clearing up these inaccuracies by filing disputes with the creditor can have a big impact on your score.

Percentage of Individuals who found Credit Report Inaccuracies

Found Inaccuracies on Credit Report	Members	Non-Members
2014	26%	42%
2015	23%	39%
2016	20.5%	38.5%
2017	17%	37%
2018	16.5%	35%

Source: Survey of 500 members and non-members who check their credit reports yearly. Survey was done in October annually.

f the credit bureau resolves the issue in your favor, your credit score will likely rise. Here are some common credit report errors and the average increase over time to your credit score. It is always a good idea to resolve any errors you find as soon as you can.

Benefits of learning how to use credit cards the right way

Learning how to use credit cards to rebuild or improve your credit is important because not only can you use those tactics and strategies to improve your credit profile, you can continue using them to make sure your credit stays great in the long run.

In addition to the points we’ve outlined above, also consider the following tips as best-practices when it comes to using credit cards:

• Pay off your balance in full each month —you can avoid carrying a heavy debt load by trying not to charge anything you can’t pay for in cash.
• Avoid the temptation of free offers —when you apply for new lines of credit, your credit is pulled and having additional inquiries can lower your score.
• Keep your accounts open —the age of your credit is another factor that impacts your score so be sure to keep open your longest-standing accounts

If you’re looking to improve your credit score, these strategies, along with patience and time, will help you not only with short-term increases, but also long-term improvement.

Conclusion & Summary

To sum it up, rebuilding your credit using credit cards can be a great strategy for success —considering that many of the factors used to calculate your credit score revolve around using credit cards the right way. You can take steps like making your payments on time, lowering your credit utilization, mixing up your credit types, becoming an authorized user, and others to make these improvements. When you learn how to use credit cards to your benefit, you’ll see results both in the short- and long-term.

The post How to Rebuild Your Credit Using Credit Cards appeared first on Credit Sesame.

What is a bad credit score?

Based on the information found in your credit report, the credit reporting bureaus typically generate a score between 300 and 850. The higher your credit score, the more likely you are to be approved for credit and to receive the most generous terms, like lower interest rates or longer repayment periods. Conversely, a bad credit score is one that may cause a lender to reject your application for credit or charge higher interest rates on loans that are approved. It is also important to note that lenders, credit cad issuers, look at different scoring models and have different criteria they use to determine if you will be approved for a credit card and the terms they will extend to you, so, having a credit score in a particular range is not a guarantee that you will be approved for the card or for the terms you applied for.

Here’s a general credit score chart that shows the category and credit ranges. Keep in mind each credit bureau has their own scoring model, so the ranges will differ.

[Offer: Free Credit Score]

Many lenders consider a credit score between 500 and 549 “poor,” and a credit score below 500 “very poor.” If your credit score falls in that credit range, you’ll have difficulty being approved for new credit, and may even have job or rental applications rejected if an employer or landlord asks to run a credit check on you.

[Related: Rental History Reports]

For people in that range, the first questions asked are usually about how to improve your credit score.

That said, each lender sets its own cutoff points. Some consider anything over 550 to be fair or better. At least 75% of Credit Sesame members are in the fair, good or excellent category. Take a look (data collected October 2015):

If your score is in the 500-549 range, approval for any credit product will be a challenge. If you’re in the 550-599 range, the lender may consider your score to be unacceptable, or they may give you a shot. If you’re at or below 649, you need to focus on reaching the next higher credit tier.

The most important first step is to examine your credit report closely for accuracy. Make sure you recognize every entry on your credit report, and if there are any discrepancies, move quickly to fix them. If you’ve been targeted by identity thieves or had a credit card compromised, you may have unpaid balances on cards you never opened — and aren’t responsible for. The sooner you have those accounts closed and removed from your credit report, the sooner your score will start to recover.

Here is what you can expect to see when you pull your report.

If your bad credit score is a result of late payments or high balances, then as you pay down your balances and built a record of on-time payments, your score will gradually increase over time. Most late and missed payments are kept on your credit report for seven years, so you need to focus on building up that record of on-time payments.

Credit repair is simple, but that doesn’t make it easy: set up a system that works for you to make all of your payments on time and pay more than the minimum due on credit cards if at all possible. Ultimately, people who have the best credit scores have perfect payment histories and low or zero balances.

[Related: Repair Credit]

Best credit cards for bad credit

Even if your credit score is below 549, you may find you can still be approved for credit cards, although credit cards for “bad credit” generally offer low limits and high interest rates. On the other hand, if you pay off your credit cards in full and on time, those payments will be reported to the credit bureaus and will help to increase your credit score over time.

With that in mind, here’s some of what you need to know about applying for credit cards for bad credit.

Unsecured credit cards for bad credit

Unsecured credit cards are “regular” credit cards that don’t require you to deposit any cash with the bank as collateral against unpaid debt: you’re allowed to make purchases up to your credit limit, and can pay for your purchases over time — although you’ll typically pay high interest rates on any purchases you don’t pay off in full each month.

Unsecured credit cards targeted at those with truly bad credit tend to charge, in addition to high interest rates, high annual fees and even fees just for applying such as processing fees.

It’s best to steer clear of those cards and either apply for a secured credit card or reach a little and apply for a credit card which has no annual fee and you can work at building up a history of on-time payments — a critical component of your credit score.

[Related: How to Build Credit]

Instant approval credit cards for bad credit

Credit card issuers do not offer “instant approval” anymore, and many card issuers do not offer instant decisions either, but for those that do, they offer an instant decision or a decision “within 60 seconds.” That simply means they have a connection to the credit bureau they use to evaluate applicants, and a computer algorithm that decides what credit score applicants need to be approved (they may also evaluate on-time payment history and the other components of your credit score). Some credit cards with online applications, or even those you apply for in a bank branch, may give you a decision on your application within moments, however keep in mind that the decision they provide to you may also be that they will require additional information or that they will need more time to access your application and credit information.

For credit underwriting reasons, even credit cards that promote an “instant decision” may require a review by a person before it’s finally approved or declined, so know that your application might not be immediately processed.

Secured credit cards for bad credit

One way to rebuild your credit is to sign up for a secured credit card and to use it responsibly. With a secured credit card, you can open a credit card with a spending limit typically equal to the amount of cash you deposit with the bank issuing the credit card. The security deposit is not applied to purchases that you make on the card. It is held by the bank in case you fail to pay the bill. With responsible use by you a secured card can provide you the opportunity to demonstrate your ability to manage a revolving credit line, improve your credit score, and eventually graduate to an unsecured credit card.

Opening a secured credit card does require you to tie up cash in the form of security deposits, secured credit rebuilding credit cards are for those individuals who are new to credit and have no credit/limited history or for those who are trying to rebuild their credit. These credit cards can be used as a tool to help you, however the bottom line is it is up to you to manage your account responsibly and to work at repairing or creating a positive credit history.

[Related: Improve Your Credit Score]

Store credit cards for bad credit

Besides secured credit cards, another option to consider are store credit cards. These are lines of credit that you can only use to make purchases at the issuing store. If you find yourself making a lot of purchases from a single merchant, it may be worth checking out if you are eligible for a store card.

Your balances and payments will be reported to the credit bureaus, and you may also earn rebates or discounts on your in-store purchases made at the issuing store. However, keep in mind that the interest rate, annual percentage rate (APR) for purchases, tends to be much higher for store credit cards so it would be best to keep your spending such that you can pay off your balance in full and on-time each billing period.

Even Amazon.com offers an Amazon Store Card you can use to make purchases on Amazon.com, however that is not to imply that you would be eligible for this card if you are new to credit or if you are rebuilding your credit.

There are no guarantees that you will be approved for a store credit card.

Question: What’s the best way to get a credit card with bad credit?

Answer: The best way to get a credit card with bad credit is to improve your credit score. If you have a bad credit score because of missed or late payments, then getting back on track with your payments will gradually rebuild your payment history and improve your credit score. Each late or missed payment disappears off your credit score after seven years, so the sooner you get back on track the sooner your credit score will recover.

If you haven’t opted out of pre-screened credit offers, you may also be targeted through the mail with credit card offers for bad credit.

Question: Are there credit cards for people who have no credit?

Answer: Although you may receive a credit line of just $100, consider a store credit card or, as already mentioned, a secured credit card (where you make a security deposit that is typically equal to the credit limit you will be extended by the card issuer) these options are the best opportunity to get a credit card for people who have no credit. They give you the opportunity to start building a history of on-time payments and responsible management of your credit, both of which eventually open the door to unsecured credit cards, mortgages, car loans, and other forms of personal credit.

Bad credit car loans: what you need to know

Some lenders may offer car and motorcycle loans for people who have bad credit, but you need a strategy before you start shopping around.  You will probably pay more in interest for this kind of financing. For example, some car lots offer “buy here, pay here” financing with no credit check required but the rates may be 15% to 30% or higher.

If you’re trying to get a car loan with bad credit, check your free credit report from Credit Sesame first to see what shape your credit is in. Pay down your existing debt balances and make sure you pay all of your bills on time. Doing those two simple things can add points to your score that may help you qualify for a better deal on a car loan.

Question: Can bad credit auto loans help to improve my credit score?

Answer: It depends. If you’re buying a car through a dealer that offers on-the-lot financing, your loan may not be reported to the credit bureaus. Before you sign on the dotted line, make sure that your payments will show up on your credit report so your score benefits from your responsible credit management.

Bad credit personal loans

Personal loans for people who have bad credit can take many different forms—peer-to-peer loans, loans issued by online banks and car title loans are just a few. These are all examples of installment loans for bad credit, which means you borrow a specific amount of money and you must pay it back over a set period of time.

If you want a personal loan and you have bad credit, an online lender may be your best bet. Online lenders frequently offer better rates than traditional banks and they tend to be a bit more flexible when it comes to approving borrowers who have less than perfect scores. Take a look at the list of lenders mentioned earlier to get a feel for what your options may be.

Home loans for bad credit

Editor’s Note January 7, 2019: The U.S. Department of Housing and Urban Development (HUD) websites have not been updated due to the lapse in Congressional Appropriations for Fiscal Year 2019, as  a result the information for FHA loans may not be the most current

If you want a mortgage and you have bad credit, prepare for an uphill battle. Typically, most lenders require a minimum credit score of 620 for a conventional loan. For a USDA loan with no down payment, the score requirement climbs to 640.

Technically, it’s possible to get an FHA loan with a score as low as 580. But each individual lender who works with the FHA decides what score it will or won’t allow. The advantage of an FHA loan over conventional financing is that you can make a down payment of as little as 3.5% of the purchase price. For the best terms on a conventional loan, a 20% down payment is the industry standard.

A few lenders will underwrite an FHA loan for a consumer with a score below 580, but the loan comes at a price. Instead of 3.5%, you’ll have to pony up a 10% down payment instead. If you want a $200,000 loan, you’ll need $20,000 to get a foot in the door. This could be a good option for someone who has received a cash windfall, but for anyone who has to save, in the time it takes to save that kind of cash, you can just as easily (or more easily) improve your credit and qualify for a better loan.

Tapping your home equity with bad credit

If you already own a home and you want to consolidate your high-interest credit cards, you may want to consider a home equity loan. When you take a home equity loan, you’re borrowing a lump sum and repaying it according to a predetermined schedule. A home equity line of credit is different – it’s a credit line that you can draw on again and again until you’ve borrowed the limit.

One thing to remember if you’re trying to get an equity loan and you have bad credit is that you may be limited as to how much of your home’s value you can draw against. You may also need to pay a bigger origination fee and a higher interest rate than someone with better credit.

Bad credit payday loans: Are they a good borrowing option?

In-store and online payday loans for people who have bad credit provide fast cash when you need money in a pinch but you should approach them with extreme caution. The premise is simple: a payday lender lets you borrow a certain amount of money using your next paycheck as your collateral. When you get paid, the lender takes the money electronically from your bank account, along with any interest and fees the lender charges.

It sounds fairly easy but there’s a catch. Lenders who issue payday loans for people who have bad credit seem to operate on the premise that other borrowing avenues may be closed to you because of your credit score. They charge a premium for lending you money in the form of an astronomically high APR, invariably in triple digits and sometimes topping 1,000%.

If you can’t pay off the loan when your paycheck comes in, they give you the option of rolling over your original loan into a new one and the interest and fees just keeps piling up. Before you know it, you’re trapped in a vicious cycle that you can’t dig your way out of and your debt balance is growing day by day. The bottom line? Payday loans are best avoided if you don’t want to do even more damage to your finances and credit.

If you do consider a payday loan, remember that their interest rates are usually expressed in monthly terms. Multiply the number by 12 to find the APR. A payday loan with a 36% monthly rate may sound fair but it actually has a 432% APR.

Finally, know that the average payday loan customer rolls the loan over eight times. That means signing up for a new loan because you can’t afford to pay off the loan by the due date. Each time you roll the loan over you pay a whole new set of fees. It is not uncommon for payday borrowers to pay fees and charges that are greater than the original loan amount.

Finding debt consolidation loans for bad credit

Consolidating credit cards, loans or other lines of credit can help your credit score but only if you do it the right way. Unsecured personal loans for people who have bad credit allow you to roll all your payments into one without offering any personal assets as collateral.

When you take out a loan for debt consolidation you use the money to pay off your other debts. You then make one payment each month to the consolidation loan lender. The goal is to streamline your payments and lower your interest rate so you can pay the debt off faster.

If you’ve got bad credit, spend some time comparing loan options to see who’s got the best rate and what the fees are.

Otherwise you will end up in much deeper trouble than you started in. If you know you can keep the accounts open without adding more debt, do so since 10% of your FICO credit score is based on the average length of your credit history.

Bad credit student loans

When you apply for federally guaranteed student loans, your credit history doesn’t come into play. The government assumes that most college students haven’t had the chance to establish a strong credit history yet.

It’s a different story, however, if you apply for private loans.

Private student loan lenders consider your credit history as part of the application process. If you’ve got a low credit score because of a past credit mistake or you haven’t used credit long enough to work your way to a higher score, you might not qualify. A co-signer may be the only option if you really want the loan.

First, figure out if you can avoid the loan. No matter what the rep says, no school program can guarantee you a healthy – or even a minimal – income after graduation. If you can’t qualify on your own and you don’t qualify for federally-guaranteed loans, consider a less costly program or spend a couple of years saving money first. Also, many large companies and employers may offer tuition assistance. See if you can land a job for a company that will give you free money for school.

When you ask a parent or anyone else to co-sign for your loan, the lender will look at that person’s credit history and score as well as yours. As long as he or she been responsible with credit, a co-signer can mean loan approval. Just know that when someone else signs their name to your loan, they’re assuming full liability for the debt. If you default, the lender can and will go after your co-signer to collect what’s owed.

Approximately 70% of all graduates leave school with student loan debt. We looked at Credit Sesame members — Millennials in particular, and broke down some scary numbers, including student loan debt.

Business loans for bad credit

If you’re trying to get a business off the ground or maintain positive cash flow for an existing venture, a loan is one way to cover the gap. While bank loans for those who have bad credit are harder to come by, several other options exist to borrow money for business-related expenses.

Merchant cash advance lenders, for example, make large and small loans for businesses who cannot qualify for bank loans or other loan/credit products, without putting your credit history under the microscope. Instead, a merchant cash advance depends on your business revenue and how much revenue you have coming in from sales each week.

Invoice financing is another option if you have unpaid invoices that you reasonably expect to collect on in the near future. Invoice lenders loan funds against amounts invoiced. It’s possible to borrow up to $500,000 this way, even if you have a credit score that’s in the 500 to 550 range.

The most important caveat to keep in mind with business loans for those with bad credit, is the price for the convenience. For certain types of financing, the APR hovers around the 100% mark. Understand how the interest will affect your business’s bottom line in the long run, and for a more in-depth picture of small loans for those with bad credit, check out Fundera.com.

Bad credit mortgage lenders

In a nutshell, getting a mortgage when you have bad credit means you’ll pay a much higher interest rate than your good credit peers. While bad credit doesn’t always equal a denied application, it’s likely to make the road to homeownership more difficult.

[Related: What is a Good Credit Score]

Lenders search for borrowers with a stable income, great credit, and the willingness to pay interest on a loan. Since the housing crisis of 2007-2008, mortgage lenders have tightened requirements for home loans.

Improving your chances isn’t impossible. Some banks and mortgage companies even specialize in obtaining mortgage loans for people who have a less-than-perfect credit history.

The first step to getting a mortgage is finding out exactly where you stand. The lender will use a 3 bureau credit report to evaluate your creditworthiness. This tri-merged report includes data from all three major credit bureaus (Equifax, Experian and TransUnion). You can get an advance look at what the lender will see by requesting a copy of your credit report from each of the credit reporting agencies by visiting AnnualCreditReport.com. These are free once every twelve months. If you need additional copies sooner, you’ll have to pay a fee. You can also check your credit and score now and every month, for free, on Credit Sesame.

Look at your credit reports before you approach a mortgage lender.  Certain types of data throw up a red flag to lenders:

• Bankruptcy within the past 10 years
• Collections
• Judgments
• Tax liens and overdue taxes
• Loan default
• Revolving accounts that are over the credit limit
• Accounts that show late payments

A decent FICO credit score may get you into a car or apartment, but mortgage lenders look closely at your entire credit history. While your FICO credit score still matters, the contents of your credit reports and the credit scores generated by TransUnion, Experian, and Equifax will ultimately make or break your mortgage application.

If you see errors on your credit reports like accounts that should have aged off your report (7 to 10 years), accounts that do not belong to you, or errors in your name or address, it’s important to dispute them immediately with the credit bureau reporting the error(s). Millions of credit score errors are serious enough to affect your score.

Other tactics to clean up your credit include bringing your revolving debt balances down to below 30% of your credit limit on each account. Two cards with low balances are better than one card maxed out. Pay your bills on time. Payment history weighs most heavily on your credit score, so one option is put your bills on auto-pay to ensure the payments arrive on time, but you still need to keep watch as occasionally your creditors may change their payment due date. Avoid closing any accounts until after you’ve secured your mortgage.

Here is the formula FICO uses to calculate your score. You can use this as a guide to bring up your score, if you are looking to improve it in the near future.

How to find bad credit mortgage lenders

Many banks, credit unions, and mortgage companies cater to the wants and needs of people who can’t produce an excellent FICO credit score (an excellent credit score range is generally considered to be 720 and higher). Subprime credit scores mean higher interest rates, and more than half of Americans have credit scores that fall into a less-than-desirable range. Scores below 649 are considered “poor” according to the mortgage industry.

[Related: Highest Credit Score]

For prospective homeowners with a military background, a VA loan is a good option to explore. VA loans have no required down payment. They also don’t require traditional private mortgage insurance (PMI), which makes the total mortgage payment lower. The minimum credit score for most VA loans is 620.

The Federal Housing Administration (FHA) offers an option for borrowers with a minimum credit score of 580 and a 3.5% cash down payment. You can qualify for an FHA loan with a score lower than 580 if you can swing a higher down payment; a score as low as 500 may be enough if you also have a 10% down payment and other favorable factors like stable employment history and verifiable income. The FHA also accepts an inheritance or a gift as a down payment, making this type of loan one of the best options for many borrowers with bad credit and limited financial means who would like to get a home loan.

Borrowers with credit scores above 620 should try to qualify for a conventional loan backed by Freddie Mac or Fannie Mae. With this type of loan, you must put down 20% of the purchase price to avoid paying a monthly PMI premium. If you can’t make any kind of a down payment, but your credit score is better than 620 and you’d like to live in a rural area, a USDA loan is worth pursuing.

Subprime mortgages are harder to get than they were just a few years ago, but they are still available. Just be mindful of the interest rates and fees. Even a one percentage point difference in your interest rate could add tens of thousands of dollars to the price of your home over the course of a 30-year mortgage.

How to get mortgages for those with bad credit

If you’ve been denied for a mortgage loan because of having bad credit, ask the lender for the exact reasons. In some cases, a bigger down payment, correcting an error, or providing additional information may increase your chances of getting approved the second time around.

Some lenders, especially the ones that deal specifically with subprime borrowers, are willing to look at extenuating circumstances. For example, if you can prove that you’ve paid your rent on time every month for the past year and you are requesting a loan amount that results in a mortgage payment about the same as your rent payment, you may have a case.

A mortgage broker that is familiar with many different subprime lenders can help you find a loan to suit your needs. Your chances of getting a mortgage for people who have bad credit may increase if you seek the advice of an experienced broker. Certain lenders cater to borrowers with low income, while others specialize in creating mortgages for people who have limited documentation, high debt-to-income ratio, or a short credit history.

Getting a mortgage if you have bad credit is an option for some people. Success or failure depends on how much money you have for a down payment, whether you can improve your credit score in the short-term, and how willing you are to search for the right lender.

Also keep in mind that credit card issuers and all lenders look at more then just your credit score when evaluating you for a credit line or a loan.

Advertiser Disclosure: Many of the offers that appear on this site are from companies from which Credit Sesame receives compensation. This compensation may impact how and where products appear (including, for example, the order in which they appear). Credit Sesame provides a variety of offers, but these offers do not include all financial services companies or all products available.

Credit Sesame is an independent comparison service provider. Reasonable efforts have been made to maintain accurate information throughout our website, mobile apps, and communication methods; however, all information is presented without warranty or guarantee. All images and trademarks are the property of their respective owners.

Editorial Content Disclosure: The editorial content on this page (including, but not limited to, Pros and Cons) is not provided by any credit card issuer. Any opinions, analysis, reviews, or recommendations expressed here are author’s alone, not those of any credit card issuer, and have not been reviewed, approved or otherwise endorsed by any credit card issuer.

Provider’s Terms: *See the online provider’s application for details about terms and conditions. Reasonable efforts have been made to maintain accurate information, however, all information is presented without warranty or guarantee. When you click on the “Apply Now” button, you can review the terms and conditions on the provider’s website. Offers are subject to change and the terms displayed may not be available to all consumers.

The information, including rates and fees, presented in this article is believed to be accurate as of the date of the article. Please refer to issuer website and application for the most current information. Verify all terms and conditions of any offer prior to applying.

Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

Reviews: User reviews and responses are not provided, reviewed, approved or otherwise endorsed by the banks, issuers and credit card advertisers. It is not the banks, issuers, and credit card advertiser’s responsibility to ensure all posts are answered. The Credit Sesame website star ratings are an average based on contributions from independent users not affiliated with Credit Sesame. Banks, issuers and credit card advertisers are not responsible for star ratings, nor do they endorse or guarantee any posted comments or reviews.

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

The post Bad Credit Score Guide: Credit Cards, Loans & More appeared first on Credit Sesame.

Just because you have to pay cash for your travel doesn’t mean you can’t save money on reservations. Here are three rules and tricks that travel hackers use to save money when they absolutely have to pay cash for their travel reservations.

1. Find the best rate guarantees

Patryk Kosmider / Shutterstock.com

All the major hotel chains offer some version of a “best rate guarantee.” These generally take the form of promises that if you find an identical room, with an identical cancellation policy, offered publicly anywhere besides on the hotel’s own website, they’ll match the rate — and throw in an added bonus as well.

For reference, here are the best rate guarantees for some of the largest hotel chains in the world. The terms and conditions are quite detailed; read them before you book.

Starwood Hotels & Resorts: 20% discount off the better rate found elsewhere.

Hilton Hotels and Resorts: match the better rate, and give a $50 credit.

Marriott Hotels & Resorts: 25% discount off the better rate.

Hyatt Hotels: 20% discount off the better rate.

Carlson Rezidor Hotel Group: 25% discount off the better rate.

InterContinental Hotel Group: match the better rate, and give the first night free.

The potential discounts offered by these best rate guarantees mean it’s absolutely essential to shop around for better rates online before booking a hotel night through one of the major chains. If you find a better rate, usually within 24 hours of making your reservation, you can save hundreds of dollars off your stay.

As always, read the terms and conditions of each best rate guarantee closely, since the chains can make it hard to tell whether a lower rate qualifies for the guarantee or not.

2. Take advantage of Skiplagged

You may have read about Skiplagged when they were recently sued by United Airlines and Orbitz for offering users so-called “hidden city” tickets. Hidden city ticketing refers to booking an itinerary from your origin to a final destination, with the actual intention to exit at a connecting airport.

The reason hidden city ticketing has become so popular is that airlines often charge less for flights connecting through their hubs than they do for flights beginning or ending in a hub city.

To take an example from Skiplagged’s website, a non-stop flight from Minneapolis to Detroit on Delta in April costs $426. The same trip, with an added leg from Detroit to Orlando International Airport, costs just $121! You can simply exit the airport in Detroit, so in this example Detroit is the “hidden city.”

Before using Skiplagged, it’s important to understand the risks: if your initial flight (the one you actually want to take) is delayed or canceled, you might be routed to your final destination through a different hub than the one you planned to end up at, which can be an expensive mistake to get out of.

Additionally, when using hidden city tickets, you can’t check any bags, since they’ll be delivered to your final ticketed destination, not the hidden city where you plan to actually exit the airport!

3. Use shopping portals and online travel agencies to stack savings

PhotoStock10 / Shutterstock.com

Even if you can’t get a best rate guarantee approved, you can still save money on every single hotel reservation you make, through the strategic use of online shopping portals.

Shopping portals are websites that allow you to earn a rebate, in the form of cash, airline miles, or hotel points, when you begin your online shopping there.

The process is simple: after creating an account with the shopping portal you’d like to use, you log in and click through to the website where you plan to shop. Then, complete your transaction as usual.

For example, once you join TopCashBack (in my opinion one of the best online shopping portals), you can search their database for Hilton, and after clicking through to Hilton’s website earn 4% cash back on any reservations you make during that online session.

You can increase your discount even further by clicking through to an online travel agency, since those companies run their own rewards programs. These companies may also participate in shopping portals like TopCashBack, you can earn 7% cash back from the shopping portal in addition to other discounts. Needless to say, those savings add up fast!

Get the most for your travel dollars

Unfortunately, travel companies don’t make it easy to get the best prices on the products they offer. In the case of hidden city ticketing, they’ll even charge you more for a short non-stop flight than for a longer, much more fuel-intensive ticket! That’s just crazy.

Fortunately, using these tools you can save money on most or all of the travel reservations you have to make with cash, rather than rewards currencies.

Advertiser Disclosure: Many of the offers that appear on this site are from companies from which Credit Sesame receives compensation. This compensation may impact how and where products appear (including, for example, the order in which they appear). Credit Sesame provides a variety of offers, but these offers do not include all financial services companies or all products available.

Credit Sesame is an independent comparison service provider. Reasonable efforts have been made to maintain accurate information throughout our website, mobile apps, and communication methods; however, all information is presented without warranty or guarantee. All images and trademarks are the property of their respective owners.

Editorial Content Disclosure: The editorial content on this page (including, but not limited to, Pros and Cons) is not provided by any credit card issuer. Any opinions, analysis, reviews, or recommendations expressed here are author’s alone, not those of any credit card issuer, and have not been reviewed, approved or otherwise endorsed by any credit card issuer.

Provider’s Terms: *See the online provider’s application for details about terms and conditions. Reasonable efforts have been made to maintain accurate information, however, all information is presented without warranty or guarantee. When you click on the “Apply Now” button, you can review the terms and conditions on the provider’s website. Offers are subject to change and the terms displayed may not be available to all consumers.

The information, including rates and fees, presented in this article is believed to be accurate as of the date of the article. Please refer to issuer website and application for the most current information. Verify all terms and conditions of any offer prior to applying.

Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

Reviews: User reviews and responses are not provided, reviewed, approved or otherwise endorsed by the banks, issuers and credit card advertisers. It is not the banks, issuers, and credit card advertiser’s responsibility to ensure all posts are answered. The Credit Sesame website star ratings are an average based on contributions from independent users not affiliated with Credit Sesame. Banks, issuers and credit card advertisers are not responsible for star ratings, nor do they endorse or guarantee any posted comments or reviews.

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

The post 3 Insider Travel Hacks That Will Save You More Money on Flights and Hotels appeared first on Credit Sesame.

In my view, an emergency fund is for covering really exceptional situations, like eviction from an apartment, loss of a job, or a temporary disability. In those situations, you’ll need immediate access to cash in order to cover your expenses while you get your financial situation back on track.

Quick Tip: When you assess your financial situation — saving vs. paying off your credit cards, it’s important to check your credit score, in case you’d like to consolidate some of that debt into a low-interest credit card or take out a personal loan. See your free credit score on Credit Sesame.

And that raises the question: if you’re carrying high-interest credit card balances month-to-month, should you prioritize paying down those balances or contributing to an emergency fund in case of sudden financial hardship?

Credit card interest rates will always be higher than a savings account

If you are carrying high-interest credit card balances while saving cash in an account paying almost nothing in interest, the peace of mind you’re buying is expensive. Very expensive.

Say you have a $10,000 balance on a credit card with an annual percentage rate (APR) of 15 percent. With $3,333 in monthly expenses, you follow the widely acknowledged personal finance advice of saving three months’ worth of expenses (the same $10,000) in an online savings account (such as Ally Bank or Radius), which pays around 1 percent APY per year.

The peace of mind you get from your emergency fund is costing you $1,400 per year — this is the 14-percentage-point difference between the 15 percent credit card interest and a 1 percent interest rate at an online bank. And that money isn’t going to pay down your debt — think of it as the amount you’re paying your credit card company to “keep your balance” on your credit cards month after month.

The move should make: Pay off your credit card balance and, based on the example, you’ll have $1,400 per year in extra money to cushion your finances.

Think of paying off credit card debt as one of the best investments you can make

If a stock broker called you offering a hot new investment with a guaranteed 15 percent annual rate of return, you’d think he was a con artist (and you’d be right). In today’s interest rate environment, if you’re willing to lock up your money for five years in a certificate of deposit, you might be able to earn 2 percent per year on your savings.

But there really is an investment you can make with a 15 percent annual return: simply paying off your high-interest credit card debt! Every dollar of principle you pay off will earn you 15 cents in interest you would have otherwise paid to the bank.

The key point here is that when you make a credit card payment, you’re not “spending” your savings: you’ve already spent the money! Rather, you’re investing your savings in one of the highest-return investment vehicles imaginable.

Retirement needs to be funded too

Once you’re in the mindset that paying off credit card balances is a smart, simple investment strategy, you might be eager to get started, so I want to mention a few exceptions to the rule that credit card payments are the best investment strategy.

If your employer matches contributions to a workplace savings program like a 401(k), 403(b) or 457(b) plan, you’ll always want to maximize those matched contributions first. Even if your employer only matches every second dollar in contributions, you’re still earning an immediate 50 percent return on your savings — even better than paying off credit card balances.

Likewise, if your income qualifies you for the Retirement Savings Contribution tax credit, you may also want to consider making the maximum qualifying contribution to a Roth or traditional IRA. In addition to the immediate savings on your income taxes, you’ll also enjoy tax-free capital gains on investments housed in a Roth IRA.

The move you should make: Contribute to your 401(k) or max out your IRA

If you don’t have the cash, you need an emergency plan

All of this may leave you wondering: if you use your savings to pay down credit cards, what do you do in the case of an actual emergency? After all, saving money on credit card interest doesn’t do anything to keep you from getting evicted or losing a job, or worse.

My answer is that rather than an emergency fund, everyone should have an emergency plan, especially if it’s difficult to save money and a real emergency should arise.

For example, most credit cards will allow you to take a cash advance out against your credit line.

It’s true that the banks charge a lot for these cash advances — typically around 5 percent of the amount of the advance plus any interest charges that accrue. But three months’ of interest, plus a 5 percent flat fee ends up being 8.75 percent — far lower than the 15 percent you might be paying on your existing balances.

Remember, the goal is not have to use a cash advance on your credit cards for an emergency, but if you really need the money and don’t have the cash, it’s worth it to have a plan in place. This means doing things like taking a look at how much the cash advance fees are for your credit cards and figuring out how much it would run you if you needed, say, $2,000.

If you still need time to pay off purchases, use a low interest rate credit card

Finally, it’s worth mentioning that if you aren’t able to pay off your credit cards immediately, transferring your balances to credit cards with low introductory interest rates on balance transfers can potentially save you money.

Just don’t let balance transfers become an exercise in can-kicking, your first priority should still be to get your revolving credit card balances as low as possible, as fast as possible!

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

The post Save For an Emergency Fund vs. Pay Off Credit Card Debt: What’s the Right Move? appeared first on Credit Sesame.