Early lending was all about personal judgment

Before credit scores existed, borrowing decisions were based on trust. Lenders evaluated risk by relying on relationships, reputation, and perceived character. If a borrower seemed reliable or had a known employer, they might get approved. If not, they were often denied.

This approach was deeply subjective and inconsistent. It worked in tight-knit communities, but as lending expanded and populations grew more mobile, the need for standardized decision-making became urgent.

Credit reporting took shape before scoring existed

In the mid-to-late 1800s, lenders in the United States began relying on more than just personal impressions. Local merchants and banks formed credit registries to share written records about customers’ borrowing and repayment habits. These early files were manually kept and often included narrative descriptions of a person’s trustworthiness, reliability, or employment history.

In 1899, the Retail Credit Company was founded in Atlanta to centralize this kind of information. The company, which later became Equifax, sold consumer credit reports to lenders and insurers. These early reports did not include numerical scores or statistical models, but they marked a turning point, moving credit evaluation from word-of-mouth to documented records and setting the stage for future scoring systems.

Credit bureaus and scoring models emerged in the 20th century

In 1956, engineer Bill Fair and mathematician Earl Isaac founded Fair, Isaac and Company, the firm that would later become FICO, with the goal of using statistical modeling to support better business decisions.

By the mid-1900s, credit reporting companies like Equifax were expanding their data collection operations. In 1968, TransUnion entered the market and quickly became a national player. These bureaus enabled lenders to access structured records on account types, balances, and repayment behavior. This shift laid the groundwork for algorithmic scoring and brought more consistency to credit decisions.

In 1989, FICO launched the first widely used general-purpose credit score for consumer lending. Their model applied a consistent algorithm to credit report data to predict how likely someone was to repay a loan.

This scoring model allowed lenders to move beyond subjective judgment and make faster, more consistent decisions. Over time, the FICO score became the industry standard for evaluating consumer credit risk and remains one of the most widely used scoring systems in the United States.

Standardized scores become mainstream

In the 1990s and early 2000s, credit scoring became central to nearly every consumer lending decision. Mortgage lenders, credit card companies, and auto financiers began using scores as part of their automated underwriting processes.

FICO developed industry-specific versions of its scoring model, allowing lenders to tailor decisions to different types of credit. TransUnion expanded its role in the consumer credit landscape during this time, growing alongside Equifax as a major source of credit data. In 1996, the U.S. credit bureau operations of TRW, a major credit reporting company active since the 1960s, were acquired and rebranded as Experian, completing the trio of national credit bureaus that dominate the industry today.

In 2006, the three major credit bureaus Equifax, TransUnion and Experian introduced VantageScore to offer a consistent scoring model across all three databases. It was also designed to include consumers with limited credit history who might be overlooked by traditional models.

By this point, credit scoring was not just a tool but a cornerstone of modern lending. Scores were algorithmic, rules-based and standardized, marking a major departure from the personal assessments of the past.

Modern credit scoring is based on algorithms

Today’s credit scores are still built using algorithms. These models apply defined rules to credit data to generate a numerical score that reflects a person’s credit risk. Common scoring factors include:

• Payment history. Whether bills are paid on time.
• Credit utilization. How much of available credit is used.
• Length of credit history. How long accounts have been open.
• Credit mix. The variety of credit types held.
• Recent credit applications. How often new credit is sought.

Most scoring models use statistical methods such as logistic regression. Their structure is designed to be explainable so that both lenders and consumers can understand how decisions are made.

Machine learning enters the picture

Over the past decade, some lenders and credit scoring developers have begun integrating machine learning into their processes. Unlike traditional models, machine learning can identify patterns in large datasets that were previously too complex to detect.

Rather than replacing algorithms, machine learning is often layered on top to enhance accuracy. It can improve predictions, allow the use of alternative data like rent or utility payments, and adapt more easily to shifting borrower behavior.

Some lenders have built their entire risk models using machine learning, while others use it for specific tasks such as fraud detection. However, because these models are less transparent, they raise concerns about explainability and fairness.

Fintechs diversify credit access and management

Fintech (financial technology)companies are reshaping how credit is understood and accessed. Some focus on developing alternative scoring models, using data such as rent payments, utility bills, bank transactions or subscription histories to evaluate financial behavior. These models aim to assess risk for consumers who may not have traditional credit files.

Other fintechs provide tools that help consumers monitor their credit, track changes in their credit reports, receive alerts about suspicious activity and learn how specific actions may affect their scores. Some offer credit-building products, like secured cards or reporting services for on-time bill payments, to help users establish or improve their credit standing.

Fintech solutions are expanding access to credit insights, offering faster and more flexible evaluations, and helping more people engage with their credit health.

Credit scoring continues to evolve

Credit scoring has moved from reputation to rules, and now toward real-time adaptation. Currently, traditional models still dominate, but machine learning and alternative data are pushing the boundaries of how risk is assessed.

Credit scoring continues to evolve alongside data, technology, and regulation. The challenge is to maintain fairness, accuracy, and transparency as models grow more complex and influential. What began as a handshake has become an algorithmic formula, which continues to change with new data and shifting standards.

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Turning 30 has long been seen as a significant life and financial milestone. For some, it marked homeownership, stable careers, and growing savings. For others, it meant struggling with debt, rising costs, and shifting economic realities. Each generation has faced unique financial conditions at 30, shaped by job markets, inflation, home prices, and access to credit. Boomers built wealth early, Gen X embraced credit, millennials faced financial setbacks, and Gen Z navigates a high-cost economy.

Income at 30: A shifting baseline

Each generation has entered the workforce under different economic conditions. Boomers benefited from post-war prosperity, while Gen X saw the rise of globalization. Millennials entered a job market weakened by the Great Recession, and Gen Z faces an evolving, technology-driven economy.

• Baby boomers (born 1946-1964) typically had stable, full-time employment with salaries that allowed for comfortable living. Wages kept pace with inflation, and many households could thrive on a single income.
• Gen X (born 1865-1980) entered a workforce shaped by outsourcing and automation. Wage growth slowed, and dual-income households became necessary for financial stability.
• Millennials (born 1981–1996) struggled with wage stagnation despite rising productivity. Many hit 30 with lower inflation-adjusted earnings than previous generations.
• Gen Z (Born 1997-2012) faces an uncertain job market shaped by AI, automation, and the gig economy. Remote work and multiple income streams are becoming more common.

Cost of living: Then vs. now

The cost of essentials like housing, healthcare, and education has shifted dramatically across generations. Boomers saw a more balanced ratio between wages and expenses, but younger generations face higher costs with comparatively lower wage growth. According to a report from the National Association of Realtors, the median age of first-time homebuyers has now reached a record high of 38, up from the late 20s in the 1980s. This reflects how rising home prices have made it more difficult for younger generations to afford property at the same stage in life.

• Baby boomers could afford homes, healthcare, and education without excessive debt. A single salary was often enough to support a family.
• Gen X saw rising living costs but still had access to affordable homeownership and employer benefits. Credit cards became a common way to manage expenses.
• Millennials faced rapidly increasing housing costs, student debt, and stagnant wages, forcing many to delay major financial milestones.
• Gen Z is entering adulthood amid high inflation and soaring rent prices. Many rely on financial technology and budgeting apps to manage costs.

Homeownership at 30: Who could afford it

Owning a home at 30 was once an expected milestone. As housing prices have increased and lending standards have changed, homeownership has become more difficult for younger generations. A report from the Stanford Center on Longevity found that individuals born in the early 1980s were less likely to own a home by age 30 compared to those born around 1960, and those who did own homes carried higher mortgage debt burdens.

• Baby boomers could buy homes on modest salaries. Mortgage rates fluctuated, but prices were relatively affordable.
• Gen X still had access to homeownership, but two-income households became the norm for affording a mortgage.
• Millennials faced the 2008 financial crisis, rising home prices, and increased down payment requirements. Many delayed buying a home until their 30s or beyond.
• Gen Z is entering a competitive housing market with higher interest rates, making alternative ownership paths like co-buying or rent-to-own more attractive.

Debt and credit: The generational divide

The role of debt and credit has evolved significantly. Earlier generations relied more on employer benefits and pensions. Younger generations need strong credit for everything from renting an apartment to securing a car loan.

• Baby boomers had less reliance on credit scores. Many secured loans based on income and job stability rather than credit history.
• Gen X experienced the rise of credit card debt and the introduction of risk-based pricing in lending. Credit scores became more important.
• Millennials carried the highest student debt burden in history and also needed good credit for loans, rentals, and even job applications.
• Gen Z is more credit-conscious than previous generations, adopting credit-building strategies earlier through secured cards and fintech tools.

The evolving importance of credit at 30

Access to credit has changed over time. Boomers and Gen X had fewer barriers to loans. Millennials and Gen Z must navigate a financial system built around credit scores.

• Boomers often secured home loans without strong credit histories. Lenders relied more on stable employment and income.
• Gen X experienced the rise of risk-based lending. Credit scores became more important as lenders began using them to determine interest rates and loan eligibility.
• Millennials faced stricter lending requirements after the 2008 financial crisis. Good credit became necessary for renting, securing loans, and even job applications.
• Gen Z is entering adulthood with more credit-building tools available. Rent reporting, credit-builder loans, and secured credit cards help establish credit earlier than previous generations.

The financial reality of turning 30: A generational perspective

Economic conditions have shaped financial stability, or instability, at 30 for each generation. Boomers and Gen X benefited from lower costs and stable job markets. Millennials and Gen Z have had to approach financial milestones differently. SmartAsset outlines key financial milestones to aim for by 30, including building an emergency fund, paying off high-interest debt, and beginning to save for retirement.

• Baby boomers built wealth through affordable housing, pensions, and stable wages.
• Gen X benefited from homeownership but faced increasing reliance on credit.
• Millennials encountered stagnant wages, student debt, and delayed financial milestones.
• Gen Z is adapting to high costs with side hustles, gig work, and fintech solutions.

Building credit to overcome financial hurdles

Economic challenges have made wealth-building harder for younger generations, but strong credit can provide financial leverage. Responsible borrowing, strategic credit use, and understanding modern lending practices are essential for navigating today’s financial landscape. Each generation has faced unique obstacles, but those with strong credit histories consistently have more opportunities to achieve financial security.

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1. FICTION: Checking your own credit score frequently lowers it.

FACT: Checking your credit score is considered a “soft inquiry” and does not impact your score.

When you check your own credit score, it is classified as a “soft pull,” which does not affect your credit. Soft inquiries include checking your score through free services or when a potential employer reviews your credit. In contrast, a “hard inquiry,” such as applying for a credit card or loan, can temporarily lower your score. Keeping an eye on your credit report is a good financial habit.

2. FICTION: You have one credit score.

FACT: You have multiple credit scores, even if most people refer to their “credit score” (singular).

Different credit bureaus (Equifax, Experian, TransUnion) calculate scores based on slightly different information. Each bureau collects data independently, so you have several credit scores depending on which report is pulled. Additionally, different scoring models, like FICO and VantageScore, may weigh factors differently. For example, FICO scores are the most commonly used in lending decisions, while VantageScore is also widely available for consumers.

3. FICTION: Closing a credit card improves your credit score.

FACT: Closing a credit card can hurt your score by reducing your available credit and altering your credit utilization ratio.

When you close a credit card, you decrease the total amount of available credit, which can increase your credit utilization ratio (the amount of credit you use compared to your total credit limit). A higher ratio negatively impacts your score. It is often better to keep older accounts open (even if you do not use them) to maintain a longer credit history and more available credit.

4. FICTION: You must carry a balance on your credit card to build credit.

FACT: You can build credit by using your card and paying it off in full each month. There is no need to carry debt.

Carrying a balance unnecessarily leads to interest charges. Lenders want to see responsible credit usage, which means charging small amounts and paying the balance in full each month. This demonstrates that you can manage credit without falling into debt, and it helps your credit score without costing you money in interest.

5. FICTION: Paying a bill late just once does not affect your credit score.

FACT: Even one late payment can drop your credit score significantly, especially if it is 30+ days late.

Payment history makes up 35% of your credit score, so paying bills on time is crucial. A payment that is just a few days late may not get reported to the credit bureaus, but once it is 30 days late or more, it will likely be reported and can cause your score to drop by 90–110 points. One way to avoid this is to set up automatic payments or reminders.

6. FICTION: A higher income means you automatically have a better credit score.

FACT: Your credit score is based on your financial habits, not your income level. You can have a high income and a low credit score, or vice versa.

Your credit score is determined by factors such as payment history, credit utilization, and the length of your credit history. A higher income may help you manage credit better, but it does not directly influence your credit score. Someone with a modest income can have excellent credit if they manage debt responsibly, while a high earner could have poor credit if they frequently miss payments.

7. FICTION: Marrying someone with bad credit lowers your credit score.

FACT: Your credit scores remain separate even after marriage. However, joint accounts or co-signing can affect your credit if not managed responsibly.

Your credit reports and scores are yours alone. However, if you open joint credit accounts or co-sign for loans together, both your credit histories are linked to that account. If your partner misses payments or runs up high balances on joint accounts, it could affect both of your credit scores. Communication and shared financial responsibility are key to keeping both scores healthy.

8. FICTION: You must always pay to check your credit score.

FACT: Many services now offer free access to your credit score.

Some companies charge for credit scores, but you can access your TransUnion VantageScore 3.0 score for free through Credit Sesame. Many banks and credit card issuers offer free credit score monitoring to their customers. Additionally, websites like Credit Sesame provide free access to your credit score, making it easier to keep track of your financial health without paying extra.

9. FICTION: Maxing out your credit card is fine as long as you pay it off each month.

FACT: Maxing out your card, even temporarily, can hurt your credit utilization ratio, which impacts your score.

Credit utilization is the second biggest factor in your credit score after payment history. Anything above 30% of your total credit limit can lower your score, even if you pay off the balance at the end of the month. To protect your score, aim to use only a portion of your available credit.

10. FICTION: Once a debt is paid off, it disappears from your credit report.

FACT: Paid-off debts can stay on your credit report for up to 7 years, but they show as “paid,” which is better than leaving them unpaid.

Even after paying off a debt, the history of the account stays on your credit report for several years. However, paid-off debts are seen positively compared to unpaid or delinquent accounts. Over time, the impact of past negative information fades, but paying debts is always a good move.

11. FICTION: All credit scores range from 0 to 900.

FACT: Most credit scores, like FICO and VantageScore, range from 300 to 850.

The most commonly used credit scoring models, FICO and VantageScore, both range from 300 (poor) to 850 (excellent). Some specialized credit scores may have different ranges, but 850 is the highest achievable score for most consumers.

12. FICTION: You do not need to worry about your credit score until you want a loan.

FACT: Your credit score affects more than just loans. It can impact renting an apartment, insurance rates, and even some job opportunities.

Landlords, insurers, and even some employers use your credit score as a factor in decision-making. A higher credit score can help you secure better rental agreements, lower insurance premiums, and, in some cases, make you more attractive to potential employers in certain industries.

13. FICTION: Once you have bad credit, you are stuck with it

FACT: Bad credit can be improved with time, responsible credit use, and paying off debts.

Credit scores can recover from past mistakes by consistently making on-time payments, reducing overall debt, and avoiding new hard inquiries. It may take time, but practicing good credit habits leads to gradual improvements.

14. FICTION: Having too many credit cards hurts your score.

FACT: It is not about how many credit cards you have but how you manage them. Keeping balances low and paying on time is what matters most.

Having multiple credit cards doe not negatively affect your score as long as you keep your credit utilization low and make timely payments. In fact, having available credit and using it responsibly can boost your credit score by demonstrating strong credit management.

15. FICTION: Your credit score should be perfect if you have never been in debt.

FACT: No debt means no credit history. Lenders want to see that you have managed credit responsibly over time to build a strong score.

Credit scores are built through the responsible use of credit. Without any debt or credit accounts, there is no credit history to evaluate, which makes it harder for lenders to assess your creditworthiness. A mix of credit types (like credit cards, loans, etc.) used wisely is key to building good credit.

16. FICTION: Using a debit card builds your credit.

FACT: Debit card use does not affect your credit score because it is not a form of borrowing. Only credit-related accounts are reported to credit bureaus.

Debit card transactions are tied directly to your checking account and do not involve borrowing money, so they do not get reported to credit bureaus. To build credit, you must use credit products like credit cards or loans, demonstrating your ability to manage borrowed money.

17. FICTION: A good credit score stays good forever.

FACT: Credit scores can change depending on your financial behavior.

Your credit score is dynamic and can change depending on your credit usage and payment history. Regular good financial behavior (like paying bills on time and keeping balances low) is necessary to maintain a good score. Late payments, high credit utilization, and taking on too much new debt can cause your score to drop, so it is essential to keep practicing good credit habits.

18. FICTION: You cannot get a loan with no credit history.

FACT: It is harder, but options like secured credit cards or loans are designed to help you build credit from scratch.

If you do not have a credit history, you can start building it with secured credit cards or credit-builder loans specifically designed for people new to credit. These tools can help you establish credit and improve your score over time.

19. FICTION: Credit bureaus decide if you get approved for loans.

FACT: Credit bureaus only provide the data (your credit report and score). Lenders use this information, but they ultimately decide if you are approved.

Credit bureaus collect and provide information about your credit history but do not make lending decisions. Lenders analyze the information in your credit report, along with other factors like income and employment, to decide whether to approve your loan or credit application.

20. FICTION: Bankruptcy completely erases all your debt and resets your credit score.

FACT: Bankruptcy can discharge many debts but damages your credit score for up to 10 years.

Bankruptcy can provide relief from many types of debt, but it does not wipe out everything. Certain debts, such as student loans, child support, and tax obligations, typically survive bankruptcy. Additionally, the negative impact on your credit score can last up to 10 years, making it harder to get new credit.

Understanding credit fiction vs fact is crucial for managing your financial health effectively. Knowing the truth means you can make informed decisions about your credit and avoid costly mistakes. Recognizing these myths helps you navigate the world of credit with greater confidence and clarity. A firm grasp of credit and credit score can help you maintain a strong credit profile and achieve your financial goals.

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Your credit score is just one piece of information that lenders use

Your credit score is a snapshot of your credit history and how you have managed debt in the past. Although important, it is not the only component that lenders consider when evaluating your applications for loans or credit cards. Other financial factors include your income, debt-to-income ratio, employment history, and savings and investment balances. Building an emergency fund, creating a budget and sticking to it, and consistently saving for the future can all demonstrate your financial responsibility and stability. Additionally, having a diverse mix of assets, such as stocks, bonds, and real estate, can show lenders that you have a well-rounded and responsible approach to managing your finances. Remember, your credit score is just one piece of information that lenders use to evaluate you. By taking control of your overall financial picture, you can increase your chances of being approved for credit and achieving your financial goals. Katrina Boydon

Debt, not credit score, can be a bigger burden on your finances

Your credit score is important in helping you get good credit rates on loans and credit cards, but it’s not the end-all for how your financial life plays out. Debt is very important also. Some debt is good debt. A home loan, for instance, can help you buy a place to live and create wealth for you and your family. Household wealth among homeowners is 1,469% higher on average compared to renters, excluding home equity, according to iProperty Management. To put that in dollars, the average homeowner has $95,500 in household wealth when home equity is excluded, compared to $6,270 for renters. Add in home equity, and homeowners have $254,900. Car and student loans can also be considered good debt. But other debts can be a burden for years. The average American had $5,525 in credit card debt in 2021. A credit card with that balance at an interest rate of 15% will take four years to pay off if you make a monthly payment of $150. You’d end up paying $1,924 in total interest. Taking four years to pay off such a debt leaves you less money to spend on Christmas gifts, vacations and emergencies, among other things. You may not contribute to your retirement account either. Debt, not a credit score, can be a bigger burden on your finances. Aaron Crowe

Think of your credit score as a snapshot in time

Think of your credit score as a snapshot in time. Whether you’re a great money manager or you’re just beginning your journey, there’s always hope ahead. If your score is lower than you’d like, consider this good news: You recognize that you want it to be higher! That’s the first step to take. The next is to set a goal. Where would you like to be? What steps will you take to get there? You might want to pay down a debt, get current on payments or take out a new loan to add variety to your credit mix. Write down from one to three steps you’ll take next. Add a date when you anticipate being able to take those steps. Then, get to work! If you’ve got a mid-range credit score or even a high one, be proud of where you’re at. Keep looking for ways to be a better money manager. Put those good habits to work and share them with others when you have the chance. Even if your credit score is stellar, it’s simply a reflection of all the great things you’re doing outside of this number. You are living life, pursuing dreams and enjoying the reward of attending to the details. Keep up the great work! Nate Birt

Your credit score only tells part of the story

Your credit score provides important insight to your financial health and habits. However, it only tells part of the story. After all, there’s a reason they call it a “credit score.” It focuses on your history of using credit – how much you’ve borrowed in the past, how reliably you’ve made payments and how much you now owe. That’s important information, but it leaves out three other key pieces of your financial story:

• Income. Your earning power now and over the remainder of your career determines what kind of lifestyle you can afford currently, and how much you can save for the future.
• Expenses. If spending isn’t kept in line with your income, you will never get ahead.
• Net worth. The amount of wealth you accumulate over time, net of any debt you have, measures the overall financial progress you have made.

The above three aspects of financial health are related to credit history in a similar way that all four legs on a table are related. Each must be sturdy in order for your finances to rest on a stable platform. If you have a problem with any one of the four legs, the whole thing can collapse. Richard Barrington

A high credit score doesn’t automatically guarantee approval

When you apply for credit, a high credit score doesn’t automatically guarantee approval. And a low-ish score doesn’t necessarily doom your application. Lenders understand that your financial picture is a complex combination of strengths and weaknesses. Credit scores tell prospective lenders how much you’ve borrowed in the past and how well you honored your obligation to repay it. They also incorporate how much you currently owe. But credit scoring models don’t include the amount or stability of your income, which determines your ability to repay a loan. That’s why lenders ask for a work history — they want to see stable and predictable income.  The relationship between your income and debts — your debt-to-income ratio or DTI — is also critical for lending decisions. To calculate a DTI, lenders add your debt payments to your monthly mortgage or rent and divide that by your monthly gross (before-tax) income. The lower your DTI, the better. Loan approval can get tricky when your DTI exceeds 36% and becomes especially difficult over 50%. Gina Freeman

It’s possible to feel overconfident when you have a good credit score

Checked your credit score lately? If your three-digit score is lower than desired, don’t get discouraged. First, know that there are action steps you can take to improve your score and, consequently, your creditworthiness. Second, your credit score isn’t the only measure of your financial well-being. Yes, it’s true that having a preferred credit score is needed if you want to be eligible for a wider array of loans, credit cards, and other borrowing vehicles and qualify for lower interest rates and better terms. But it’s possible to have a credit score that others would envy and still not necessarily have money matters under control. It’s also possible to feel overconfident when you have a good credit score. You may end up applying for and using new credit without having sufficient earnings or savings to pay back your debt. Indeed, a good credit score isn’t a reliable barometer of your total financial state. For example, you may have few dollars socked away in savings, a lack of total assets to fall back on, and a tendency to overspend and mismanage money. These and other factors can be a stronger indicator of your fiscal health. Erik J. Martin

Keep your score as high as possible for good financial reasons

About 1.6% of Americans may think that you are not more than your credit score. At least, that’s the proportion that invests the considerable time and effort required to maintain a perfect FICO score of 850. Why would they do that if they didn’t reckon that these scores are hugely important? Perhaps most of us recognize that having a high score is a useful financial tool — and only that. You could save tens of thousands, perhaps hundreds of thousands of dollars over your entire life by having an excellent score compared to a poor one. That’s because one of those reduces the interest you pay across all your borrowing. However, credit scores do not reflect your moral fiber. While having a high score proves that you’re good at managing your borrowing, having a low one doesn’t necessarily suggest the opposite. Many people have poor credit simply because they haven’t borrowed much recently or ever. And even those whose scores are low as a result of previous “bad” behavior are often entirely innocent. Luck plays a huge role. Redundancy, short working hours, long and expensive illnesses … all these and more can ruin a credit score while leaving the survivor faultless. Keep your score as high as possible for good financial reasons. But don’t judge others with lower ones. Peter Warden

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Credit repair and credit building are important components of managing your credit and improving your creditworthiness.

What is credit repair?

Credit repair involves fixing errors or inaccuracies on your credit report that negatively impact your credit score. This can include removing late payments, collections, or other negative items that are incorrectly reported. Credit repair services can help you dispute inaccurate information on your credit reports and negotiate with creditors to remove negative items.

Is credit repair legal?

Credit repair is legal. The Fair Credit Reporting Act (FCRA) grants you protection from the accidental or deliberate insertion of unfair, inaccurate or unprovable information in your credit reports. You have the right to contest it yourself or through a paid credit repair service.

What’s an “unfair” entry? Items that are true but reported in a way that’s excessive are unfair. Suppose you had an account go to collection. And then the debt was sold and resold to debt buyers. If each debt buyer reports the same collection again and again, the extra entries are “unfair” items. You can remove them. Similarly, creditors that report an item they can’t prove have to delete it from your credit report.

How do you repair your own credit?

Credit repair can be time-consuming but you can do it yourself. Here are the steps you’d take:

• Request your credit reports from all three major reporting agencies, Equifax, Experian and TransUnion. You can get them for free at the federal government’s site annualcreditreport.com.
• Review your reports for inaccurate or unfair (duplicate) entries. They can include incorrect personal information, missing or late payments, accounts you closed showing closed by the issuer, fraudulent activity, accounts showing a balance after being paid off, and more.
• Contact each bureau reporting an inaccurate entry and dispute it. It’s probably easiest through the Experian, Equifax or TransUnion websites but you can also call or do it by mail. Complete the form and supply anything that proves your case like pictures of canceled checks, letters or other paperwork.
• By law, the credit bureaus must investigate your claim within 30 days of receiving it. They also have to notify the company reporting the information within five days.
• Recheck your credit reports in 30 days to make sure the disputed items have not reappeared.
• Monitor your credit reports periodically to make sure the bad information stays off. Sometimes, companies that report false information neglect to update their records. It can go right back on your credit reports the next time they report. Monitoring your credit reports helps you head this off.

How to remove accurate entries from your credit report

While most credit repair involves disputing inaccurate information, you can sometimes eliminate accurate entries. That process involves contacting the creditor and requesting the deletion of the entry.

If you pay your bill late (and remember that for credit reporting purposes, “late” means over 30 days past due) but you have a good history with that creditor, contact them and ask them to report the payment as on time. You can call customer service or send a goodwill letter. The key is to apologize, explain and promise to pay on time in the future.

Another way to “repair” a derogatory entry like a collection account or past due account is the “pay for delete.” If you’re dealing with a collection agency, collection department or debt buyer, try to negotiate this. For instance, offer to pay what you owe in full in exchange for deleting the collection from your credit file. Not every creditor does this, but many are willing to negotiate.

What do credit repair companies do?

Legitimate credit repair companies analyze your credit report and devise a plan to help you improve your credit. They may contact credit bureaus and creditors, dispute inaccurate or unfair entries and send information and documents to prove your case. Typically, they charge a monthly fee for their services, but you don’t pay upfront. They will communicate with you about the progress of your repair.

Credit repair companies may counsel you on other ways to improve your score like paying down debt or opening “second chance” accounts.

One special type of credit repair is the “rapid rescore.” Rapid rescoring is used by mortgage lenders to quickly wipe out inaccurate entries on credit reports so their clients can be approved for home loans. They also use rapid rescoring to generate a new score if you pay down or pay off credit balances. To rescore your credit report, the mortgage lender pays the credit bureaus to expedite an update to your credit report and score. Only mortgage lenders can do this for you — consumers can’t access rapid rescoring directly.

How to avoid credit repair scams

Not all credit repair businesses operate legally under the Credit Repair Organizations Act (CROA). However, scammers are pretty easy to spot if you know how.

• Scammy companies ask you to lie or fudge information or tell you not to contact credit bureaus yourself. It’s illegal to say that your identity was stolen if it wasn’t.
• Bad credit repair companies dispute information they know to be accurate. However, even if it is temporarily removed, accurately reported credit damage will come back — probably in the next reporting cycle. And if the credit bureaus believe the disputes are “frivolous,” they don’t even have to investigate the dispute and won’t remove the item.
• Con artists may recommend applying for an Employer Identification Number (EIN) or a credit privacy number (CPN) to mislead future creditors. That’s also illegal.
• Scam repair firms do not disclose your rights. You have the right to review your contract before signing, and repair firms should also tell you that you can repair your credit yourself. Bad actors might leave important information, like the cost of services, off of your contract.

Credit repair, whether it’s a DIY effort or a professional provider, can help you get rid of bad information or in some cases delete past mistakes. Another solution, credit building, can help you establish or reestablish positive credit history.

What is credit building?

Credit building involves establishing a positive credit history by using credit responsibly, making timely payments, and keeping your credit card balances low. This can include applying for new credit accounts or loans, using them responsibly, and paying them on time. Building a strong credit history can help you qualify for credit in the future with better terms and lower interest rates.

Credit building products can include credit report analysis, rent reporters, credit builder loans, secured or second chance credit cards and credit building apps. Score-improving tactics are designed to decrease your credit utilization, improve your credit mix and generate good repayment history.

Credit building products

Credit building loans and cards carry less risk to lenders, so they are more willing to lend to people with spotty credit histories. They usually involve depositing money as security in case you don’t repay the loan. Other products like rent reporting services can help you add positive credit history to your credit report. Some apps help you turn debit card purchases into credit-building opportunities, and credit building sites analyze your credit file and offer tips for improving your score.

Credit builder loans

The typical credit builder loan is more like a savings plan. You and your lender determine a loan amount (most ranging from $300 to $1,000) and make payments for six to 24 months. Your payments include interest. Ensure your lender will report these payments to all three major credit bureaus and be religious about getting the payments in on time. You get access to the money at the end of your loan term.

Secured credit cards

Secured credit cards look and function like traditional credit cards. However, you must put up a deposit that the lender can keep if you don’t pay your bill. This deposit may be equal to your card limit, or it may be less. Often, after months of on-time payment, the issuer could reward you. This reward might be the return of your deposit or a credit line increase. When shopping for secured cards, make sure the fees are reasonable and that they report your payments to all major credit bureaus.

Rent reporting services

If you rent and your landlord reports your payments to credit bureaus, you’re already building payment history. If not, and you always pay your rent on time, you can add rent payments to your credit report by enrolling in a rent reporting service. Reporting on-time rental history adds positive data to your credit report for future lenders to see. In addition, it can increase your credit score, depending on your other information and on which credit scoring model your creditors use. VantageScores 3 and 4 consider rental history and so does FICO 9.

Credit building analysis and monitoring

Credit Sesame analyzes your credit report and offers tips for increasing your score and actions you can take to improve your financial wellness. Checking your credit reports and score frequently or enrolling in credit monitoring services helps boost your credit score in several ways. First, the feedback tells you if your credit management is helping or harming your credit score. Second, you can flag credit reporting errors and fix them promptly. And third, you can spot inquiries or new accounts not authorized by you and keep identity thieves from defrauding you.

Credit building apps

Sesame Cash and Credit Sesame Credit Builder work together to help you manage your spending, enjoy early access to your paycheck and get cash back on debit card purchases. Sesame Cash is a debit card that you can add cash to and use for purchases.

When you turn on Credit Sesame Credit Builder, you set aside part of your debit card balance as a security deposit for a virtual line of credit. Use your debit card and Credit Sesame does the rest behind the scenes. Credit Sesame reports your balance and payments to credit bureaus the same way a credit card issuer would. As your credit score climbs, you’ll gain access to more credit offers.

Sesame Cash and Credit Sesame Credit Builder charge no interest or fees and can help you quickly improve your credit profile and score. There is no credit check and the app (Android or iOS) is free.

If you’re trying to build credit from scratch, credit building tools can help you get there a lot faster. If you’re trying to rebuild credit after some damage, a combination of credit repair and credit building can help you recover sooner and avoid future credit problems.

Last word

Credit building involves establishing a positive credit history over time, while credit repair involves fixing errors or inaccuracies on an individual’s credit report that negatively impact their credit score. Both processes are important for improving creditworthiness and financial stability.

If you enjoyed Credit repair versus credit building, you may be interested in,

• How to Build Credit Fast
• Ways to Build Credit and Create Good Credit Habits

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

The post Credit repair versus credit building appeared first on Credit Sesame.

The stakes for maintaining good credit are higher than ever. In October 2022, recent news provides multiple examples of how important good credit is in today’s economy, and how consumers’ credit is under attack.

Concerned Lenders are Tightening Credit Standards

According to the Mortgage Bankers Association, lending standards on mortgages have tightened for seven straight months. This makes mortgage approval harder to obtain than at any time since March 2013.

Lenders tighten approval standards when they are concerned about economic conditions. Rising consumer debt levels raise the possibility that more households are overextended. The threat of a recession further heightens the risk that more households may start to default on their loans.

With high inflation, people have been leaning more and more on credit. However, tightening lending standards mean it’s tougher to get credit unless you have a strong credit history.

Interest rates continue to soar

Credit is harder to get these days and comes at a high price.

According to mortgage finance company Freddie Mac, 30-year fixed mortgage rates more than doubled this year. The Federal Reserve’s Consumer Credit report shows that the average rate charged on credit card balances rose by over 2% since the first quarter. Personal and auto loan rates are up, too.

With inflation still raging and more Fed rate increases expected, the cost of credit may increase further. This creates a tough choice for consumers: they may feel the need to borrow more to make up for inflation, but that borrowing just adds to their rising expenses.

Maintaining good credit helps address these problems

Building and maintaining good credit can help consumers deal with both tighter credit standards and rising interest rates.

When lenders become more cautious because of economic concerns, they cut back on higher-risk loans and concentrate on lower-risk ones. Applicants with good credit are more likely to apply for a loan successfully.

Good credit also helps counter rising interest rates. Most lenders and credit card companies offer different rates depending on the risk profile of the customer. Customers who present a higher risk to the lender receive higher interest rate offers.

Credit card rates can vary by about 10% depending on your credit score. Mortgage rates can vary by a point or two – which can add up to tens of thousands of dollars worth of interest over the term of a 30-year mortgage.

A good credit score means you are more likely to be offered lower rates. If you improve your credit score, you might even see your credit card rate drop.

Consumers face multiple assaults on their credit

Although good credit can help you overcome tighter lending standards and higher interest rates, the problem of maintaining good credit remains. In the current economic environment, credit scores are under attack from multiple directions.

Inflation is driving borrowing higher

Prices have risen so fast that many consumers find themselves caught short. Suddenly, a paycheck doesn’t cover expenses as it used to.

It’s natural to turn to credit to fill the gap. This has created a growing debt problem.

Federal Reserve figures show non-mortgage consumer debt is up by 12.9% over the past two years. A sudden rise in borrowing can hurt credit scores in two ways:

• First, as people add to their debt balances, their monthly payments rise. As those payments get higher, more households start to miss some of those payments. Payment history is the biggest factor in credit scores, so missed payments are very damaging to credit.
• Second, higher credit balances mean people are often using a larger portion of their credit limits. Credit utilization, which is the percentage of your available credit that you use, is also a factor in credit score. More borrowing pushes credit utilization up, which is likely to drag credit scores down.

This can become a destructive cycle. As people rely more and more on credit, that reliance damages their credit scores.

A recession could tip millions of households over the edge

The threat of a recession has loomed over the economy for several months. If that threat becomes a reality, it could become a credit crisis for people who live on the edge financially.

Recessions over the past 50 years have triggered an average increase of 4.1% in the unemployment rate. Projected onto today’s labor force, that would translate to a loss of nearly 6.7 million jobs.

Americans have various resources to see them through a period of unemployment, such as savings, unemployment benefits and other household income. However, for households that rely on borrowing to make ends meet, there is little margin of safety. Even a partial decline in income could make it impossible to pay the bills.

Fraud makes maintaining good credit difficult for victims

It’s challenging enough that consumers have to worry about how their own financial behavior affects their credit. What makes it even tougher is that criminal activity also threatens that credit.

Credit card details from over a million consumers were recently released on the dark web – an internet for predominantly illegal activity.

This is the latest example of how technology is used to blow up the scale of financial fraud. This increases the necessity for vigilance. If consumers’ financial information is stolen and used fraudulently, it can damage victims’ credit and lose them money.

The solution is to take great care of your financial logins and assume the worst. Any text, email or call receive could be from someone trying to steal information. Be watchful and catch any fraudulent activity before too much damage is done. Consumers should review each transaction on their credit card and bank statements. They should watch for abrupt changes in their credit scores and check their credit reports regularly. Signing up for credit monitoring can help you keep your credit under continual surveillance.

Credit is a vital survival tool in today’s economy. Unfortunately, credit is also under multiple threats. That means customers need to take steps to defend their credit.

You may also be interested in:

• You Can Counter Economic Threats by Working on Your Credit Score
• Ways to Build Credit and Create Good Credit Habits

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

The post Maintaining Good Credit has Become a High Stakes Game appeared first on Credit Sesame.

If you’ve ever applied for a loan or credit card, you understand the importance of having a detailed set of records that illustrates your financial history. Typically, this information comes from one of the national credit reporting agencies: Equifax, Experian or TransUnion. People who are credit invisible—more than one in 10 Americans, by one estimate— have no credit score and access to credit isn’t nearly as straightforward.

There are 26 million credit invisible people in the U.S., according to a report titled “Data Point: Credit Invisibles” from the Consumer Financial Protection Bureau (CFPB) Office of Research published in 2015—the most recent data available on the topic.

Who are credit invisible Americans? What is the impact of having no credit history and no credit score? What are the benefits of becoming credit visible?

Who is credit invisible?

The poor and historically underserved are among Americans most likely to be credit invisible, researchers note. For example, in a study titled “Credit at the Corner Store,” Princeton University researcher Vance Alan Puchalski explored informal credit systems that urban Detroit corner convenience stores manage to provide credit-invisible customers who are poor with access to interest-free financial services.

Among other insights, the bureau’s analysis of roughly 5 million credit records noted that several people groups are more likely than others to qualify as credit invisible. For example:

• People living in low-income neighborhoods are more likely to be invisible than those in upper-income neighborhoods. Close to 30 percent of low-income consumers are considered credit invisible, with no credit score or credit history.
• Approximately 15 percent of Black and Hispanic Americans are credit invisible, compared to just 9 percent of people who are White or Asian.
• Age matters, too, because more credit history tends to be available the older a person gets. For example, more than 80 percent of 18- and 19-year-olds hold credit invisible status, whereas fewer than 40 percent are invisible by their early 20s.
• Credit invisible people face numerous challenges that make it difficult to access financing that could improve their lives.

Credit invisible does not mean bad with money or past troubles with debt. In fact, a 2016 report titled “Serving the Credit-Invisible” from the National Credit Union Administration notes, “The credit invisible may actually have an excellent debt repayment history—it just hasn’t been reported.”

What is the impact of having no credit history and no credit score?

If you are credit invisible with no credit history and no credit score, you face several barriers to accessing the financial system. Experian identifies several credit invisible challenges. For example:

• You can struggle to get a credit score. The vast majority of lenders rely on credit scores, and if you lack a six-month paper trail of credit activity, your credit report won’t contain those details, and you are unable to get a score.
• Your credit applications require lenders to do more research. For the credit invisible, the timeline from credit application to successfully acquired loan can be long—if an application is not denied. The credit invisible frequently face the need to undergo manual underwriting, in which lenders must do additional research to find documentation that verifies whether a borrower is able to make payments.
• Your credit options are limited, which can promote risky decisions. Because conventional lending options often are unavailable to the credit invisible, many people in this group turn to high-interest and high-risk financial instruments such as payday loans. Thus, a loan to cover a short-term emergency can become a long-term, costly problem for borrowers who are already marginalized.
• You can face steep upfront security deposits. If you apply to rent a home or apartment, being credit invisible can count against you. For example, a landlord might end up charging higher security deposit fees without a paper trail illustrating you’re capable of paying monthly dues.

What are the benefits of being credit visible?

It is possible for most people with no credit score to become credit visible. Here are some steps you can take if you are struggling to secure credit:

1. In its credit invisible checklist, the CFPB recommends that you start by seeing what your records actually say. You might be credit invisible, or you might have more data on file than you realize. If you haven’t already done so this year, go to AnnualCreditReport.com to pull your free credit report from the three credit reporting companies. Use this documentation in conversations with prospective lenders, and be sure to check for—and work to correct—any errors to ensure your credit file reflects your actual history. Fraudulent activity can damage your ability to secure financing so it is important to check that all credit activity is yours.
2. Check tools available to people who are credit invisible. For example, secured credit cards match cash funds you’ve deposited in a bank account with credit. The Sesame Cash Credit Builder does just this. Over time, successful payments can give a bank confidence you’re good on your payments, opening the door to accessing a conventional credit card. You might also find store cards of interest—credit extended by the places where you shop. Credit unions offer something called a credit builder loan.
3. Consider other approaches to documenting your ability to pay bills. For example, Sesame Rent Reporting/Turbo works directly with tenants and landlords to report monthly tent payments to TransUnion and Equifax.

If you are credit invisible, rest assured you are not alone—and there are people and resources in your corner. Exploring some of the strategies outlined above can help you assess your credit status, apply creative solutions to demonstrate your ability to pay bills and access financing to achieve your personal financial goals.

You may also be interested in:

• How Fast Can You Raise Your Credit Score?
• How Inflation May Affect No Credit, Unscoreable and Credit Invisible Americans
• The Impact of Credit Invisible Americans Entering the US Economy

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

The post No Credit History. No Credit Score. No Credit. appeared first on Credit Sesame.

Terms like credit score and credit report get used a lot, but not everybody has a clear idea of what they mean. That’s unfortunate, because these credit-related things can have a direct impact on your finances.

Credit scores and credit reports can provide insights into how you’ve used credit in the past. They indicate how much experience you’ve had with using credit, and how reliable you’ve been at making payments. Those insights are important, because lenders and other types of companies use them to make decisions about you.

To some degree, you can manage this information so that it’s used in your favor rather than against you. That starts with understanding what type of credit information about you is being collected, and how it is used.

What is credit?

To start with, what do people mean when they use the word credit?

Generally speaking, credit means access to borrowing money. There are two major types of credit that consumers use frequently:

• Installment loans. These are loans for a specified amount that are designed to be paid back over a set period. Examples include car loans, mortgages, student loans and personal loans.
• Revolving credit. This is access to a credit line, where you can vary the amount you borrow from that credit line and how long you take to pay it off. Examples include credit cards and home equity lines of credit (HELOCs).

Getting access to credit depends on how confident lenders are that you will repay what you owe. The interest rates they charge you will also depend on that level of confidence.

There are a variety of factors that lenders look at when deciding whether to lend someone money. Your income, job history, other financial obligations and the value of any collateral you can put up may all be considered. However, not all of these are considered part of your credit history.

One of the most reliable things lenders feel they have to go on in making these decisions is your track record of making payments on your credit accounts. That’s why your credit history has a huge influence on your future access to credit.

What goes into your credit history?

When lenders look at your credit history, what exactly are they seeing?

There are three major credit bureaus that compile credit information about consumers: Equifax, Experian and TransUnion.

Their goal is to provide a complete picture of your past and current use of credit. Each of the three credit bureaus has similar (but not always identical) information on your credit history. For example, Experian gathers the following:

• A list of your credit accounts for the past two years
• Information on when those accounts were opened and closed, where applicable
• The balances on each account
• The credit limit available on each account
• Your payment history for each account, including any past due payments
• Any delinquent payments that have been referred to a collection agency, charged off or settled
• Any record of bankruptcies (a chapter 13 bankruptcy will remain on your record for 7 years, and a chapter 7 will remain for 10 years)
• Recent inquiries into your credit history, which may indicate you’ve been applying for new credit accounts.

By looking at all this information, it is possible to get an impression of how reliable you’ve been when it comes to making payments on your credit accounts. That and a sense of how financially extended you are already, based on your current credit accounts and recent inquiries.

What is a credit report?

A credit report provides a summary of your credit history combined with personal information about you.

The credit report lists any available records of the credit usage information listed in the previous section. So, basically a credit report includes your past payment history, any credit problems like bankruptcies and payment defaults, and your current credit accounts.

In addition, the credit report includes personal information that can be used to accurately identify you. The following are types of personal information you can expect to see on your credit report:

• Your name and any variations of your name that have been associated with your credit accounts. For example, if you full first name is William but you opened a credit account using the name Bill, both may appear in your credit report.
• Any addresses that are or have been associated with the credit accounts covered by the report.
• Your birth year.
• Any phone numbers you have provided in connection with accounts covered by the report.
• The name of your spouse or any co-signers or joint account holders on your credit accounts.
• The names of any current or former employers you have provided in your credit applications.

Note that creditors may not report to all three credit bureaus. As a result of differences in reporting, your credit report from one credit bureau may differ from the reports issued by the others.

Credit score and credit rating

One thing that you won’t find in your credit report is your credit score. This is a three-digit number that summarizes how favorable your credit history is.

The information in your credit report may be used to calculate a credit score, but that calculation can differ according to the situation. Because of this, your credit score may vary at any given time.

For one thing there are different companies that calculate credit scores. FICO and VantageScore are the most prominent ones, but other credit analytics companies and lenders may calculate their own credit scores.

Also, the calculation of credit score may vary according to the situation. Depending on the type of loan you are looking for, different factors might be weighted differently in arriving at your credit score.

Note that the terms “credit score” and “credit rating” may be used to mean the same thing. Sometimes though, the term “credit rating” may describe a more general range that your credit falls into, such as poor, average, good or excellent.

How is your credit history used?

As noted earlier, lenders look at your history to get a sense of how risky it is to lend you money. From that credit history, they can see how much experience you have with using credit. They can see if any of that experience includes problems with making payments. Your credit report will also tell them what other credit accounts you have that might make any new debts difficult to pay.

Sometimes a potential lender wants to take a deep dive into the details of your credit report. At other times, they might just want to get a general sense of your credit history from your credit score.

Lenders are not the only ones who may be judging you based on your credit history. These days many employers and landlords check into the credit history of applicants. Employers are interested in seeing how reliable you are, and whether you have financial problems that might cause a conflict with your job responsibilities. Landlords want to see whether you’ve been good at keeping up with your payments in the past.

So, with employers and landlords showing an interest in the credit record of applicants, if you damage your credit history you might limit your job or housing opportunities. Finally, credit history also factors into pricing decisions that insurance companies make. Research has shown that people with low credit scores are more likely to file auto insurance claims.

That costs insurance companies money, so they tend to charge higher insurance premiums to customers with bad credit. This practice is controversial, and is not legal in all states. However, if you live in a state where it is legal, a bad credit history could cost you more money on your car insurance.

Managing your credit record

There’s a lot riding on your credit record:

• The cost of using credit
• The ability to get credit
• Potential job opportunities
• Housing availability
• Auto insurance rates

Given all this, it makes sense to manage your credit record to keep it in good shape. Here are four ways to do that:

1. Set up a system that helps you make all your payments on time. Your payment history is the biggest single factor in determining your credit score, so try not to miss any due dates.
2. Think carefully before applying for new credit. You may see several credit card ads every day, but remember that opening too many accounts can hurt your credit score. Even too many credit applications may hurt you, so when you do need a new account pick one that is likely to approve someone with your credit history.
3. Check your credit report regularly. With so many things depending on your credit report, aren’t you curious to see what’s in it? Checking your credit report gives you the opportunity to spot any errors or fraudulent activity, as well as identify areas for improvement.
4. Sign up for credit monitoring and alerts of changes in your credit status. Beyond checking your credit report now and then, having credit monitoring can give you a heads-up whenever something happens to your credit history that you need to know about.

Credit scores and credit reports are all part of a history that is going to be use to make judgements about you for years to come. With that being the case, shouldn’t you take a thoughtful approach to writing that history?

You may also be interested in:

• What You Don’t Know About Credit Can Hurt You
• Credit Card Pre-Qualification and Pre-Approval: What’s the Difference?
• Your Annual Credit Report: What is it and is it Accurate?

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

The post Credit Explained: Credit, Credit Score, Credit Rating, Credit History and Credit Report appeared first on Credit Sesame.

It sounds like such a good deal. If you get to buy now and pay later, isn’t that a win for you?

The deal sounds especially appealing when Buy Now Pay Later plans advertise that they have no interest charges.

Still, as with most financial deals that are touted as all upside, Buy Now Pay Later deserves a closer look before you sign up.

How Buy Now Pay Later Works

Buy Now Pay Later (BNPL) is a type of payment program that lets you walk out of a store with a purchase by just putting down a partial payment – often 25%. You then pay the remaining amount according to a set schedule.

To use BNPL, you sign up with a firm offering this form of payment service. Some of the leading firms in BNPL are Affirm, Afterpay, Klarna, PayPal and Zip.

You can apply to a BNPL program through an app on your mobile phone. If you are approved, you can then use the app at participating merchants much like a credit card. However, there are two key differences between Buy Now Pay Later and using a credit card:

1. With BNPL you put some money down initially, which you don’t do with a credit card
2. Unlike a credit card, BNPL does not charge you interest on the unpaid portion of your balance as long as you pay it off within the payment schedule

That payment schedule is the key. Once you make your purchase, the BNPL company pays off the merchant. After that, you owe the remaining balance to the BNPL company. If you don’t make your payments on schedule, you could face stiff penalty fees. There may also be a monthly fee just for participating in a BNPL program.

The Sudden Growth of Buy Now Pay Later

BNPL has become an international phenomenon. Besides the United States, BNPL has gained popularity in Australia, Sweden, Germany and the UK.

With this broad popularity, usage of BNPL has grown rapidly. Below is a chart showing worldwide BNPL transaction volume over the past three years, according to GlobalData:

One reason for the rapid growth of BNPL programs is that it’s easy to get approval. The application process is quick and requires less information than a typical credit card application. This has made BNPL an attractive alternative for people with limited or poor credit histories.

Why Regulators Are Concerned

The sudden popularity of BNPL has gotten the attention of financial regulators in a variety of countries. Here in the United States, the Consumer Financial Protection Bureau (CFPB) has sent a letter to five major BNPL providers requesting more information about how they operate.

Why is the CFPB concerned? Here are a few reasons:

• Potential to increase debt. Access to BNPL programs may be too easy. People who lack a history of using credit responsibly might find themselves using BNPL for lots of routine purchases. Taking on months’ worth of debt to pay week-to-week expenses creates a debt snowball.
• Lack of clarity on cost. While BNPL programs often tout that they don’t charge interest, in effect the late fees on purchases may function as interest — and at a very high rate. Charging customers via these fees rather than a percentage interest rate can make it hard to compare the cost of BNPL programs with traditional credit alternatives.
• Inadequate disclosure. Some BNPL programs many be using the newness of the approach to assume they are not covered by the same consumer protection laws as credit card customers. This may mean they aren’t providing consumers with enough information before they sign up.
• Lack of consumer protections on disputed transactions. Credit cards have rules that govern how disputed transactions are resolved. This can be especially important for resolving fraudulent transactions in your account. BNPL programs do not provide the same protections.

At this point, regulators aren’t accusing BNPL companies of doing anything wrong. They just want supervision of these programs to catch up with their rapid growth.

How Does Buy Now Pay Later Affect Your Credit History?

Since BNPL programs are available to people with limited or poor credit, you might think they’d be a way to establish or rebuild credit. However, this is not necessarily the case.

According to the CFPB, most BNPL payments are not reported to credit bureaus. So, even if you use BNPL regularly and responsibly, it may have no effect on your credit history.

On the other hand, late payments may be reported, especially if they are referred to a collection agency. In that case participation in a BNPL program could hurt your credit record.

Thus, while BNPL may be available to people without a strong credit history, it may not be a pathway to establishing credit. In fact, there’s a chance it could do more harm than good.

What You Should Know Before You Buy Now Pay Later

As with many financial tools, BNPL isn’t all good or all bad. Whether it works for you depends on the terms of the specific program and how you use it.

In order to use BNPL effectively, here are some things you should think of first:

1. Plan before you spend. BNPL really amounts to making a down payment and then borrowing the remaining purchase price. That makes it important to budget for how you’ll pay off the rest of the purchase. Budgeting before you borrow will help you avoid ramping up debt faster than you can pay it off. It will also show whether you’ll be able to pay off the purchase before any late fees kick in.
2. Check the monthly fee. Think about what participating in a BNPL program would cost you over the course of a year. Is that much money worth it compared to how much you’d use the program? Are there cheaper alternatives like a no-fee credit card?
3. Know your payment schedule. Don’t purchase unless you can pay it off before late fees kick in, and then make sure you keep your payments on time.
4. Consider how expensive late fees would be. If you can’t make your payments in time to avoid these fees, you need to figure out whether they are actually cheaper than paying credit card interest would be.

If you use BNPL just for convenience and pay the money off quickly, it can be an effective tool as long as the monthly fee is not significant. However, if you don’t have a plan for prompt repayment, you may find BNPL could drawing you deeper in debt and paying a high price for it.

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

The post Is Buy Now Pay Later Right for You? appeared first on Credit Sesame.

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Even if you’re uncomfortable talking about finances, you must find a way to ease into the conversation. You cannot share your life and future with someone you can’t talk openly with. If you have good credit and your true love has bad or disastrous credit, slow down. You need to understand how that person’s bad credit affects your relationship and how does marriage affect credit scores for both parties before you tie the knot.

The good news: your spouse’s credit score will not affect your credit score.

You do not take on your spouse’s credit, good or bad. There is no such thing as a joint credit score or a joint credit report. Credit and marriage are associated when trying to obtain financing as a couple. If you have great credit, you improve your chances, as a couple, of getting a good financing deal. If your partner has bad credit, however, they increase the likelihood that you’ll be turned down or offered more expensive terms when you apply for credit as a couple.

If you currently have no credit and your partner keeps all accounts in his name, your ability to get credit terms will depend completely on his score and history. And in the event of a divorce, you’ll have to build your own credit from scratch.

The bad news: your spouse’s financial behavior will affect you in the future one way or another.

Once you start combining accounts, your partner’s money management skills will most definitely affect you. If the utilities are in your name and your partner is responsible for paying the bill, make sure that bill is getting paid on time every month. If the two of you are on an apartment lease together and the property reports rent payments, delinquencies will be reported on both credit files — even if you can prove that you gave your half of the rent to your partner on time each month.

If you keep your finances totally separate and your partner has bad credit, you will be forced to rely on your credit alone when the time comes for a major purchase, such as a home.

If your partner has bad credit and you combine finances, you’re in for a rude awakening. Let’s say you borrow $150,000 together to buy a home. Because of your partner’s credit history, your interest rate is 6.5 percent instead of 4.5 percent (the lower rate is only available to borrowers with great credit). His poor credit score will cost you $90,276 over the life of the loan.

What does credit have to do with the relationship?

Your ability to work toward joint financial goals will be very much affected by your partner’s money management skills, good or bad.  You’ll have a very hard time reaching goals together if one person is irresponsible with money, such as by paying bills late, failing to save money, maxing out credit cards or defaulting on financial obligations.

Even if you keep your credit files completely separate and you don’t plan to work toward joint goals (which many would consider unhealthy in a marriage), bad credit says much about a person’s lifestyle, behavior and level of financial maturity and it should raise a red flag.  The marriage should be looked as a “credit score marriage” at the very least as bad credit is an indication that this person isn’t ready to take on adult financial responsibilities.

Fast- forward five or ten years. If you’re a saver, you may experience great disappointment when, as a couple, you are unable to set aside money for a vacation, a new appliance, a home or some other purchase that improves the quality of your life together because your partner spends every dime or is trapped in revolving debt. This kind of dissatisfaction can be very hard to overcome because the only real antidote is a complete lifestyle change and shift in values. In fact, nearly 30 percent of people who divorce cite differences over finances as a factor that led to the divorce.

What if the credit-challenged partner is truly dedicated to improving their credit?

A person with great credit can absolutely help their partner improve their credit. Communicating frequently about money, setting a daily example and providing moral support and accountability are excellent tools. Indeed, if you plan to build a life with this person, you’ll want them to have a better score when it’s time to proceed as a couple on a major purchase.

For a quick boost to your partner’s credit score, consider adding them as an authorized user on one of your accounts in good standing. The catch is that the account must remain in good standing. Otherwise, prepare for two consequences: (1) your credit could suffer, and (2) you, as the primary account holder, are liable for the debt (even if your partner incurred some or all of it).

Realize that you can’t make the changes for your partner. They have to learn to be responsible with money, even if they offer to relinquish every paycheck and let you handle the bills. Walking away from bad behavior does not equate to learning and practicing good behavior.

If you’re not married yet, don’t merge your finances until your fiancé has demonstrated responsible financial behavior for a period of time. You should see measurable progress over the course of 6-12 months. The changes might be difficult and frustrating, and setbacks are likely. Don’t expect perfection just because your partner wants to change. And remember that it could take a year or two or longer for his credit score to improve significantly. But if you don’t see progress in that first year, let that be a warning that he is not ready to change.

Ready to tie the knot?

More on Money & Relationships:

How Does Marriage Affect Your Credit?

Financial Questions to Ask Your Fiancé Before You Say “I Do”

Credit Tips for Newlyweds: How to Protect Your Credit (for Better or Worse)

6 Money Mistakes That Can Derail Your Marriage

 Ask the Expert: How Can I Protect My Credit After a Divorce?

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