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Credit Reports and Scores

What Is the Best Credit Card Option for Someone with Bad Credit?

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What Is the Best Credit Card Option for Someone with Bad Credit?

It is important to understand that all plastic is not created equal. Because of this fact many consumers become very confused when trying to choose which type of credit card is best for them. Consumers with no credit or bad credit really only have 3 options to consider when deciding which credit card is best for them: the prepaid debit card, the unsecured subprime credit card, or the secured credit card. Here are a look at the pros and cons of all 3 card types.

Prepaid Debit Cards

When a consumer purchases a prepaid debit card she has the ability to load her own funds directly onto the card. The cards are relatively easy to find - they are available at gas stations, retail stores, and Western Union stores - and literally anyone can purchase them. A consumer does not fill out an application to receive a prepaid debit card, she simply buys it. Once the card is purchased and loaded with funds, it acts just like a gift card. A consumer can use all of the funds available on the card (minus any fees) and then either reload the card or trash it.

Although prepaid debit cards are easy to find and even easier to obtain, there are plenty of reasons to think twice before choosing to use a prepaid card. First, prepaid debit cards do not offer any credit building opportunities for consumers. Why not? The reason prepaid debit cards offer zero credit building opportunities is because prepaid credit cards are not included on credit reports. Ever. Period. If you have heard differently, you have heard wrong. Additionally, prepaid cards do not offer the same fraud protections available through traditional credit card accounts. If a consumer has a prepaid debit card stolen which was loaded with $200 then it is as if she just lost $200 in cash. Finally, although prepaid cards do not offer fraud protection or credit building opportunities, they can still be loaded with fees.

Unsecured Subprime Credit Cards

Another plastic option which is available to consumers with no credit or damaged credit is the unsecured subprime credit card. Unsecured credit cards are the most common type of credit cards. They must be applied for, an approval must be granted, and (if a consumer is approved) a credit limit is assigned to the account. Unlike prepaid debit cards, unsecured subprime credit cards do offer credit building opportunities since they typically report to all 3 of the major credit bureaus each month - Equifax, Trans Union, and Experian. Plus, if a consumer is approved for one of these accounts, she does not have to put down a large deposit in order to secure her new line of credit.

Unfortunately, the primary draw back when it comes to these types of credit cards is the fact that they are usually loaded with high interest rates and incredibly high fees. It is not uncommon for an applicant to be approved for an unsecured subprime credit card only to receive a card which is practically maxed out as soon as it is issued due to all of the initial fees associated with opening the account. CLICK HERE to read more about how high balances on credit card accounts are bad for credit scores.

Secured Credit Cards

The best option for consumers with bad credit or no credit is, without question, the secured credit card. Secured credit cards, like unsecured subprime credit cards, offer great credit building opportunities when managed properly. However, secured cards typically offer this credit building opportunity without the often astronomically high fees associated with unsecured subprime credit cards. They are actual credit cards, unlike prepaid debit cards, which usually report to all 3 credit bureaus.

When a consumer is approved for a secured credit card she is required to make a deposit with the issuing bank which will be equal to the credit limit on the card. For example, if a consumer makes a $300 deposit then she would receive a secured credit card with a limit of $300. The deposit, however, is not the same as loading funds onto a prepaid debit card. If the consumer charges $25 on her secured credit card then she is responsible to pay the funds to the bank as they are not merely deducted from her initial deposit. Secured credit cards also typically offer very easy qualification standards so it is relatively easy to qualify for a secured card even for consumers with no credit or damaged credit.

How to Choose

Regardless of which type of plastic you choose it is important to do your research first. Comparison sites like GreatCredit101.com allow consumers to view the rates and fees associated with multiple cards before they ever apply for an account. 

michelle-black-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 

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How to Rebuild Your Credit After Bankruptcy

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How to Rebuild Your Credit After Bankruptcy

Filing for bankruptcy protection from creditors certainly has a long list of benefits. Bankruptcy can stop creditors from suing, it may put a stop to wage garnishments, and it can even grind foreclosure proceedings to a halt -  at least temporarily. However, while bankruptcy has its list of benefits it also has a very significant downside. In the majority of circumstances, filing for bankruptcy is likely to utterly destroy a consumer's credit scores.

While it is completely true that filing bankruptcy is virtually guaranteed to have a severely credit score impact, it is not true that consumers who have filed for bankruptcy cannot begin to rebuild healthy credit again once the bankruptcy has been discharged. Even though the evidence of the bankruptcy filing will remain on a consumer's credit report for 10 years in the majority of cases, consumers can still begin taking steps to improve their credit scores even while the bankruptcy is still present on their credit reports. Here are 3 simple tips which can help your credit to begin recovering after a bankruptcy.

1. Check your credit reports for errors.

In 2013 the Federal Trade Commission estimated that there were around 40 million mistakes present on consumer credit reports. Mistakes on credit reports are not unusual. Consumers who have recently had a bankruptcy discharged are no exception to the rule.

If a consumer has filed bankruptcy then he should check both the public records section of his credit reports to ensure that the bankruptcy itself is being reported properly and he should review each of the individual accounts which were included in his bankruptcy for errors as well. Should a consumer discover credit reporting errors (i.e. a discharged bankruptcy being reported as "filed," duplicate listings of a single bankruptcy, accounts reporting late payments after the bankruptcy was filed, accounts reporting balances after the bankruptcy was discharged, etc.) then it will unfortunately take some work to correct the errors.

A consumer can opt to dispute any errors he discovers on his own or he can also hire a reputable credit repair professional for assistance. Either way, it is extremely unlikely that credit report errors will fix themselves so ignoring the problem is not a solution.

2. Hone your credit management skills.

Many consumers file bankruptcy due to a financial catastrophe caused by an illness, job loss, or even a death. However, there are many other consumers who file for bankruptcy due to financial problems brought about by irresponsible credit management habits. In other words, these consumers spent more money than they earned.

For consumers who find themselves in the 2nd category, here is the first piece of advice I have to offer - shake it off! While that advice may sound a bit cliché, it is still worth following. Living in guilt over past credit mistakes is not going to undo those mistakes. However, obsessing over past mistakes might keep you from moving on and making positive changes in the future.

Consumers looking to hone and strengthen their credit management skills should start by drawing up a written plan for how to handle their finances - aka a budget. CLICK HERE for a free copy of the HOPE4USA Budgeting Worksheet to get started. It can also be helpful for consumers to have an accountability partner who can help to check up on their new commitment to manage money better.

3. Re-establish current credit.

One of the smartest strategies that a consumer can employ to begin recovering from a bankruptcy is to re-establish positive credit card right away, especially in the form of credit card accounts. Of course positive accounts will not completely overshadow the fact that a bankruptcy was filed; however, beginning to show positive credit management habits post bankruptcy can go a long way towards counteracting the impact of the bankruptcy upon the consumer's credit scores.

Many consumers will wonder, "What bank is going to approve me for a credit card with a bankruptcy on my credit reports and bad credit scores?" The answer is a bank which offers secured credit cards. When a consumer opens a secured credit card the issuing bank will require the consumer to make a deposit with the bank equal to the amount of the credit limit on the card. For example, a consumer would make a $300 deposit to receive a secured credit card with a limit of $300. Due to the fact that the account is "secured" with the consumer's own funds these types of credit cards can often be qualified for easily in spite of low credit scores and credit blemishes like discharged bankruptcies. 

credit-expert-michelle-black

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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How Many Points Will An Inquiry Lower My Credit Scores?

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How Many Points Will An Inquiry Lower My Credit Scores?

The fact that inquiries have the potential to lower consumer credit scores is not breaking news. Credit savvy consumers know that letting too many lenders pull their credit reports in a short period of time is a bad idea (with the exception of rate shopping for a mortgage, auto loan, or student loan within a 45 day period). However, the idea that inquiries lower your credit scores a particular number of points is a complete myth.

There is nothing on a consumer's credit report that raises or lowers your scores a fixed number of points. For example, an inquiry does not always lower your score 4 points (or 3, 5, or 6 points for that matter). An on-time payment does not raise your credit score 5 points. A late payment does not lower your scores 30 points. That is simply not the way that credit scores work.

How Inquiries Actually Impact Your Credit Scores

Remember, not all inquiries will have a negative impact upon your credit scores. (CLICK HERE to read The Difference Between Hard and Soft Inquiries for more information.) However, as mentioned above, those hard inquiries which do have the potential to negatively impact your credit scores are not going to lower those scores a specific number of points per inquiry that occurs.

Instead, imagine a set of 5 buckets lined up side by side. Each bucket bears a sign which represents the number of inquiries which appear on a consumer's credit report over a period of the past 12 months.

  •  Bucket #1 = 0 Inquiries
  • Bucket #2 = 1-2 Inquiries
  • Bucket #3 = 3-4 Inquiries
  • Bucket #4 = 5-6 Inquiries
  • Bucket #5 = More than 6 Inquiries
    *NOTE: These are hypothetical categories for demonstration purposes only.

Since inquiries are the primary factor which accounts for 10% of your FICO credit scores and the range of FICO scores is 300 - 850 (550 total available points) then there could be the potential for a consumer to earn up to 55 points for her credit scores in the inquiry category. Here's a hypothetical look at how credit score points might be awarded within the inquiry category of a consumer's credit report.

  • Bucket #1 = 0 Inquiries = 55 points
  •  Bucket #2 = 1-2 Inquiries = 45 points
  • Bucket #3 = 3-4 Inquiries = 35 points
  • Bucket #4 = 5-6 Inquiries = 20 points
  • Bucket #5 = More than 6 Inquiries = 10 points
    *NOTE: These are hypothetical categories and points for demonstration purposes only.

While the points listed above are not an exact representation of how many points a consumer's credit score would receive based upon her number of inquiries, the concept is an accurate representation of how credit scores are calculated within a category. In the example above if Jane Doe had a credit report with 3 inquiries then she would receive 35 points (of the 55 available points within the category) to be added to her overall credit score. However, if Jane Doe had no additional credit inquiries and the 3 inquiries became over 12 months old then she would move to the "0 inquiry" bucket and would receive 55 points instead of the 35 points she had received previously. In the case of this example Jane's credit score would increase by 15 points once the 3 previous inquiries aged out of credit score calculation range and she moved to the "0 inquiry" bucket.

When it comes to inquiries just remember that the fewer hard inquiries the better it is for your credit scores. (Soft inquiries which typically occur when you check your own credit are fine. They never lower your scores.) Additionally, as you can see from the "buckets" example above, no single inquiry is worth a particular number of points. Now that you understand that individual credit inquiries are not worth a particular number of points, congratulations! You now understand more about your credit scores than probably 99% of the population.

michelle-black-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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Is Settling My Debt the Key to Better Credit?

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Is Settling My Debt the Key to Better Credit?

Let's face it, no one plans on having bad credit. Aside from a few bad apples, the vast majority of consumers never set out with the intention of acquiring debt and failing to pay it off according to terms. Instead, most consumers who develop bad credit do so as a result of some unfortunate circumstance such as a job loss, an illness, divorce, etc. Even those consumers who find themselves swimming in collection accounts as a result of poor financial planning typically do not realize that they have overextended themselves financially until they have already bitten off more than they can chew.

One of my favorite sayings is the HOPE4USA slogan, "Bad credit happens to good people all the time." The reason why this statement means so much to me is because it is 100% true. Whether a person is facing credit problems due to bad luck or bad decisions, that does not mean that he or she is a bad person. Everyone deserves a second chance.

Cleaning Up Past Mistakes

Unfortunately, when most consumers set out to begin cleaning up their past credit mistakes they do it wrong. I cannot count how many consumers have expressed their frustration to me over the years after they paid off a pile of old collection accounts and their credit scores remained low - often even lower than they were initially. The fact that most consumers fail to understand is that paying off or settling collection accounts generally will not do anything to improve credit scores.

Why Paying Collections Doesn't Raise Credit Scores

The FICO credit scoring models currently in use by lenders do not reward consumers for paying off collection accounts. Current versions of FICO are much more concerned with the fact that a collection occurred in the first place than they are with the balance of the account. In fact, a collection account will have virtually the same negative impact upon a consumer's credit scores whether the balance is $2,000 or $0. (Defaulted credit card accounts are typically the exception to this rule.)

The purpose of a FICO credit score, also known as the design objective, is to predict the likelihood that a consumer will become 90 days past due on any of his/her credit obligations within the next 2 years. Current FICO credit scoring models are built with the assumption that a consumer who had collection accounts in the past is still likely to be 90 days late on an account in the future. Therefore, the presence of a collection account - regardless of the balance - is going to have a negative credit score impact.

Change on the Horizon?

FICO 9, the most recent credit scoring model released by FICO was designed to treat $0 balance collection accounts very differently than they have been treated in the past. The new scoring model was built with scoring logic to completely ignore collections with $0 balances. The result? Consumers who settle or pay their collection accounts could potentially see a massive score increase under the new scoring model.

Before you get too excited it is important to realize that it will likely be many years before FICO 9 is widely adopted by lenders - if it is even adopted at all. Check out my previous article, "Why You Shouldn't Be Too Excited About the New FICO 9 Scoring System...Yet" for more details. If lenders are not using the new scoring model then it is impossible for consumers to see any benefit from the new scoring logic.

What Should I Do?

If you believe that the fact that settling your collection accounts will not likely help your credit scores is a good reason to ignore the accounts, you may want to think again. Unpaid collection accounts have the potential to come with a lot of nasty consequences. Lawsuits, judgments, and wage garnishments are a few of the unpleasant side effects that often accompany unpaid debts. Settling past due accounts can be a very smart move, though it may be advisable to consult with a reputable professional for help and guidance before you get started

Where to Begin

It is important not to become overwhelmed when you make the decision to begin trying to fix past credit issues. The best place to start is to get a copy of all 3 of your credit reports (and possibly your scores as well). You can access a free credit report from each of the 3 major credit bureaus every year at www.annualcreditreport.com. Credit scores are not free, but you can often access them as part of a free or inexpensive trial to a credit monitoring service. CLICK HERE to compare trial offers which offer 3-credit scores.

Once you have your reports, review them thoroughly for mistakes. Credit mistakes happen more commonly than many consumers realize. In fact, the FTC estimates that over 40 million consumers may have errors on their credit reports.

When reviewing accounts for errors remember that all aspects of the account (i.e. balance, date opened, date of last activity, etc.) should be correct. If errors are discovered you have the right according to the Fair Credit Reporting Act to dispute those errors. You can dispute credit errors on your own or with the help of a professional. CLICK HERE for a great, free Credit Repair Toolkit to help you get started or you can schedule a no-obligation credit analysis with a HOPE4USA Credit Expert.

michelle-black-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. 

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Protecting Your Marriage from Credit Problems

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Protecting Your Marriage from Credit Problems

Financial problems, divorce, and trashed credit reports often go hand in hand. In fact, some studies suggest that up to 80% of divorces cite financial problems as the primary factor leading to the dissolution of the marriage. It is no secret that divorce tends to cause major credit issues after the fact as well - credit issues that can take as long as a decade to fully resolve. Protecting your credit from divorce is an unpleasant reality that many people face.

However, is it possible to protect your marriage from credit problems? If so many divorces stem from financial problems and disagreements does it not stand to reason that making a solid plan to address these issues before they get out of hand could be beneficial to your marriage itself? The answer to both of these questions is "Yes!" It is absolutely possible to protect your marriage from credit problems but it will take hard work, a solid plan, and a commitment to follow the plan. Here are 5 steps to help you get started.

1. Do not ignore the problem.

When money and credit problems arise it can be tempting to stick your head in the sand and try to ignore the fact that you are in financial trouble - or at least headed that way. After all, financial problems are extremely stressful. Many people use "ignoring the problem" as their coping mechanism to try to escape from pressure and stress.

Unfortunately, ignoring financial problems tends to backfire. Late payments on your mortgage can lead to a foreclosure down the road. Unpaid credit obligations can lead to increased fees, collection accounts, and even lawsuits. It may not seem like it initially, but pretending that your financial problems are not happening is a recipe for disaster. Be open with your spouse about financial and credit problems when they arise and be sure to be proactive where your creditors are concerned as well.  

2. Consider seeking professional help.

The decision to "handle things yourself" might not always be in your best interest. Yes, it may require an investment to work with a professional but that investment is often well worth the financial sacrifice in the long run. If you need help rebuilding damaged credit then consulting with a reputable credit expert may be great place to start. (CLICK HERE to schedule a no-obligation credit analysis with a HOPE Credit Expert.) If you sense that your marriage is in trouble due to financial problems then speaking with your minister or a professional marriage counselor is another option that you may want to strongly consider. Never be afraid to ask for help.

3. Plan to succeed together.

Have you ever heard the saying, "Failing to plan is the same as planning to fail?" The statement is especially true where your finances are concerned. If you do not have a family budget set up then you should (a) track and figure out where you are spending your money and (b) create a spending plan - aka a budget - for your household to begin following right away. CLICK HERE for a free budgeting worksheet to get started.

4. Be quick to admit your mistakes and even quicker to forgive the mistakes of your spouse.

Almost no one is perfect when it comes to managing their finances and credit - not you and not your spouse. If you do make a financial mistake, whether it be minor or major, be quick to fess up. Your spouse may not be happy with you, but it will be much less of a betrayal than if he/she finds out about your misdeeds from you directly rather than from your bank account or credit report after the fact. Additionally, if your spouse is the one who makes the financial mistake you should be quick to swallow your anger and forgive.

5. Be accountable.

When you commit to changes, such as following a budget or cleaning up past credit mistakes, do not be afraid to rely upon your spouse for help. In fact it is a great idea to schedule a weekly "meeting" with your spouse to remind one another of the reason you are working to make financial changes (i.e. to buy a home, to get out of debt, to reduce the stress on your marriage, etc.) and to assess how your plan is progressing. Discuss what each of you could have done better and what successes you achieved. Remaining accountable to one another and encouraging each other as you achieve small victories will not only help to insure you reach your financial goals sooner it will also strengthen your marriage.

michelle-black-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, a contributor to the Wealth Section of Fort Mill Magazine, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE Facebook page by clicking here. ​

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