Category: Credit Score

Does Comparing Loans Affect My Credit Score?

loans and credit score

When it comes to shopping for the right loan, it makes sense that you’d want to do your research in order to score the best rate possible. And the Internet has made it easier than ever to do so. But before you start comparing loans, it’s important to understand the effect this could have on your credit.

And the answer isn’t as clear-cut as you might think.

Credit inquiries

Whether or not comparing loans will affect your credit score depends on whether a hard or soft inquiry is required.

Soft inquiries happen when a business pulls your basic credit information without your directly applying for anything — for instance, when credit card companies check to see if you prequalify for a card. Soft credit checks have no impact on your credit report.

Hard credit inquiries come whenever you directly apply for a loan or new line of credit, such as a mortgage, car loan, or new credit card. The lender pulls your complete credit report to determine whether you’re a safe borrowing candidate.

Since you took the steps to apply, hard inquiries are considered “authorized,” and they do end up on your credit report and affect your credit score. Luckily, if your credit is otherwise in good standing, the effect is fairly minimal; your credit score will only drop by a few points, and it usually bounces back from the hit within six months. (However, the effect may be more impactful if your credit isn’t as strong.)

When credit checks are required

Hard inquiries may not be required until you’re further into the loan process. Lenders can get an idea of what interest rate you’d qualify for by performing soft inquiries using basic information including your name and annual income. So if you’re shopping around, this is the best way to look at all of your options.

However, to get an official rate quote, you will have to directly apply for the loan, which will result in a hard inquiry.

But here’s the good news: if you submit multiple applications for the same type of loan (say, a car loan) over a short period of time (usually between 14 and 45 days), it’s not considered risky behavior because it’s evident to the credit bureaus that you’re simply looking for the best deal. As such, credit bureaus will often count these multiple applications as a single hard inquiry.

(Note: This isn’t the case for credit cards. Submitting multiple credit card applications over a short period could not only bring down your credit score, it could also make you look like a risky borrowing candidate to lenders.)

How to shop for loans

In order to avoid damaging your credit as you shop for loans, make sure you’re aware whether your credit is being submitted for a hard or soft inquiry. Many websites will let you know, but if you’re not sure, call the company’s customer service to ask.

Also, make sure you’re protecting your privacy. A secure Web page will begin with “https,” so if you’re entering your social security number or any other sensitive personal information, make sure to double-check for that protocol.

If you’re having trouble getting approved for a loan, it could be that you need to fix your credit. For credit help, consider speaking with a credit repair expert. Lexington Law offers the legal expertise to help you repair your credit and ensure that your credit report remains fair and accurate.

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Does Your Salary Affect Your Credit Score?

Salary and Credit Score

While your credit score and monthly income are both significant determining factors in whether you can get approved for a loan and repay it, the connection between salary and credit score is not as cut and dried. In short, how much money you make does not affect your actual credit score, but your salary can certainly impact your overall credit health.

First, let’s review how credit scores are determined.

Credit scores are based on past borrowing history–not the income you earn, since credit reports do not include your salary information. Credit score models take into account multiple factors, such as:

  • The ratio of available credit to the balances you owe
  • How long your credit accounts have existed
  • If you’ve made payments on time, or missed any payments
  • The type of credit you have–just credit cards, or a mortgage or car loan, too?
  • How much new credit you’ve applied for recently

Now, let’s talk about income.

Where salary does have an impact on your overall credit health is with your debt-to-income ratio. This ratio is calculated as the total monthly payments you make to cover your bills or debts (such as utilities, groceries, credit cards, car loan, mortgage, etc.) divided by your gross monthly income (the income you earn before taxes). For example, if you owe $600 per month in bills and debt payments, and your gross monthly income is $3,000, your debt-to-income ratio is 20%. A good debt-to-income ratio is considered to be 36% or under (and of course, the lower the better).

So if salary does not affect your credit score, then why does your debt-to-income ratio matter?

  • Lenders use this ratio to help them determine if you should qualify for a loan. The higher your debt-to-income ratio, the more likely it is that you may be overwhelmed by debt and risk defaulting on your loan. Even if your credit score is good, if your debt-to-income ratio is too high, your loan could be denied.
  • A high debt-to-income ratio could result in you having to pay higher interest rates.
  • Higher interest rates, too much debt, and earning too little every month can all have a detrimental effect on your overall credit health, as well as your ability to get approved for–and pay off—a loan.

Is your income affecting your loan approval?

If you are applying for a loan but your credit score is low or you are having trouble paying off your debts every month, you may be wondering how to fix your bad credit or if your debt-to-income ratio is limiting what you can borrow. There are a few things you can do right away to begin to improve your situation:

  • Pay off any debts, so that the payments you make each month will no longer be a factor in your debt-to-income ratio.
  • Consider taking on a second or temporary job to show more income, which will also improve your debt-to-income ratio.
  • Fixing your credit report is the key to uncover and repair any errors or omissions that may negatively affect your credit score.

Lexington Law’s credit repair services can help you review your credit score and repair your credit. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Does Getting Married Merge Your Credit Scores?

Marriage and Credit Scores

When a couple decides to tie the knot, there are many immediate positives for both parties. Working as a team can open up new opportunities and make it easier to afford major purchases, like a home or a new car.

As newlyweds contemplate blending their financial resources, however, many immediately discover that a spouse’s credit – or the lack thereof – can be an unforeseen factor in achieving those post-honeymoon dreams.

Despite what some people may believe, getting married neither immediately merges your finances, nor does merge your credit scores.

Some Important Decisions Ahead

Each individual’s credit history is their own and consists of many factors, such as the amount of credit in use, payment history, and the longevity of their credit accounts.

A newly married couple needs to make some important and sometimes difficult decisions about how to handle their financial affairs. This planning is crucial for those who want to maximize one spouse’s more positive credit score and rebuild another spouse’s credit history at the same time. For example, a spouse with a 690 credit score will definitely have more financial pull than a spouse with a lower score.

Some of that tough talk will also involve the notion of being collectively responsible for new debts and open to shared banking resources, which can have a serious impact on each spouse’s credit.

Joint bank accounts or joint credit cards are the most common examples of such shared financial resources. By signing up for shared accounts and being equally responsible for spending and repayment, a married couple must realize that any late payments, missed deadlines, or financial mishaps such as NSF checks can wreak havoc on both spouses’ credit scores.

Some couples choose to provide access but not direct responsibility when it comes to credit cards. One method of providing access is to add a spouse as an authorized user rather than a joint account holder. The good news about this arrangement is that it can help boost the authorized user’s credit score. Unfortunately, any negatives on the part of the financially irresponsible spouse can also be shared.

Whose Credit to Use?

Other major purchases, including a mortgage or a new automobile, are other opportunities for joint signing and joint responsibility. Lenders, however, will still base their final interest rate decision on just one spouse’s credit score – there is no merging or averaging involved.

In some instances, married couples can apply for what are known as “couple loans,” especially if they have decided to try to refinance their student loan debt and pool their resources. Those loans both pool a family’s financial capabilities and use the higher of a couple’s two credit scores as the basis for the rate.

Consider, however, the responsibility involved when either taking on new debt with a spouse or working to erase outstanding debt obligations. In some states, both spouses can be held fully responsible for new but existing debts – creating some tricky issues in case of divorce or the early death of a spouse.

Whatever your decision, remember that the best strategy is open communication. Financial surprises are not a foundation for a great and long-lasting marriage; however, working as a team can be an excellent way to build a long and healthy future.

If you are looking for some help in repairing credit scores, we can help. You can carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Don’t Know Your Credit Score? You Aren’t Alone.

credit score

MoneyTips just released some eye-opening results from a recent survey on credit scores. A surprising number of people don’t know what their credit score is, and many have never checked their credit score. Many of these people have no idea that they need to repair their credit.

If you haven’t checked your score recently, you could be one of them.

Some important insights from the survey:

  • Nearly 30% of people don’t know their credit score. More importantly, over half of people who earn less than $30,000 per year don’t know their score.
  • Older adults are more likely to know their credit score: fewer than 53% of adults under 30 know their score, but more than 75% of older adults know it.
  • Of those who know their credit score, about 44% had checked it within the past month. But fewer than 65% of all respondents had checked their score within the last six months.
  • Over 20% of 18-29 year-olds have never checked their credit score.

Reasons for not checking credit scores are perhaps more revealing than the numbers above. Top reasons for not checking credit scores regularly include:

  • It’s not important
  • I don’t know how to check it
  • It’s too much of a hassle
  • It lowers your credit score (which is untrue)

Why Should You Check Your Credit Score?

While these statistics are interesting, is it really necessary to check your credit score? Experts say it is important to check your score on a regular basis. Here are some top reasons you need to know your score.

  1. Your credit score is constantly changing. It could drop without your knowing it, but keeping track of your score gives you the chance to catch problems early on and repair your credit more quickly and easily.
  2. A good credit score can help you get a job. Employers will sometimes check a version of your credit report (they won’t see your score). If your score is low, it may indicate you need to repair your credit report before you submit that job application.
  3. Your score affects your insurance premiums. A higher score can get you lower insurance rates. You could see as much as a 49% difference in your premiums—and even more, in some states.
  4. You could get credit card rewards. A good credit score can grant you some lucrative rewards—for example, two miles per dollar on your purchases or an introductory bonus of 40,000 miles.
  5. You’ll spot identity theft early on. If you see a sudden drop on your credit score, it could indicate that your identity has been stolen. And with the recent cyberattack on Equifax that affected over 140 million Americans, now is a very good time to check your credit score.

How to Check Your Credit Score

Checking your credit score is easier than you may think. Here are four ways to get a free credit score:

  • Check your credit card statement. Many credit cards are including their customers’ scores on their monthly bills, or on their online account.
  • Sign up for a credit monitoring service. Most services offer free credit scores.
  • Sign up for a credit repair service. If you’re working to fix your credit, a reputable repair service will keep you updated on your score for free.
  • Use a free credit website. Several websites offer free credit scores. Examples include Credit.com, Credit Sesame, Credit Karma, Bankrate, WalletHub and Quizzle.

Need help raising your credit score or repairing your credit? Talk to one of our credit repair experts today.

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5 Things You May Not Know About Your FICO Score

FICO score

If you are applying for a loan or purchasing a new car or home in the near future, you are probably very interested in your FICO® score. Your FICO score is the three-digit number on your credit report that tells creditors how much of a credit risk you may be. The higher your FICO score, the less of a risk you seem and the better your credit rating.

If you have negative items on your credit reports, they will impact your FICO score. But how long do these negative items stay on your credit reports, and how much do they impact your score?

Here are five things you may not know about your FICO score:

1.   Payment History Is a Big Deal

There are five major factors that determine your FICO score:

  • Payment history (35% of your score)—Do you make your payments on time? If not, these accounts may show up as negative items on your credit reports.
  • Amount owed (30%)—How much debt are you currently carrying?
  • Length of credit history (15%)—Are you a new borrower, or do you have a long track record?
  • New credit (10%)—How many accounts have you opened recently? Opening several in a short time creates more risk.
  • Credit mix (10%)—Do you have a variety of credit accounts? A good mix of different types of credit accounts is better for your score.

If you are repairing your credit, make your payment history an important priority. When you are late on payments to multiple credit accounts, each late payment will be counted separately and could majorly impact your credit score.

2.   The Average FICO Score Is 700

Your personal score can fall into five FICO scoring ranges:

  • 800-850: Exceptional
  • 740-799: Very Good
  • 670-739: Good
  • 580-669: Fair
  • 300-579: Poor

Most people have a score between 580 to 800. FICO scores do not go lower than 300, but some people do not have a FICO score at all because they have not established any credit. Only about 0.5% of people have achieved a perfect credit score of 850.

3.   Negative Items Can Stay on Your Credit Report for 7 Years

The Fair Credit Reporting Act (FCRA) sets a seven-year limit for most negative items to stay on your credit reports. Bankruptcy can impact your reports for up to ten years. Inquiries may remain on a credit report for up to two years. These are the maximum limits, but your creditors or the credit bureaus can choose to remove negative credit items earlier, if there is a reason to do so.

4.   Employers Cannot See Your FICO Score

A lot of people think that potential employers can look at your credit score during the hiring process. Some employers will ask to see your credit report, but it is a different version from the one you and your creditors use and is specifically to screen job candidates.

5.   You Have More Than One FICO Score

Each of the three credit bureaus uses its own version of the FICO score on its credit report. In addition, FICO has industry-specific scores, such as the FICO Auto Score for auto financing. And on top of that, there are several versions of each industry-specific score. So in all, you could have 28 different FICO scores!

If you have negative items on your credit reports, it can take time to improve your FICO score—but it is worth the investment of effort. For more information on how to improve your FICO Score and how to remove negative items from your credit reports, professional credit repair services can help. Contact Lexington Law today to discuss your FICO score and learn about your options.

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