March 3rd, 2010
Review: Prosper’s Talk About The Taboo Campaign
If people will divulge the ups and downs of their love life via Facebook and Tweet about their breakfast, Prosper’s Talk About The Taboo campaign hopes America will be as eager to open up and talk about what’s in their wallets.
Prosper, a peer-to-peer lending site, boldly goes where financial companies haven’t ventured before to bring taboo topics about personal finance into consumers’ everyday conversations.
January 27th, 2010
Dear Credit Karma – Credit Inquiries
Dear Credit Karma,
My son is co-signer on a loan for his car at my bank, yet he still shows no credit history available; why is this so?
Co-signing for a loan should show up as an entry on your son’s credit report, so double-check whether it has been accurately reported to the credit bureaus by looking at his Credit Report Card and also by requesting a free credit report at Annual Credit Report. A more robust credit history will help in earning a great credit score, so make sure your son is benefiting from having this loan on his record.
Once you are sure the loan is not accounted for in his credit report, contact your bank and alert them that your son’s co-signer status for the loan was not reported to the credit bureaus. Request to have this error rectified immediately. Follow up in two or three weeks by taking a look at your son’s credit report via his Credit Report Card or Annual Credit Report to make sure the loan has been added to his history—if the loan is in good standing, adding it to his credit history should also boost his credit score.
Dear Credit Karma,
If I apply to rent an apartment and did this on 5 different properties before deciding, how much will it lower my credit score assuming the apartment owners will do a credit inquiry per their advertisement of “on approved credit”?
The impact of these credit inquiries on your credit score will depend on how each apartment owner will generate the credit check. If they request a soft inquiry, as is the case with “pre-approved” credit cards, and other self-initiated credit report pulls like with Credit Karma, it will not affect your credit score. If they use a hard inquiry, it will lower your credit score by a few points and remain on your credit report for 2 years. But be leery that if you allow all five owners to do a hard inquiry, these inquiries will certainly add up in damage to your credit score.
Check out the graph of the distribution of credit score to number of credit inquiries from the Credit Karma community for a sense of how many hard inquiries can impact your credit score. In addition to hurting your score, multiple inquiries on your report may also affect your future loan, mortgage, or credit applications because lenders may view you as a high-risk borrower. There is a possible silver lining: if the apartment owners do conduct hard inquiries, some credit scoring models have been adjusted to count multiple hard inquiries within a 14-day period as a single inquiry.
Ask each landlord what type of credit check they will be doing. If they are planning to do a hard credit inquiry, suggest that you pull your own credit report, such as the one from Annual Credit Report, and take it with you to each apartment owner to minimize the number of hard inquiries on your report. If some apartment owners have already done hard inquiries on your report, you won’t be able to remove the negative impact. But take heart; the damage to your score will fade over time. In the future, be aware of what type of credit checks are being done on your credit report and avoid multiple inquiries in a short period of time; otherwise, happy apartment hunting!
Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!
January 18th, 2010
Review: Debt Consolidation Loans with Lending Club
Lending Club’s debt consolidation loans could be your best plan to reducing your debt. Nearly 60% of Lending Club borrowers using the site to consolidate debt or pay off their credit card. Lending Club uses a peer-to-peer lending model (P2P lending) to facilitate loans online between consumer lenders and consumer borrowers without the need of a traditional lender or bank.
What makes P2P-facilitated loans such an intriguing alternative to typical debt consolidation options? For a prime borrower, Lending Club offers lower interest rates than a bank, is more credible than debt consolidation companies, and more accessible than 0% APR balance transfer credit cards (which are getting harder and harder to acquire). Plus, if you participate in Lending Club’s DebtBuster Challenge promotion running until the end of January, you score a Lending Club care package with free merchandise.
Why It’s Worth It
The no-hassle online application enables you to find out quickly and for free what interest rate you qualify for. Their low, fixed interest rate is competitive in the market and starts at 7.89%. Lending Club’s standard, 3-year loan term keeps monthly payments manageable while maintaining a reasonably short loan life that won’t overwhelm you in long-term interest payments. Another plus is that the interest rate will never change throughout the term of your loan, unlike the variable rates of credit cards. There is no prepayment penalty if you pay off the loan sooner than 3 years, which some lenders will charge. Also, the automatic payment process deducst monthly from your checking account so staying on the road to debt reduction is a breeze.
The Catch
In order to secure a loan through Lending Club, good credit is a must. Given the nature of P2P lending, Lending Club has strict borrower qualifications to safeguard against default. Criteria for borrowers include a minimum FICO score of 660, a debt-to-income ratio below 25%, no recent delinquencies, bankruptcies, and charge-offs, no more than 10 inquiries on credit report in the last 6 months, at least 3 credit accounts of which 2 are open, and minimum 3 years credit history. Additionally, Lending Club sets borrowers’ interest rate based on their credit history, credit score, and loan amount; prime borrowers definitely have an edge in approval and better interest rate offers. Finally, there is a loan processing fee that ranges 1.25%-4.5%, depending on the borrower’s credit standing, which will be deducted from the loan amount.
Ditching That Debt Now
If you are in great credit standing and considering debt consolidation, Lending Club is worth looking into. Another alternative is Prosper, another P2P lending site with different borrower qualifications and uses a eBay-like bidding process to determine the loan’s interest rate. P2P loans as a debt reduction strategy has all the incentive you need, with Lending Club’s DebtBuster freebies and better interest rates, to get yourself on the path to debt freedom.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
January 6th, 2010
Debt Consolidation vs Debt Settlement: The Right Debt Relief Plan For You
If debt relief is one of your financial goals for 2010, debt consolidation and debt settlement are two important options to consider if you can no longer manage debt on your own. Understanding the differences between both options will help you determine what is appropriate for your debt situation. Most consumers have some kind of debt but not all choose to consolidate or settle their debt; it isn’t a magic ticket out of debt and there are downsides to both. But, if they fit your financial needs, debt relief plans can help to make your debt load lighter and easier to manage.
Why debt consolidation might be right for you
Debt consolidation uses a third-party agency to combine your multiple debts, like credit card bills or student loans, and convert them into a single, large loan. The most advantageous side to having only one loan is the convenience and affordability of handling one repayment plan rather than multiple bills. Think of it as a refinance for your debt—you can negotiate a lower interest rate to lower your monthly payment. However, you will be paying a longer term on a debt consolidation loan so the lower interest rate can add up.
As with any financial decision, calculate how much you’ll cut down in monthly payments with debt consolidation and whether it is worth the longer term and additional interest. Once the debt consolidation process gets underway, don’t forget to continue to make payments on your accounts until the loan takes over or your credit score will take a hit. Maintain on-time payments on your new loan and the positive payment history and reduced debt can improve your credit score.
If this sounds like the right debt relief path for you, review several agencies’ qualification requirements, which can include a minimum credit score, minimum monthly income, steady employment, and sometimes home ownership (debt consolidation often comes in the form of a home equity loan).
Why debt settlement might be right for you
In debt settlement, a third party firm negotiates directly with creditors on your behalf to reduce the total amount of debt owed, sometimes as much as 50-70%. Debt settlement deals with one debt (whereas debt consolidation has multiple debts), and once the creditor agrees on an amount, you must pay that amount within a few days. The most crucial factor in this plan is ensuring you have the funds prepared to pay the entire debt settlement amount immediately.
While a lower credit card debt sounds good, it comes at the cost of your credit score. When you agree to settle a debt, it damages your credit score anywhere from 45 to 125 points depending on your credit standing. Your debt will be wiped immediately, but your credit score will suffer in the long run.
Also, this process isn’t for everyone and several factors affect whether or not a creditor will agree to settle your debt. Debt settlement firms typically only work with those with evident financial hardship, such as people owing more than $7,500 in debt; creditors will not want to settle a debt with someone who could afford to pay the original debt in full. Creditors will also take a look at your account history to assess whether you knowingly ran up a huge balance you couldn’t repay.
The right fit
As you decide what’s right for you, consider which long-term and short-term consequences you are ultimately prepared to deal with? Debt consolidation simplifies repayment with minimum effect on your credit, but you’ll face a longer loan term and ultimately pay more in interest over the life of your loan for the trade-off of having smaller monthly payments now. With debt settlement, you can reduce and pay off your total debt right away, but at the cost of damaging your credit score for the next few years. Once you choose your plan of action, seek out professional debt consolidation agencies or debt settlement firms and compare their offers. Now breathe easier—you are on the way to shedding debt and improving your financial health.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
January 5th, 2010
Dear Credit Karma – All About Auto Loans
Dear Credit Karma,
I was recently divorced and my ex-husband has an auto loan and my name is still on the debt, how do I go about that debt NOT affecting my credit score anymore?
The only way to remove yourself as a co-signer on this loan is for your husband to refinance the car under his name alone. This new loan will replace the old loan and you will no longer be liable as a co-signer. But in the meantime, any actions– including default or missed payments– taken on the account by you or your ex-husband will damage both of your credit scores. The debt will remain on your credit report as long as you are a co-signer, so have him refinance the loan as soon as possible to protect your credit score.
Dear Credit Karma,
My husband and I share a car – I really need to get my own, but we filed for bankruptcy a year and a half ago. I have poor credit because of that (and struggle with making payments on time). How likely am I to get an auto loan?
While bankruptcy is a tough financial pitfall to recover from, take heart: it won’t haunt your credit forever, and you can get an auto loan, but at a steep cost. If you are set on buying a car now, you will likely resort to a subprime or high risk lender, who cater to borrowers with poor credit, who will likely approve your loan. The real question is not “how likely are you to get an auto loan?”, but “can afford the exorbitantly high interest rate those types of lenders typically charge?”. Check out difference in payments between a poor credit and good credit borrower for a $25,000 loan on a 48-month payment plan:
|
Credit Score
|
Interest Rate
|
Monthly Payment
|
|
|
Poor Credit Borrower
|
620-659
|
13.2%
|
$673.17
|
|
Good Credit Borrower
|
720-850
|
5.7%
|
$583.69
|
*interest rates from Five Cent Nickel
That’s a difference of about $89 a month, which adds up to $4,295 difference in payments over the life of the loan. To see what kind of interest rate you’ll be offered and if you can afford it, look up your credit score and compare it to Five Cent Nickel’s auto loan interest rates.
The lesson here is that while you might need the car right now, the extra cost in interest rates over time may be reason enough to hold off on purchasing a car until you have better credit. Tacking an extra car loan payment may worsen your credit and overwhelm you with debt, especially if you are already struggling to make payments on time. Consider alternatives like carpooling, public transportation, or a system of sharing the car with your husband. In the meantime, take the next few months to improve your credit score with healthy credit habits like making on-time payments, using a secured card, and using the money you would have used on a new car to pay off existing debts. Within a year or so, you will have a higher credit score and be able to receive better financing options from lenders.
Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!
December 14th, 2009
Monday Jumpstart to Personal Finance & Credit Report News
Personal finance management might be number one for the nation’s 2010 New Year’s resolutions. AP reports that credit card delinquencies are falling and more on-time payments are expected next year, which spells healthier credit reports and credit scores for consumers. The first, simple step to improving your own personal finance habits starts is keeping up to date on personal finance and credit report news and advice.
Personal Finance News
- 20 Something Finance’s blog, The worst twenty something personal finance blunders, includes some great financial advice for more than just the 21-year-old crowd!
- To tip or not to tip, that is the holiday question. Get Rich Slowly has a frugal answer in a brief guide to holiday tipping.
- Wondering how much allowance you should give the kids? Chicago Tribune discusses how to start your children’s personal finance know-how early.
- Another Get Rich Slowly post, You can negotiate anything, is great for personal finance… and pretty much everything else in life.
- Easiest way to save on shopping? Get organized! Moolanomy Personal Finance shares The Essential Toolkit to shopping organization.
Credit Report & Credit Scores News
- Doughroller shares 8 secret credit scores creditors use to monitor you.
- Did you know that your credit score can affect your car insurance rates? The Des Moines Register reports.
- Loans are tightening along with credit score standards; read more on how home buyers need good credit score even with 20% down payment, USA Today reports.
- Financial Highway debunks 7 credit score myths.
- #5 way to ruin your credit, fast: never check your credit report to see where you stand. Check out more negative credit actions to avoid on Rich Credit Debt Loan.
December 9th, 2009
Dear Credit Karma – Student Loan Consolidation
Dear Credit Karma,
I just graduated from college and I have a lot of student loans to pay off. Is a student loan consolidation a good option for me? What should I look for when choosing the right fit for me?
Student loan consolidation is a “right fit” for your financial life if, with all costs and calculations considered, it is worth it to extend the life and overall cost of your loan in order to save on your monthly payments now.
The biggest benefits of loan consolidation are reduced monthly payments, the convenience of paying one check a month and managing one repayment plan, and the opportunity to lock in lower interest rates than your original loan. But it comes at the cost of spreading out your loan over a longer repayment period, so the added interest on extended payments will add up to a higher overall cost for your college education.
For new graduates like yourself, the benefit of paying less a month, especially if you might not have stable employment or be able to afford paying your current monthly student debt, paying less monthly for loans could make consolidation worthwhile.
To determine if its the right fit for you, calculate the overall cost you will expect to pay if you consolidate your multiple loans, and consider if the money you save in monthly payments is worth the longer payment plan. For example, lets say loans A, B, and C cost you $212.00 monthly for a 10 year repayment plan. You decide to consolidate your loans to a single 15 year repayment plan with a reduced monthly payment of $166.00 monthly. You will spare the extra $46 a month, but you are also paying for loans 5 extra years and could end up paying, lets say, $5,000 more in interest over the life of your loan.
Also, consider the interest rate your lender offers you. If your current loans have variable interest rates and you want to refinance to lock in a low fixed rate now, then consolidation might be a good idea that could end up saving you more money. While federal student loan consolidation does not require a credit score check, lenders for private student loan consolidations do run a hard credit inquiry. So if you are consolidating private student loans and have poor credit, your lender may only offer high interest rates that could end up costing you thousands in the long run; is it worth it to refinance to a much greater overall loan cost for a monthly savings of $25-$50?
If you only have a few more years to pay off or only owe a couple thousand dollars to pay off your loan, then consolidation may be more hassle than its worth if your current payment plan is manageable for you. It comes down to whether you are willing to pay more in the long-run in order to have extra money now to furnish your new apartment or buy your first car.
Check out more resources available online, such as Bankrate’s FAQs on student loan consolidation, to educate yourself more about student loan consolidation before making a decision.
Submit a question now, and maybe Credit Karma will answer your question on our next Q & A blog post!
November 12th, 2009
Credit Card Debt Jumps Up In October
The average credit card debt across the U.S jumped a near $1,000 in the month of October, according to Credit Karma. A $1,000 debt increase in a single month for every American with a credit card is a scary number, especially when credit is still tight, jobs are scarce, and with Christmas shopping madness just around the corner.
Credit card debt is not a new problem — consumers have always had to navigate the perils of owning a credit card, from the hiked-up fees, the hits to their credit score, and the temptation to overspend on credit. The sudden increase from September to October could be a tell-tale sign of deepening consumer debts going into the holiday spending season, which means consumers need to tighten up credit usage or pay down debt if we hope to survive financially going into the new year.
Some spenders have the right idea to sidestep credit card usage altogether. A recent Credit Karma poll shows that 79% of CK users plan to use cash to pay expenses for the holidays, versus 18% who will be charging it all on credit cards (2% will pay with pre-paid card, 1% are spending gift cards). Interestingly enough, the users who plan to charge on credit cards have an average credit score of 740, while the majority cash spenders had an average score of 654. Even if you have a high credit score now, be weary about overspending these next few weeks if you opt to charge credit this season. But if you don’t want to dig deeper into debt and want to protect your credit score as you shop this season, tuck your credit card to the back drawer and consider these two old-school shopping tricks that are making a comeback:
- Layaway – Layaway programs have gone out of style since credit cards took over as the norm, but they are being offered again from the usual places like Sears and Kmart to new layaway offer from Toys R Us and online at eLayaway.com. Layaway programs allows you to put the item you want on hold, pay a fee plus a deposit of 10-20% of purchase price, and then make regular payments over a period of time until you finish paying it off and take the item home. This old-school shopping tactic appeals to people who don’t want to take to tack on more to their credit card balance and risk debt, but still want to buy something they can’t pay in full right away. Just be careful of cancellation fees and read and understand the terms of the layaway plan, and watch out for any price drops because you aren’t usually guaranteed any sales that happen after you put something on layaway.
- Re-gifting – is it really a question of ethic in the shopping world? More along the lines of socially acceptable or not, then you can talk about its financial benefits. It’s a taboo in the shopping world—to regift or not to regift? In an ideal world, it’s a perfect option: it is no cost to your credit card, your unwanted gift doesn’t go to waste, and it’s a sustainable form of shopping without the price of debt. You can decide whether or not its socially acceptable, but there is no doubt that it has many financial benefits. If you’re thinking about recycling some presents from last year, follow these pointers to avoid a re-gifting faux pas: the item should not be used and look new and in proper giving condition; you didn’t like it, so make sure you that you are re-gifting to the right person and they will like it; wrap it up presentably; make sure you don’t give the gift back to the original giver; and most importantly, make sure you can get away with it.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
October 12th, 2009
7 Ways To Get Rich Slowly
Becoming a millionaire seems like an impossibility since the past decade’s get-rich bubbles in real estate, dotcoms, and stocks have burst and left most Americans worried about earning a regular salary, let alone millions.
Becoming rich won’t happen overnight, but it can happen over time. It takes good, consistent habits and before you know it, you’ll be a lot closer to millionaire status than you were before reading these 7 tips:
- Finally get rid of your debt! Your credit card debt is a black hole of interest and never-ending, unpaid debt for all your hard-earned savings. The average American carries a $6,000 balance on their credit card and a typical credit card APR is 14.9%, so if you paid the minimum payment of $100 a month, it would take little over 9 years to pay off your balance. On top of that, you will have racked up $5,074 in interest charges! Start focusing your current cash flow on paying off your debt now so you can avoid potentially paying double your original debt in interest charges in the long run.
- The old piggy-bank method, reinvented – Let’s take out the calculator again, but let’s focus on saving rather than debt reduction. If you saved $500 a month and put it in a savings account like Ally Bank’s high-yield 1.75% APY online savings account, in 10 years you will have $60,553.84 saved up! If you keep this up for the next 45 years, you’ll be sitting on a $270,000+ nest egg when you retire. Or you can opt for a CD with an even higher interest rate, like Discover’s 3 year CD with 2.75% APY, which will yield a whopping $430 in interest with an initial deposit of $5,000 by the end of the CD’s term.
- Trade your credit card for a debit card, secured card, or cash – There is nothing evil about a credit card, as long as you know how to use it responsibly. For consumers overspending on credit or paying late or not at all, sticking to credit card alternatives like a debit card, secured card, and cash is the best way to avoid the debt and interest charges and keep up a healthy credit report. And seeing your spending directly shrinking your bank account might make you think twice about your purchases.
- Shop around for loans – Not all loans are alike, and with a little bit of research and comparing, you can save a substantial amount of money by looking for a loan with the best terms and rates that fit your needs. If you are a student, use SimpleTuition to do all the loan searching and work for you. For any other type of loan—from opening up your first restaurant to paying off your car—check out Prosper and Lending Club for a person-to-person lending platform that has reduced rates for lenders (as opposed to going to a bank) and are perfect for short-term and smaller loans.
- Invest! – On that note, you can also invest in the P2P platform of Prosper and Lending Club to get a high rate of return, ranging from 8-20%, while also helping out fellow consumers.
- Cut a little, save a lot – Start making coffee at home and deposit the $4 you would’ve spent every weekday morning in a savings account, and within a year you will be $1,008 closer to becoming a millionaire. If you usually eat out for dinner and opt to go out 2 times a week and cook the other 3, that adds another $3120 a year to your savings. If you want to take this saving thing seriously and cut out your annual Tahoe ski trip and New Year’s Las Vegas trip, your “staycation” could save you another $3,500+ or more. With these three suggestions, you could savea possible $7,628 to deposit to your piggybank.
- Sell on eBay! – Think you have nothing to sell, it’s too complicated, or it takes too much time? Millions of people buy and sell on eBay and millions of dollars are exchanged because it can be profitable and effective if you do it right. Check out this blog, “Sell it Now—how to make hundreds of dollars in 37 minutes,” and see how to make your mint-condition Beanie Babies collection can help make you a millionaire.
Start Today
Getting rich slowly may not be your ideal way to hit seven figures, but it’s certainly the most practical and realistic. Building your personal wealth is hinged on simple ideals of saving more, spending less, dealing with debt, and being financially responsible over a longer period of time.
October 1st, 2009
Buying Your First New Car
You’ve been dreaming about it for years and you finally have the funds to make it come true—buying your first brand new car. But it’s going to take a couple steps of financial planning before you retire your old clunker from college and sit in the driver’s seat of your perfect car. Use this easy guide to the car-buying process so you know how to prepare, what to expect, and best of all, know how to get a fair deal on the car of your dreams.
First stop, the Internet: The more information you can gather before you get to the dealer, the more informed you’ll be when you purchase your fancy new car. Focus on educating yourself in three areas: how much you can afford, what vehicle you want with which options, and what a fair price range would be.
How much you can afford will depend on what car and what kind of loan you can get. Since you can’t estimate what kind of APR a lender will offer based on your credit score, you can at least check out car loan APR trends to help you discern what a reasonable rate would be. Also, calculate the monthly loan payments that is within your budget so you know what you are comfortable paying month-to-month.
Research online what kind of car options are available to you so you know what to look for when you get to the dealer and can expect how much it will cost. Go to TrueCar and select the make and model of your car and check off the options you want, down to the color and tinted windows. TrueCar will provide local data on the average price consumers are actually paying for your exact car, so you know the reasonable and accurate price to negotiate with once you get into the gauntlet with the dealer.
Second stop, the car dealership: You’ve got all the information you need, and now it’s time to go to the dealership and drive off with your car. The typical car-buying process goes like this: you’ll take the car you want on a test drive to be sure it’s what you want, put your TrueCar price report to work haggling with the salesman over what you think is a fair deal, the dealer will run your credit report and use your credit score to determine what financing options are available to you, you’ll haggle more over pricing, and then the final blow—you either sign the paperwork and drive away, or you walk away. Be warned, the dealer will still try and sell you warranty packages and car accessories right up until you drive off the lot.
Third stop, the comfort of your driveway: Congratulations! Not only have you navigated the chaotic process of buying a new car, but you made it home safely in your dream car. Now it’s all about maintenance and proper upkeep. Don’t forget to get car insurance on your vehicle right away, change the oil every 3000 miles, get a car wash every now and then, and pay your loan payments on-time, and you’ll avoid any speed bumps along the ever-winding road of car-owning freedom.
