Lalit Aggarwal | ApproveNow

How To Keep Your Credit Healthy After Retirement

It is important to keep your credit score healthy, even if you are retired.

You might not be planning on applying for any loans, but your credit score still matters. At the very least, your existing creditors will still periodically check your FICO score after you’ve retired.

Thankfully, the steps for maintaining healthy credit are basically the same whether you are working or retired. If you’ve managed to keep your credit scores above the subpar mark while you were working, chances are you will be able to keep them healthy through retirement.

How Retiring Affects Credit Scores

Your retirement should not affect your credit scores. You are not even required to let any existing creditors know that you are no longer part of the workforce.

Credit scores are only affected by how you manage your finances, which includes making monthly loan payments on time.

Retirees will also be happy to know that while their personal age won’t affect their credit scores, the age of their credit accounts will. For most retirees, this means higher credit scores reflected by their older accounts.

It is estimated that 68 percent of consumers over the age of 60 boast a FICO score above 700, compared to only 30 percent of consumers ages 18 to 29.

This means that most retirees don’t need to worry about repairing their credit score, only on how to keep it healthy.

6 Tips to Keep Your Credit Score Healthy

Credit scores are calculated the same, whether you are retired or still working.

It is always important to know your current credit score, if for no other reason than to look for signs of identity theft.

You should also know what is included in your credit score. Not only will this make it easier for you to see what areas need improvement, but also spot any errors. An error on any one of your three credit reports can significantly affect your FICO score.

Your credit score is comprised of the following,

35 percent – payment history
30 percent – credit utilization rate
15 percent – age of credit accounts
10 percent – addition of new lines of credit
10 percent – mix of credit accounts

Now that you know what is included in your FICO score, it’ll be easier for you to keep it healthy.

Know your current credit score.

Your credit score will fluctuate, and this means that it is important for you to check it periodically. If you don’t know what your credit score is, you won’t be able to repair it if there are any problems. You are legally entitled to one free copy of your credit score from each of the three credit reporting agencies.

Experian
TransUnion
Credit Karma

Since your score can vary slightly from each of the reporting credit agencies, it is important that you request a copy from all three.

Check for errors.

Mistakes in any of your credit reports can occur. This can be anything from incorrect credit limits to payments that were misapplied.

Mistakes can even occur with social security numbers, and this could combine your credit with someone else.

Any errors can cause an unhealthy drop in your FICO score. Disputing any proven mistakes will result in the black mark being removed from your credit score, and this can cause a sudden increase.

Don’t stop using credit.

One of the most common mistakes retirees make, is to stop using credit. You need to use credit if you want to keep your scores healthy, but you also want to be careful. If your credit utilization rate is too high, it can have a negative impact on your FICO score. Simply continue to make all monthly payments on time, and keep credit card balances low.

Minimal credit card balances are key.

Most financial experts recommend keeping credit utilization rates below 20 percent. This generally indicates that you can manage your finances. If your credit usage exceeds 35 percent your FICO score will drop. Paying your balances down each month, and on time will help keep your credit healthy after retirement.

Keep credit accounts open.

A simple way to keep your credit score healthy is to keep old accounts opened.

If you must close some credit accounts, always choose the newest ones.

Part of your overall FICO score is determined by the age of your credit accounts, and closing the oldest ones can cause it to drop. Cancelling the newer charge accounts will also help lower your credit utilization rate.

Avoid multiple credit checks.

You are allowed to check your credit score from the 3 reporting bureaus once every twelve months, without any negative effectives. However, hard checks by potential lenders can cause your credit score to drop a few points. If you want your credit to stay healthy, it is best to limit the number of times you apply for financing in each year.

Enjoy Retirement with Healthy Credit

If you pay attention to your credit scores after retirement, you can avoid many of the problems that can cause it to drop to unhealthy rates.

Even if you don’t plan on applying for financing in your golden years, your FICO score still matters.

It not only affects interest rates and auto loan approval chances, but also insurance premiums. For most retirees, the cost of their insurance is reason enough for them to watch their credit scores.

It doesn’t take a lot of time and effort to keep your credit healthy, and it is worth it when it allows you to relax and enjoy your retirement.

How To Repair Your Credit After Identity Theft

Most people think that identity theft will never happen to them, but this white collar crime is on the rise.

Unfortunately, this means that more people are discovering how devastating identity theft can be to their credit scores.

If you have been the victim of identity fraud there are steps you can take to repair your credit report. It will take some time and a little work, but it will be worth it when you have restored your credit score.

Monitor Your Credit Reports

One of the most important things you can do to protect your good credit rating is to closely monitor your score.

If you don’t know what your FICO score is or what is in your credit report, you probably won’t know that you’re a victim of identity theft until you apply for a loan.

You are entitled to one free copy of your credit report from the three credit reporting agencies every 12 months. It is crucial that you monitor these reports if you want to protect your credit, and prevent identity fraud.

The instant that you notice anything that might indicate someone else is using your identity, start keeping records. This includes,

Copies of all your credit reports
Printed copies of letters, faxes and emails
Records of all phone calls

Basically, you will want to have records of everything pertaining to the potential problem.

If identity theft is suspected the next step is to contact either Equifax, TransUnion or Experian to have a “fraud alert” placed on your report. Once the alert is placed with one credit reporting agency, it will automatically be transferred to the other two. The fraud alert will stay on your credit report for 90 days, giving you time to resolve the problem.

A fraud alert not only notifies creditors that your identity must be verified before credit is issued, it also supplies you with a free credit report from the three reporting agencies.

It is important that you check each of your credit reports for any errors or other signs of suspicious activity.

Quick and Easy Credit Fixes

Getting your credit back after identity theft will take time. There are a few things you can do to make the process go more smoothly. If your credit accounts have been comprised, you will want to close them immediately. Most credit card companies and other lenders won’t hold you financially responsible for the fraudulent chargers if the suspicious account activity is reported in a timely manner.

If a fraudulent account has been opened in your name, close it. The charges will still need to be disputed, but this will stop the identity theft from continuing.

Get an Identity Theft Report

After notifying the credit reporting agencies and closing affected accounts, you will want to create an identity theft report. The information in the report will be used to verify your claims of fraudulent activity so your credit can be restored.

You will want to file an identity theft report with the Federal Trade Commission. This can be done over the phone or online at identitytheft.gov. It is also important that you keep several copies of the affidavit for your records. Even though, the FTC seldom investigates identity fraud cases most credit card companies do expect to receive a copy of the official report.
A police report should also be filed. You will need to bring proof of identity, any documents pertaining to the theft and a copy of the FTC affidavit. The police report should contain as much information as possible, and you will also want a copy for your records. If there are any problems filing out the police report, the FTC has released a memo for law enforcement agencies that can be referred to.

How to Dispute Fraudulent Charges

Now that you have an identity theft report supporting your claims, it is time to dispute the fraudulent charges.

You will want to send identical letters to the three credit reporting agencies disputing the fraudulent accounts and charges.

Even though the three credit bureaus automatically share this information with each other, you might be able to speed up the repair process if they each receive a letter.

Once your letter has been received, the credit reporting agency has 30 days to respond to your dispute.

You will also want to include,

Copy of your identity theft report
Credit report with the disputed charges highlighted
List of the erroneous charges

If you’re not sure what format to use for the letter, there is a helpful example on the FTC website.

The letter must be sent certified mail, and it is recommended that you request a return receipt for your records. You can also ask to have the disputed information blocked from your credit report, if your claims of identity theft can be clearly substantiated. This way your credit report should be accurate, even before the errors are officially removed.

Notify Existing Creditors

Any financial institution that you have an auto loan, mortgage or credit card with also needs to be notified of the identity theft. You will want to send your existing creditors the same information that was supplied to the credit reporting agencies.

Even though the credit reporting agencies will notify anyone that you hold accounts with, sending letters yourself can speed of the process of having the errors permanently removed from your financial history.

Consider a Security Freeze

Sometimes a security freeze is the best way to protect your credit while your identity theft problem is being resolved. It will effectively block anyone from applying for a new line of credit or loan using your information. This also means that you won’t be able to open any new accounts either, which is why a security freeze is not always the right option for everyone.

If added protection is your main goal, you can also place an extended fraud alert on your accounts.

It works the same way as an initial fraud alert, only it is extended for seven years. Before you choose either option, you will need to have a copy of your identity theft report.

Don’t Forget to “Follow Up”

It is important to check with the credit reporting agencies and every lender you hold accounts with that they,

Have received your letters of dispute
Removed incorrect information from your credit report

Most financial experts recommend starting your “follow ups” 30 days after mailing the letters, and continuing to check on the progress of your dispute. Not only does this show that you are dedicated to repairing your credit report, it also helps to ensure that all information is correct.

Sometimes the disputed information isn’t removed from a credit report, even after multiple attempts. If this happens you have two courses of action.

Contact the Consumer Financial Protection Bureau (CFPB) and ask them to open an investigation.
The National Association of Consumer Advocates (NACA) can also be contacted to request legal action being taken to remove the fraudulent charges from your credit history.

Keep Looking for Signs of Identity Theft

Even after you have reported the identity theft and have begun the process of having the fraudulent information removed from your credit report, you might still be at risk. This is why it is important to continue to look for signs that someone might still be opening accounts in your name. Some of the warning signs that you want to watch for include,

Mail missing
Checks that bounce
Credit/debit cards declined
Bank statement shows unexpected withdrawals
Loan application denied due to a bad credit score
More than one tax return reported by the IRS filed with your social security number
Credit report shows unfamiliar charges or accounts
Bills arrive for unreceived medical treatments
Creditors trying to collect on debts not incurred by you

There’s Hope After Identity Theft

Just because you’ve been the victim of identity theft, it doesn’t have to mean that your credit is ruined for years.

There is hope and your good credit score can be restored, often in only a few months.

It will take some time to get the misinformation removed from your report, along with some work. However, when your good credit score helps you get approved for a low interest auto loan you’ll be glad that you took the time to dispute the fraudulent claims.

Start Rebuilding Your Credit With Secured Credit Cards

If you are trying to repair your bad credit rating but finding it difficult, you are not alone.

Millions of Americans are finding that their poor FICO score is preventing them from getting approved for new lines of credit. It’s a catch-22 that many adults find themselves trapped in.

You need a good credit history to be approved for an auto loan, mortgage or even a charge card. If your credit history is poor, your chances of approval are significantly lower. Since you can’t get new credit, you won’t be able to repair your credit score.

There is still hope if you are trying to rebuild your credit score, you can apply for a secured credit card.

Rebuild Your Credit with Secured Credit Cards

A common question asked by consumers looking to rebuild credit is if secured credit cards can help, and the answer is often “yes”. Though this doesn’t necessarily mean that it is the right approach for everyone. There are benefits and disadvantages to repairing your credit with a secured charge card that you should be aware of.

How Secured Credit Cards Can Rebuild Your Credit

Secured credit cards can be used anywhere traditional charge accounts are accepted. You still have a line of revolving credit that is paid back to the lender every month. The main difference is your credit limit is determined by the amount of your secured deposit.

If you deposited $500 in the account linked to the card, your credit limit would be the same. Secured credit cards typically offer limits that range from $500 up to $5000, depending on the type and issuer.

This has the advantage of giving you several options to choose from, depending on your unique financial situation.

Every time you use a secured credit card and make a monthly payment, the information is generally sent to the three recognized credit reporting agencies. Over time, this can help boost your credit score so you can eventually get approval for an unsecured loan.

A secured credit card can also help you keep your credit usage to debt ratio in the optimal range, and this will positively affect your FICO score.

Drawbacks of Using a Secured Credit Card

While a secured credit card can help some consumers rebuild their credit, it might not be the best choice financially for everyone. There are some drawbacks to using secured credit cards.

A cash deposit is required and the amount will determine the credit limit on the card.
Some secured credit cards do not report monthly payments to all 3 bureaus. This can lengthen the amount of time it takes to repair your credit score.
Interest will be applied to any monthly balances not paid in full, and this will affect the card’s credit limit.
If you accidently go over your secured line of credit, the penalties can be expensive. This will also have a negative impact on your credit score.
Some secured credit cards begin charging interest immediately after the purchase is made, instead of waiting the traditional grace period.
There are not any customer rewards programs linked to secured credit cards.

How Long Will It Take Before Credit Scores Improve?

You won’t see your FICO score instantly improve, but over time a secured credit card can give it a boost. It will help you build a strong credit history, and this in turn will improve your score.

There are a few steps you can also take to ensure that you are getting all the bonuses that should come with using a secured credit card. This includes,

Make monthly credit card payments on time. This is one of the most important steps you can take, since it also comprises a substantial portion of your credit score. You also don’t want to be stuck with the high interest rates that are typically applied when the monthly credit card payment is overdue.
Do not purchase items on the secured credit card that you won’t be able to easily pay off. This can indicate to potential lenders that you are a high-risk applicant when you apply for an unsecured loan or new line of credit.
Even if you can make the monthly payments, you don’t want to “max out” the credit card. This will negatively affect your credit usage rate, which makes up 30 percent of your FICO score. Your goal is to show that you can use credit responsibly, and this includes staying below the card’s limit.

If you show that you can use credit and repay it on time, you should start seeing a steady improvement in your score after a few months. Most lenders will also approve you for an upgrade to an unsecured credit card, typically after a year. This can cause your credit score to jump a few more points.

The Final Word

If you are trying to rebuild your credit, it can be difficult. You need credit to get credit, and when you have a subpar FICO score your options are often limited.

A secured credit card might be what you need to boost your score, but it is also important to make sure that it is the right one for you. The card issuer should report to all 3 credit agencies, and allow for a grace period after a charge has been made. You also want to compare interest rates, to ensure you are getting the best credit card for your money.

If you make the payments on time and use your line of credit wisely, a secured card could be a good way to get your FICO score above the subpar range.

Can Credit Builder Loans Help Poor FICO Scores?

Just like its name implies, a credit builder loan can help you boost a low FICO score. It is a small loan and the terms will vary depending on the financial institution. It also doesn’t require a good credit score for approval.

If you have no or bad credit, this type of loan could help you raise your score.

You might be wondering why you haven’t heard of a credit builder loan before. This is due to the fact it is rarely advertised, and typically only offered at community banks and credit unions.

Types of Credit Builder Loans

There are different types of credit builder loans and each can come with additional financial benefits. If you apply for an unsecured credit builder loan, the money is provided upfront. This is a good option if you need cash for an emergency expense.

A loan secured by funds will help you learn how to save money. The amount of the loan is held, until you have paid it off. If you only want to improve your credit portfolio, and don’t need money immediately, this can help you become more financially responsible.

You can also apply for a secured loan, and if you need to quickly raise your FICO score it might be a financially sound option. You will need to have the amount you are borrowing in your account, where it will be frozen until you have repaid the loan in its entirety.

How Credit Builder Loans Work

Credit-building loans typically range from $100 to $1500, rarely any higher since one of the terms is usually that it needs to be repaid in 12 months or less.

Most financial institutions also require that the applicant is financially stable. Common requirements include,

Member of the institution
Proof of employment
In good standing with the bank

If you meet all the requirements you’re chances of approval are good, regardless of your credit score.

While this might seem like the best solution if you need emergency cash or want to build a strong credit portfolio, this type of loan comes with risks and disadvantages.

One of the main disadvantages is the typically high interest rate that can make it difficult for some borrowers to make their payments on time. For example, if you have a bad or no credit score your interest rate could be 18.99 percent or higher.

Fico Scores and Credit Building Loans

According to one of the directors at Credit Builders Alliance, Sarah Chenven, the majority of consumers that apply for one of these loans are working towards a larger financial goal.

A study conducted in 2013, found that credit scores could improve up to 35 points in 6 months by paying off a small credit building loan. This can make it easier for you to get approval for an auto loan, mortgage or even an unsecured credit card.

Though, it is important to remember that the increase is also dependent on other factors.

If you have missed or late payments from other accounts the boost to your credit score will be lower, usually around 20 to 25 points. This can still be enough to raise a poor FICO score to “fair”.

Get The “Most” Out of a Credit Builder Loan

If you believe that a credit-building loan is financially right for you, there are a few steps you can take to ensure that you get all the possible advantages.

Are you financially ready? If you’re having problems paying your existing bills on time, you will want to wait to apply for a credit-building loan. It will cause more damage to your credit score if you can’t make the payments, and any money that you have in your accounts could be forfeit.
Shop around. There are different types of loans with varying terms and benefits. Along with checking with your local credit union, see what other financial institutions are offering. Some credit builder loans are designed for specific borrowers, and one of these might fit your unique financial situation.
Understand the terms. This is important. If you don’t understand all the loan requirements, it can cause problems later on. Don’t be afraid to ask the lender any questions. This can include,

Collateral, if applicable
Interest rate
Payment due date

You also want to ask when the payments are reported to each of the three credit reporting bureaus.

Never make a late payment. Any late payments will be reported to the credit agencies, and this will hurt your FICO score. It can also be difficult to get back on track, especially if the high interest rates are piling up.
Don’t double up payments. It can be tempting to shorten the length of the loan by paying it off faster. While it can be less stressful, it won’t help your credit score. You need every payment to count, if you want your FICO score to increase. The purpose of this type of loan is to build your credit and that takes time.

Building Good Credit Takes Time

While you can ruin your credit in a relatively short amount of time, it takes longer to rebuild it and this type of loan can give it a little push up.

There are options other than a credit building loan, but if you need a minimal amount of emergency cash or want to quickly boost your score it could be a viable option.

Just remember to “shop around” and understand the loan terms. It is also important to make every payment on time, even if the funds are being held in your account. If you follow every guideline, you should see your credit portfolio improve during the life of the loan.

How Long Should A Bad Credit Auto Loan Be?

Most consumers already have a good idea of what they can afford to spend each month on auto loan payments. This amount will also determine the length of the car loan.

While extending the length of an auto loan could make it easier for you to afford the monthly payments, it might not be the best financial decision regardless of your credit score.

What Should the Length Be of an Auto Loan?

Most auto industry experts agree that the length of a car loan should be for 60 months or less.

Unfortunately, if you have bad credit this might not be feasible. The monthly payments might be more than you can comfortably afford. Your subpar credit score also means that you will probably have to come up with a sizeable down payment.

According to data compiled by Edmunds, over 60 percent of the approved auto loans in 2014 were longer than the recommended 5 years. Even though more Americans are accepting the terms of a lengthy car loan, the majority are still not considering the potential risks.

Risks of a Long Bad Credit Auto Loan

If you have bad credit and are approved for an auto loan, it will probably come with high interest rates. This means higher monthly payments on traditional 60 month auto loans. Having a sizeable down payment can help lower monthly payments, but many consumers with bad credit do not have the extra cash.

This is when you might start to consider a 72 month or longer bad credit car loan. Since the payments are stretched out over 6 years or more, you will pay less each month. This still applies even if you are approved for a car loan with no down payment. For many consumers this can seem like a financially attractive option, but a lengthy bad credit auto loan also comes with several risks.

You will pay more in interest.

Longer vehicle loans might seem like a good decision if you have bad credit, and are worried about high monthly payments.

While it is true you’ll pay less each month, overall you will be paying more.

In 2014 interest rates on a 60-month car loan averaged around 2.41 percent, compared to an estimated 5.9 percent on one lasting 72 months. If you have subpar credit the interest rates will probably be significantly higher.

It is not uncommon for consumers to learn that they are paying three times the interest or more on an auto loan with longer terms. This means that overall, they are paying more for the vehicle than someone with a short-term auto loan.

The vehicle will lose equity.

Automobiles typically depreciate around 22 percent in the first year, and this usually means that you will be “upside down” on the auto loan before you even sign the agreement. How long it takes to get “right side up” will depend on the size of the down payment.

If you have poor credit and can only afford a minimal down payment, it will be harder for you to build up equity in the vehicle.

Without equity in the vehicle you won’t be able to sell it for a profit if you suddenly find that you need emergency cash. Potential car buyers will only pay the Kelley Blue Book value or less, leaving you responsible for the remainder still owed on the loan. The lack of equity can also be a problem if the vehicle is totaled in an accident. Insurance companies will only pay what the automobile is worth, not the amount owed on the car loan.

Car “fatigue” can be a problem.

On average, car buyers are usually ready to trade their vehicles in after 6 years. The fascination with the new car has worn off, and they are ready to see what the latest models have to offer.

With a standard 60-month car loan this usually won’t be a problem, since the potential buyer has built up some equity in their current vehicle. They can usually use it as part or all their down payment towards their next new car. This can help make their next vehicle a little more affordable.

You do want to avoid rolling the balance of one auto loan onto another, though this probably won’t be an option if you have bad credit. Not only will this extend the terms of the loan even longer, you will also be paying more in interest rates. It will also have a negative effect on your credit score that will be difficult to repair.

The resale value will drop.

A vehicle’s age is one of the main factors in determining its resale value. Ideally, you want the vehicle to be worth more than the loan when it is finally paid off. If you owe more than the vehicle’s worth, it’s referred to as an “upside auto loan”.

Most vehicles will lose over 50 percent of their “new car” value after 5 years.

This is one of the main reasons financial experts recommend avoiding long term auto loans. If you are stuck in a 6 or 7 year bad credit auto loan, by the time you are ready to trade it in you will only receive a fraction of what you paid to apply towards a new vehicle.

Vehicles over five years are often not approved for dealerships’ Certified Pre-Owned Process (CPO), and this can further decrease their trade-in value. There is also the risk of the dealership refusing the vehicle completely due to its age. This could limit your options to a Buy Here Pay Here lot that accepts older model vehicles as trade-ins.

You Have Other Options

If you need a vehicle but can’t afford a short-term auto loan, you don’t have to settle for a longer one.

You can avoid the risks that come with lengthy auto loans, and still get the vehicle you need.

While being able to afford larger monthly payments is the best way to shorten the terms of the auto loan, this might not be possible for everyone. You might also want to consider purchasing a used vehicle. Even though the interest rates are usually higher, there will be less to finance so you will still have the low monthly payments you need.

Financing a 5 year used car auto loan has the added benefit of helping to improve your credit score, as long as you keep up with the monthly payments.

Before you accept the terms of any auto loan, regardless of its length, it is important to read it carefully so you know exactly what you are paying for the vehicle.

Have Bad Credit? You Can Still Get A Balloon Payment Auto Loan

If you have bad credit you might think that a balloon payment auto loan is out of reach, but this might not be necessarily true.

It is possible to secure a balloon payment auto loan, even if your credit is less than perfect.

Before you sign any auto loan contracts it is important to know exactly what a balloon payment is to ensure that you are making the right decision for your finances.

What is a Balloon Payment Auto Loan?

A balloon auto loan can be a good option for potential car buyers looking to keep monthly payments low. It is structured to allow for low payments until the end of the term when one large amount will be due. Since the interest has been “front-loaded” you are typically paying the principle.

Balloon auto loans are usually designed for car buyers that need to keep their monthly payments low, but plan on having the substantial amount due at the end.

These slightly risky car loans can also help if you don’t have the money readily available for the down payment.

Before you start looking for a balloon auto loan it is important to start planning financially. If you don’t have the amount due on the auto loan at the end of the term, the vehicle could be repossessed. Buying back the vehicle will be more expensive than with a traditional auto loan since you still have to pay the principle owed.

Balloon Auto Loan Risks

There are several reasons why balloon auto loans can be financially risky, and often not the best choice for everyone. Some concerns you should address before agreeing to any auto loan terms include,

Will you be able to save enough for the large payment due at the end of the term, typically in three to five years.
Are you willing to risk the negative effect a vehicle repossession can have on your credit score if you can’t make the final balloon loan payment?
Refinancing is not always an option with a balloon payment auto loan since the amount owed will typically be more than the vehicle is worth.

Balloon Auto Loan Benefits

While there are risks associated with balloon auto loans, there are also a few benefits. If you are positive that you will be able to make the large payment due at the end, it could be the best way to get a new vehicle.

A balloon auto loan can give you the additional time you need to save money for the large end of term payment.
It allows for the “sale option”. Meaning that the vehicle can be legally sold and the money from the sale used to pay off the loan. This can help prevent the auto loan from “turning upside down”.
The chances of repossession are often less since the monthly loan payments are lower, though this can change at the end of the term.
Leaves the borrower with additional cash since a down payment is typically not required with a balloon auto loan.

Balloon Auto Loan Requirements

Most lenders require two things to be approved for a balloon auto loan.

You must be able to show proof of income to reassure lenders that you will be able to make the low monthly, and large balloon payment at the end of the loan.
A good FICO score and solid credit history are also typically required if you want to be approved for a balloon auto loan.

However, if you have a poor credit score it is still possible for you to get an auto loan with a balloon payment.

How to Get a Balloon Auto Loan with Bad Credit

Your poor credit score will make it more difficult for you to be approved for any type of financing, including a balloon auto loan.

There are a few things you can do that might improve the chances of your auto loan application being approved.

Some of the same tips that can improve your chances of being approved for a traditional auto loan can also be used when you are applying for one with a balloon payment at the end.

Even though a down payment often isn’t required with a balloon auto loan, applying one can significantly improve your chances of approval if you have bad credit.
Having a co-signer can reassure potential lenders that the bad credit auto loan will be repaid on time.
If a stock is about to mature or you are schedule to receive any other influx of cash, showing proof of the expected amount can improve your chances of approval for a bad credit auto loan with a balloon payment.

Buy Here Pay Here car lots are more apt to approve auto loans for applicants with bad credit than traditional lenders, and this is something that you should consider when you are shopping for the best offer.

Comparing Balloon Auto Loans

It is important to remember that all balloon payment auto loans are not necessarily the same, regardless of your credit score. This is especially true if your FICO score is below subpar. Before you agree to any auto loan terms, you want to “shop around” to ensure that you are getting the best deal financially.

Here are a few of the aspects you’ll want to compare.

What is the “end” number?

Do not sign any balloon loan agreement without looking at the final number. This is the amount you’ll owe when the last auto loan payment is due. One of the worst financial mistakes you can make is to not know how much is due at the end of the term.

Know the monthly payment amount.

Your credit score will affect the amount of the monthly payments. If it is subpar or lower, expect to make higher payments each month. By comparing balloon auto loans from traditional lenders and Buy Here Pay Here dealerships, it is possible to find one with affordable monthly payments.

It should be noted that the monthly payments also determine the amount owed at the end of the loan.

Look for an auto loan with low interest rates.

Obviously, you want a balloon payment auto loan with low interest rates. This will depend on your credit score and if you are applying a down payment. Having a down payment, even with a balloon auto loan can lower interest rates and the amount owed each month.

Since the interest rates can change over time, it is always a good idea to discuss this with a licensed financial expert.

Is a Balloon Payment Auto Loan Right for You?

A balloon payment auto loan can be beneficial, but there are also several risks.

Only you know your financial situation, and if you’ll be able to make the large final payment at the end. Not doing so, will have a disastrous effect on your credit score.

If you are positive that you will be able to meet the terms of the agreement a balloon auto loan might be the best option, even if you have bad credit. Just remember to compare terms and rates with different lenders, before you sign any auto loan contract.

How To Keep Your Bad Credit Auto Loan Payments Low

If you think that your bad credit score makes it impossible to get approved for an auto loan with low monthly payments, you couldn’t be more wrong.

While it is true that your poor FICO score will make it more difficult, it can be accomplished. There are certain strategies you can employ that will dramatically improve your chances of being approved for a bad credit auto loan with a low APR.

Tips on Keeping Monthly Auto Loan Payments Low

The interest rate directly affects the amount of the monthly payments, and you want it to be as low as possible. Since your credit history is less than perfect, Buy Here Pay Here dealerships are more inclined to offer financing at a high interest rate. This usually translates into higher monthly payments that might be avoidable if you follow these tips.

Don’t rush into signing an auto loan agreement.

One common financial mistake car buyers often make is rushing to purchase a new vehicle.

Just because you think your credit score deserves a low interest rate, doesn’t mean that you will get it.

In your rush you could overlook a few key details, and this could result in higher monthly payments.

Before you start shopping for the best interest rates on a bad credit auto loan, you will want to check your FICO score and history. It is not uncommon for mistakes to appear on a credit report, and these errors will affect the interest rate you get on the car loan. In some cases, the black mark can be the reason your loan request is denied.

It is also important to watch out for advertised low APR rates. These low interest rates are typically reserved for the dealerships “well-qualified” customers with a credit score 700 or above. If you sign the agreement and do not meet the criteria for the low interest rate, you’ll quickly find that your monthly payments are higher than anticipated.

Pay down balances on credit cards.

If you have a poor FICO score and credit utilization rate over 30 percent, your chances of being approved for an auto loan are slim, even if it comes with a high interest rate.

Potential lenders are often nervous approving car loans when the applicant has a subpar credit score, and a large amount of debt on their charge cards.

You will be viewed as a “high risk” borrower, and if you are approved the bad credit car loan will come with costly monthly payments. Paying down the balances on your charge cards will not only lower credit utilization, it can also boost your FICO score. It will take a couple of months for the payments and lower balances to appear on your credit report, but it will be worth it when you are approved for an auto loan with low interest rates.

Pay off credit card debt with under-performing stocks.

Financial experts cannot stress enough the importance of paying off your high interest card credits. Not only are the high interest rates draining any extra cash, they are making it virtually impossible for you to pay off the existing debt.

Since credit utilization makes up 30 percent of your FICO score, it is important that you get your debt ratio down.

Most potential car buyers do not have the extra funds to pay off their credit cards, and produce the often required down payment. This is when you might want to consider selling off any stock that is under performing. The money that you make from the sale can be applied to your credit card debt. This not only lowers your credit utilization to debt ratio, but also shows potential lenders that you can repay a loan.

The record of payments and balances paid off will also give your credit score a slight nudge. For some potential car buyers, it can be enough of a boost to ensure low monthly payments with the auto loan.

Apply for online financing.

Many consumers are taking advantage of a new option when they are applying for an auto loan. Instead of traditional banks, credit unions and Buy Here Pay Here dealerships, potential car buyers are applying for online financing.

The main reason for the growing popularity of online financing is due to how easy it is.

Once you have your information, you fill out the simple online application. The information required online is basically the same as that needed by the dealership. You will need to provide personal information, along with any regarding your finances.

You typically receive an answer from an online lender within a few minutes, and the terms of the loan agreement are clearly written. Online lenders are often able to offer lower monthly payments and interest rates due to their lack of overhead. Some online lenders are also more forgiving when it comes to poor credit scores.

Once you have been approved, the check is typically deposited in your account or held until you are ready to use it at the dealership. Since you already have financing you are ready to drive your new car off the lot, as soon as you pick it out.

Refinance an existing auto loan.

If you have been making your monthly auto loan payments on time and your credit score has improved, it might be time to refinance your car loan. Often this results in lower monthly payments and interest rates.

Not everyone will be approved for refinancing, and the hard check on your credit can hurt your score.

If there are any late payments or if you have held the auto loan for less than 12 months, refinancing probably won’t be a viable option for you.

The best advice is to check your payment history and speak to a qualified financial expert.

Consider automatic monthly payments.

Simply allowing the lender to automatically deduct the monthly loan payments from your bank account can reduce interest rates by .05 percent.

Not only does this ensure that you won’t miss a monthly payment, it also eliminates the need for paper statements. Some Buy Here Pay Here dealerships offer additional savings to entice customers to allow them to automatically deduct the monthly payments.

If you are worried that there won’t be a tangible record of your payments, you can access your account online and print any documents you need.

Apply a larger down payment.

Larger down payments always equal lower interest rates since you are borrowing less. This is especially important when you are trying to keep your bad credit auto loan payments low.

Automobiles depreciate quickly in value, and if the initial loan amount is too high you could find that you owe more than the vehicle is worth.

To avoid being caught in an upside down auto loan, you want to be able to put down at least 20 percent.

If you don’t have the necessary down payment you might still be approved for a bad credit auto loan, but it will come with high monthly payments. Unless a new vehicle is an absolute necessity, it is usually best to wait to sign any bad credit auto loan agreement until you have the down payment.

The Final Word

With the right financial planning, along with some patience, you can get and keep the monthly payments on your bad credit auto loan low.

It can also give you a chance to improve your credit score. The most important tip to remember is to “shop around” and always look for the auto loan with the best interest rate.

Can’t Pay Off A Bad Credit Auto Loan? You Have Options

Sometimes it is just impossible to keep up with your auto loan payments.

Financial setbacks can happen making it harder to meet your monthly loan requirements. While simply ignoring the problem until the vehicle is repossessed is an option, there are other ways you can get out of a bad credit auto loan without ruining your Fico score.

Equity in the Vehicle or Upside Down on the Auto Loan?

The first thing you want to do if you can no longer make the payments on your auto loan is to determine if there is equity in the car.

This simply means that the vehicle is worth more than the amount owned on the auto loan. If you owe more on than the vehicle is worth it is referred to as an “upside down auto loan’, and commonly occurs with older model cars.

If you have equity in the vehicle there are several ways you can legally get out of a bad credit auto loan without damaging your Fico score. If you are holding an upside down auto loan, it might make better financial sense to try and repay the lender.

How to Get Out of a Bad Credit Auto Loan

When you simply can’t afford to make the monthly payments on your auto loan, you do have options. Some of them will allow you to keep the vehicle, while others will require you to sign it over. The right one for you will depend on your unique financial situation.

Modify the existing auto loan.

If you are on good terms with your lender, and have a record of making the monthly payments on time, it might be possible to modify your auto loan. It is important to remember that this option will not work for everyone, especially if they already have a low credit score.

Some of the modifications your lender might offer can include,

Temporary suspension of monthly loan payments. (typically no longer than 60 days, and they will be added onto the end of the loan)
Lower monthly payments for a brief period of time.
Offer to refinance at a lower interest rate. This could also result in a month of two of no loan payments while the bank is finishing the paperwork.

In order to take advantage of any loan modifications your lender might offer, it is vital that you speak with them as soon as you know that you are going to have difficulty making the payments.

If you wait until the bank contacts you, your chances of being approved for any loan modifications are significantly decreased.

Trade-in the vehicle

Living without a dependable vehicle isn’t an option for some people, and if this applies to you trading it in might be the best choice for you. Not only do you get to choose a “new” vehicle, it often comes with lower interest rates.

You also want the asking price to be lower so it will be reflected in the monthly auto loan payments. Otherwise you’ll soon find that you can’t afford your new vehicle.

To ensure that you get the best value for your trade-in you’ll want to check its Blue Book value.

Let someone take over your auto loan

This typically only applies if you have an auto loan with a low interest rate, unless you have an extremely sympathetic friend or family member. If so, you might still get to keep the vehicle.

Typically, when you let someone assume responsibility for your auto loan you are also signing the vehicle over to them. If this seems like the best option for your financial situation, you will need approval from your lender. You cannot sign the vehicle title over to them, and expect the loan to follow.

The person assuming the auto loan will need to be approved by your lender, and the terms of their agreement might be different than yours. All parties will need to sign certain documents before the loan is officially out of your name. You will want to verify that your name has been replaced on the loan and vehicle title before leaving your lender’s office.

Sell your vehicle

Another option when you are having trouble making your monthly loan payments is to sell the vehicle yourself.

The goal is to sell it for an amount higher enough to pay off your existing bad credit auto loan so you can apply for one at a lower interest rate.

This option often takes time, and it can be a risky way to get out of a poor credit auto loan.

Turn the vehicle’s keys in

Known as “voluntary repossession”, sometimes this is the only option if you want to protect your credit score.

Before you walk into the car dealership and hand them the vehicle’s keys, it is important to check the laws in your state.

Some allow the lender to still hold your responsible for the remaining balance of the loan, even though the vehicle has been turned in.

You will want to speak with your lender before choosing this option to ensure that it is the best one for you.

Allow the vehicle to be repossessed

If you absolutely cannot go without a vehicle and there are no other options, you might just have to wait for it to be repossessed. This will have a detrimental effect on your credit that can last for up to seven years. During this time it will be difficult for you to secure another vehicle loan, along with any other type of credit.

It should also be noted that the cost of having the vehicle repossessed could be added to the total amount owed on the loan, effectively increasing the amount of your accumulated debt.

Most Lenders are Willing to Help

The good news is that most lending institutions are willing to work with their customers if they find that they can’t make their monthly loan payments. This is due to the simple fact that they don’t want to take repossession of the vehicle once it has been sold. In the long run, it costs lenders and Buy Here Pay Here lots more money to resell the vehicle than it would to work with the existing loan holder.

Just remember that it is important to let your lender know immediately if there is a sudden change in your finances.

Most will work with you so you can keep your vehicle, and get out of a bad credit auto loan.

The Complete Guide To Debt Consolidation

Even though the economy is improving, millions of Americans are still in debt.

This can have a negative impact on their credit score making it difficult for them to secure any type of financing.

One way people are looking to repair their bad credit rating and raise their score is to consolidate their debt. It is one viable option to consider if you are looking for a way to start paying off your accumulated debt.

What is Debt Consolidation?

Debt consolidation is when you combine several unsecured loans into a single monthly bill. Some examples of unsecured debt include,

Medical bills
Credit cards
Personal loans (i.e. school)
Payday advances/loans

One of the main advantages in combining your debt is that it can reduce your chances of forgetting a payment. Instead of keeping track of several monthly bill due dates, now there is only one. Missed and late payments on loans is one of the leading causes for poor credit scores.

There are three types of debt consolidation consumers generally consider.

Debt Management Plans
Debt Consolidation Loans
Debt Settlement Agreements

It is important to remember that debt consolidation is not an instant fix.

You will not see an immediate improvement in your credit score. However, after you’ve made several payments on time it can be an effective first step in repairing your bad credit score.

Some of the other benefits that often come with consolidating unsecured debt can include,

Lower interest rates
Repair poor credit scores
Lower monthly loan payments
Reduce the amount of time you’re in debt

Debt Management Plans vs Debt Consolidation Loans

When you are trying to decide what is the best way to consolidate debt, you’ll want to figure out how much you owe. If you owe less than $3000 in credit card debt, your best credit repair option might be to apply for a new charge account with a lower or no interest rate.

Simply transferring the balance can dramatically reduce monthly payments, along with the amount of time you’re in debt.

You can also borrow against your retirement savings or life insurance plan if your overall debt is less than $3000. If you owe more than $3000 in credit card debt, your best course of action might be a debt management plan.

Debt Management Plan

Debt management plans (DMP) are often recommended by financial experts. The most effective ones are usually managed by a non-profit organization, and start with a credit counseling session.

Once your monthly payment amount has been decided the credit counseling will work with your creditors to,

Lower interest rates
Remove or reduce late/missed payment fees

In some cases, a credit counselor can even reduce the total amount of the debt.

Each month you send one payment to the credit counseling agency monitoring your debt management plan. They will divide the amount among your creditors, eliminating all the harassing phone calls and collection letters.

The downside to a debt management plan is that it can temporarily lower your credit score. Once the debt has been repaid, typically in 3 to 5 years, you should see an almost immediate improvement in your credit score.

Debt Consolidation Loans

If you don’t want your credit score to drop any lower, you might want to consider a debt consolidation loan (DCL).

The main drawback is that this method won’t shorten the length of repayment time, but it will let you make one monthly payment.

Instead of sending several smaller payments to different creditors, you will simply make a single larger one. A debt consolidation loan will also come with a lower interest rate. Some of the types of DCLs you might want to consider can include,

Personal loans
Home equity loans
Balance transferred to zero or low interest credit cards
Student loan consolidation

Understanding Bill Consolidation

Bill consolidation is simply combining your bills and using a loan to pay them off. This way your credit report will reflect the positive settlement of several debts, along with your ability to effectively manage the new loan payments.

This is an extremely effective way to boost your credit score, though you will have to go through the loan approval process.

If your credit score is already below subpar, this might not be the best option for consolidating your debt.

Tips on Getting a Consolidation Loan

The first step is to add the total of the bills you are trying to consolidate. This includes the amount of the monthly payments, along with the interest rates. You will also want to know your current credit score before you start looking for a consolidation loan.

Some of the best places to apply for a debt consolidation loan will include,

Banks
Credit Unions
Online lending companies

Many financial experts recommend starting with an online lender. Your chances of being approved for a loan are increased, and many offer lower interest rates. Before you accept any consolidation loan offer you will want to compare the following among the various lenders.

Interest rates
Any fees or penalties for early loan repayment
Length of the loan

When you are taking out a consolidation loan it should not only shorten the amount of time you are in debt, but also lower your monthly payments and interest rates. If it doesn’t accomplish all three, you will want to keep looking at the various lenders.

Consolidating Credit Card Debt

If your credit score is above 700, financial experts typically recommend applying for a zero-interest account.

Your “good” FICO score should allow you to qualify for a no-interest credit card, and you can use this to pay off your higher interest debt.

While this can be an effective way to eliminate your credit card debt yourself, there are a few drawbacks you’ll want to consider.

The introductory no interest rate typically only lasts 6 to 18 months. During this period 100 percent of your monthly payments will be applied towards your balance.
Interest rates on the remaining balance can jump as high as 27 percent, though they typically remain around 13 percent.
A “balance” transfer fee can be applied.
Some credit cards come with annual “maintenance” fees.

You can avoid many of these downfalls simply by “shopping around” for the best credit card offer.

How to Consolidate Bills

You will need to be patient and organized when you are consolidating your bills. In some cases, you might also have to be persistent when you are trying to figure out the total amount of your debt.

After you have the total amount of debt owed, it is time to decide how much you can afford to pay each month.

Once you have settled on these numbers, it will be easier to decide whether a debt management plan, debt settlement or personal loan is the right financial choice for you.

Regardless of the type of debt consolidation method you choose, it is always important to remember that it will not be an instant fix for your poor credit score.

When NOT to Consolidate Debt

Even though consolidating your debt does come with several advantages, it is not always the right choice for everyone. There are times when it could increase your debt, and have a detrimental effect on your credit score.

If the debt is transferred to a zero-balance credit card, but you don’t change your spending habits you can easily find the total amount you owe steadily increasing.
Debt consolidation can cause your credit score to drop making it difficult for you to secure a home or even high interest auto loan. If you are planning on applying for one of these loans, you might want to wait to consolidate your debt.
If you use your home or vehicle as collateral for a debt consolidation, you could be at risk for repossession or foreclosure if the monthly loan payments aren’t made in full.

Taking the time to get all your paperwork in order and knowing exactly what you can afford to pay each month are the first steps in ensuring that a debt consolidation loan is the right choice for your financial situation.

If you need advice on how to change your spending habits, you will want to speak to a qualified debt counselor.

Consolidate Debt in 3 Simple Steps

If you’ve decided that debt consolidation is the best way to repair a poor credit score, there are three simple steps you need to follow.

Take the first step.

The first step is to decide to start paying off your debts, and repairing your bad credit. The sooner you start working on a strategy to repay your debt, the quicker it will go away. This also means seeing a faster improvement in your credit score.

Know what your options are.

If you don’t know what your options are, it will be impossible for you to make the right decision for your situation. A debt management plan should be your first option, unless you have a “good” credit rating or owe less than $3000. In these cases, a personal loan or transferring the balances might work best for you.

It is also important that you know which type of debt can be consolidated. For example, you cannot consolidate federal student loans with the rest of your debt.

Be aware of the risks.

Financial advisors might not always fully inform you of all the risks associated with debt consolidation. The first one being, that it is not always the best choice for everyone. Using a home or automobile as collateral is risky, along with putting up retirement savings.

Before you choose any debt consolidation option, you should be well-aware of any potential risks.

Simply following these 3 steps will help prevent you from making a potential mistake that could end up hurting your credit score. Before you make any final decisions, it is always best to speak with a qualified financial advisor.

Do You Belong To The Credit Community?

If you want to start repairing your bad credit score there is an important question you need to ask yourself. Do you belong to the “credit community”? Even if you have a credit score and history, this doesn’t necessarily mean that you are a part of the community.

To successfully repair your poor credit score you must be able to work within the community, and this means being an active part of it.

Credit Community: Who Doesn’t Belong?

Most adults are members of the credit community, except for two types of consumers.

If you are one of the few adults that doesn’t have a credit history, you are probably finding it difficult to start building one. In order to build a positive history there must be credit for you to use, but it is hard to get approved when you don’t have any for potential lenders to look at. Without a previous history of making loan payments on time, most lenders won’t approve you for a credit card or loan. Since you can’t get approval there won’t be any credit for you to use, and this means that you won’t be able to start repairing your dismal FICO score. It is a frustrating Catch-22 that can be difficult to get out of.

People that have previously experienced bad luck with their credit aren’t always a part of this community. Due to their mismanagement of their credit cards and bank accounts, they have now decided to strictly use cash. Even though this is not the norm in today’s society, it is still possible to exist without ever needing to use a credit card or take out a loan.

While this will eventually result in the black marks disappearing from your report, you also won’t have any credit to build on.

Basically, you will be starting from the beginning and this means it might be more difficult to raise a low credit score.

Credit Communities in the U.S.

The Federal Reserve Bank of New York conducted a study in 2015 that found an estimated 89.2 percent of American adults currently have a credit score and history. This means that they are a part of a credit community.

New Hampshire estimates that 96.4 percent of its population has a credit history, while Arizona only boasts 84.7 percent of its residents with a working credit score. The differing numbers reflect the finances of the region, with stronger economies typically resulting in a higher number of residents with useable credit histories. If the economy continues to grow, the New York Fed also expects to see participation increase in a credit community.

Rebuilding Your Credit Score

Simply being a member of a credit community doesn’t automatically mean that you will be approved for a loan, but it can increase your chances if you are actively using your accounts.

This is important to remember if you are trying to repair your credit score. Your credit score is determined by measuring a few metrics that include the age and types of accounts, along with any new credit you might have.

There are 3 other factors that comprise your FICO score, and determine how active you are in the credit community.

Credit utilization ratio

While you don’t want your credit utilization ratio to be too high, not using it at all can be just as damaging. It comprises 30 percent of your score, and most financial advisors recommend only using around 10 percent annually.

If you used more than 10 percent you are not alone.

According to the New York Fed the average American uses 38 percent of their available credit, and this is lowering their FICO score.

You can still be a member of the community, and use less credit. This ensures that potential lenders have a strong current history to review, while also demonstrating your ability to manage your finances.

Revolving credit

This refers to credit cards and home equity lines of credit, and your ability to obtain it without having to apply for another loan.

While the New York Fed estimated in 2015 that 70 percent of American adults had access to revolving credit, the numbers weren’t the same across the county.

Residents living in northern states typically have higher levels of revolving credit due to a stronger economy. This doesn’t mean that if you live in the southern part of the country you won’t have access to revolving credit, but it might be more difficult if you have a low FICO score. By making the monthly payments and managing your accounts, over time your participation in the credit community can help raise your score and make it easier for you to access credit without having to apply for a loan.

Paying on time

Since 35 percent of your credit score is comprised of your payment history, it is easy to see why it is so important to never miss a due date.

According to data accumulated by the New York Fed an estimated 78 percent of Americans are current with their loan obligations.

Not only does this indicate a strong credit community, but also consumers’ ability to keep up with their loan payments.

Just by making your loan payments on time can raise your credit score a few points, and help build a positive history that can increase your chances of being approved for an auto loan or mortgage.

Using Credit Has Its Advantages

There are not any fees, dues or other extra costs associated with being a member of a credit community. All you have to do to join is to occasionally use credit instead of cash when you make a purchase or pay a bill. Even if you hold several credit cards, if you don’t use them you still aren’t a part of the community.

In order for it to have a positive effect on your FICO score, you must use your available credit and pay the balance off on time.

While it is important for you to be responsible with your credit, if it is used correctly it does have advantages. It can help raise your score, build a strong history and significantly improve your chances of being approved for a loan with a low interest rate the next time you need to apply.

If you have any questions about your participation in a credit community and how it can help you rebuild your history and FICO score, it is always advisable to speak with a qualified financial officer.