If you’re not sure how to build credit, you’re not alone. The Consumer Financial Protection Bureau (CFPB) reports that approximately 1 in 10 American adults lack a credit record; that’s 26 million people. Another 19 million Americans have a credit record but no credit score because their credit history is either out of date or too thin to show up on a credit report. 

If you’re starting from scratch, figuring out how to build credit doesn’t have to be complicated. Here are some simple credit-building steps you can take to get started.

In this article, we’ll cover:

• How to build credit with credit cards
• How to build credit without credit cards
• How to monitor your progress

Build credit with a credit card

Opening a credit card can be one of the fastest ways to build credit if you use your card wisely. But how can you get approved if you have little to no credit history? There are a few options to make it more accessible:

• Get added as an authorized user: A family member or significant other can add you as a user on their credit card; that card’s payment history will then be added to your credit report
• Open a student credit card: Many financial institutions offer this type of card for college students
• Open a secured credit card: This type of credit card is backed by a cash deposit you make upfront 

If you’re not a college student and it’s not practical for you to become an authorized user on a family member’s card, that’s okay. Those solutions aren’t available to everyone. So let’s focus on building credit with a secured credit card.

Get a secured credit card

A secured credit card functions like a standard unsecured credit card, with one major difference:  you deposit cash when you open the card, which serves as collateral if you’re unable to make your payments. Generally, your secured card’s credit limit will be equal to the amount of your deposit. A secured credit card is not the same as a debit card; any money you charge to your card is a debt you have to pay back, and you’ll have to pay interest on any balance you don’t pay off each month.

Because the card issuer shares information about your credit usage with credit reporting agencies, regular responsible usage can help build up your credit history. Visa, Mastercard, and nearly all of the leading credit card lenders offer a secured card option. You can also inquire at your bank or credit union about applying for a secured credit card.

Keep your card balance low

Your card’s credit limit is the maximum balance you can have at any given time, but just because you can borrow up to the limit doesn’t mean it’s a good idea. One factor that credit agencies use to calculate your credit score is credit utilization. That’s the amount of credit you have available compared to your balance. Generally speaking, using more than 30% of your available credit at one time can hurt your credit score. For example, if your credit limit is $1,000, keeping your balance below $300 is a good guideline.

Another important reason to keep your balance low is to avoid spending money on interest or running up debt you can’t pay off without squeezing your budget. Think of your credit card as a convenient way to pay for everyday things you know you can pay off within your billing cycle, not a long-term loan. 

Best practices for keeping your card balance low:

• Keep your credit utilization at 30% or less
• Make more than one payment per billing cycle
• Don’t use your card to buy more than you can afford to pay off every month  
• If you can’t pay your full balance each month, at least pay more than the minimum

Set up automatic monthly payments

Payment history makes up about 35% of your credit score, so delinquent payments can quickly turn your efforts to build credit into creating bad credit. Additionally, late credit card payments are often subject to fees or penalties, so you’ll end up owing even more the next month.  

Setting up automatic monthly payments ensures you won’t miss the crucial deadline. Most cards give you several options for autopay, such as the minimum balance, a fixed amount, or the entire credit card balance each month. 

Request a credit limit increase

Increasing your credit limit without increasing your spending lowers your credit utilization ratio, which could benefit your credit score. After you’ve established a track record of on-time payments, your credit card company may be willing to increase your credit limit. If you have a secured card, you might have to add additional funds to your security deposit, but not always. In some cases, the institution might even automatically increase your credit limit after a certain period of time. Since credit utilization is an important part of developing a good credit score, it’s worth calling your institution to ask about your options. 

Open a second credit card

Once you’ve been using your secured credit card responsibly for about a year, you may be eligible to upgrade to an unsecured card. With your credit history established, there might be many more options for cards you could qualify for, so shop around to find the right one for you. Consider factors like the interest rate and whether the card has an annual fee. Some credit cards even offer added benefits like points or cash back that might interest you.

When you open a new credit card, it may be wise to stop using your first card so you don’t have to keep track of balances and bills for multiple credit cards each month. But don’t close that account. Credit reporting bureaus look at the age of your accounts when calculating your credit score; the longer an account has remained open and in good standing, the more it works in your favor. Essentially, older credit accounts give more credence to your credit history than new credit.    

Build credit without a credit card

Responsible use of a credit card is one of the best ways to establish your credit history, but it’s not the only path. It’s possible to build new credit without a credit card through a credit builder loan or by leveraging your rent and utility payments.

Apply for a credit builder loan

A credit builder loan (CBL) is a type of personal loan made specifically to help borrowers build credit history and improve their credit scores. Here’s how it works: Instead of the bank loaning you a lump sum that you repay over time like a standard loan, your lender will hold the loaned money in a secured savings account until the loan is repaid. You make fixed monthly payments and then get the principal back at the end of the loan term. 

Research shows that opening a CBL can increase your likelihood of establishing a favorable credit score by 24% and increase existing credit scores by 60 points or more, depending on your individual financial situation. While CBLs are not as common as other types of loans, you may be able to establish one with your bank or credit union.

Keep in mind that, just like with credit cards, making your payments on time is crucial; late payments reflect poorly on your credit score. And you’ll likely pay interest on the money you borrow, though some institutions will credit you back some of the interest after you’ve paid off the loan.

Leverage your rent and utility payments

If you pay your rent and utilities on time every month, you might be able to use your good payment history to build credit. These kinds of payments aren’t automatically shared with credit reporting agencies, but all three major credit bureaus, Equifax, Experian, and TransUnion, will include rent and utility payment information in credit reports if they receive it. 

You can’t report your payments to the bureaus yourself, and landlords and utility companies often won’t do so on your behalf because they have to pay a fee. The good news is that there are many rent-reporting services that will verify and report your payments. 

The options offered by these services and the fees they charge vary, so comparison shop to find the right one for you. Some just report rent, while others will also include various types of utilities. Some will also report your past payments, which can be a benefit if you’ve always paid on time. You’ll also want to find out which bureaus the service reports to, as not all of them include all three agencies. 

If you use a rent-reporting service to help build credit, remember that consistent on-time payments are essential if you want a positive impact on your credit score. 

Take your time and watch your numbers climb

Building credit takes patience and diligence; after all, it’s called credit history for a reason. It can take six months or more to generate your first credit score after you get started with a credit card or CBL loan. Having only that new credit won’t necessarily get you to a high credit score; keeping accounts in good standing over a longer period of time, maintaining a low credit utilization ratio, and making all your payments on time are key to increasing your score over time.

As you put your plan for how to build credit into action, keep an eye on how your credit score is affected. You can get a free credit report once a year from all three of the major credit reporting bureaus; check it to see your progress and make sure no issues bringing your credit score down. If you want to keep an even closer eye on your progress, a free credit score app will give you a more frequent look at your credit report, and many offer personalized tips for improving your credit score. And remember: building credit is just one piece of the puzzle. Your budget, savings, and investments are also core components of working toward a brighter financial future.     

The post How to Build Credit: Why You Need It and How to Get It appeared first on Stash Learn.

That’s a common misconception held by nearly a quarter of all credit card holders, who believe carrying a balance will help improve their credit scores, according to a new study by Creditcards.com.

That misunderstanding is even greater for millennials, nearly a third of whom believe carrying a balance improve their credit.

Listen up, it’s simple: It’s usually better to pay off your credit card balances as quickly as you can.

Not only will that improve your credit score, it will save you money. Credit cards typically charge a high rate of interest, on average about 24.24%. That amount is added as a percentage of your outstanding balance every month you’re not paid off.

What’s a balance?

A balance is any unpaid amount on your credit card, that carries over from one month to the next.

The average U.S. consumer carries an unpaid balance of $7,279 on credit cards.

What’s a credit score?

A credit score is a point-based score developed by a company called Fair, Isaac Co. It’s sometimes referred to as a FICO score. It uses credit history data compiled by credit bureaus Experian, Transunion, and Equifax. Your credit usage information is regularly transmitted to these three agencies.

A credit score can range from 300 to 850. The better your credit, the higher your score. Perfect credit is 850.

How is my credit score determined?

Your credit score is determined based on your use of credit.

The most important factor is how well you handle credit, which chiefly means how timely your payments are. If you are late with payments or have stopped paying a loan, that’s going to have a negative impact on your credit.

If you fail to make a payment within 60 days of your bill due date, that will be reported to a credit bureau, which will hurt your credit rating, according to the report.

The other key thing that determines credit score is something called credit utilization. That’s essentially the percentage of the entire amount of credit that you have available to you,  that you’re using at any given time.

Say you have credit lines worth $10,000, if you’re close to maxing out your lines, that’s likely to have a negative impact on your credit.

What else influences my credit score?

Another thing that influences your credit score is the variety of loans you have.

Generally speaking, the more kinds of credit you can handle well, the higher your score is going to be. For example, if you’re managing to make timely payments on two credit cards, a car loan, and a mortgage simultaneously, your score is likely to be better than someone with just credit card loans.

Other things that influence your credit score include the length of time you’ve had credit, and whether you’ve applied for new lines of credit. The more frequently you apply for credit, the more that will affect your score.

Why does good credit matter?

Your credit score determines the rate you’ll get on everything from credit cards to car loans and mortgages. The higher your rate, the more you’ll pay, particularly for installment loans like cars and mortgages.

Women more likely to make late payments

It turns out that women may be more likely to make late payments on their credit cards than men.

The top reason, according to the survey, might be economic. Women earned an average of 82% of what men earned, according to data from Pew Research.

Ready to get your finances in order?

Stash lets you save and invest while building smarter money habits.

The post Why Keeping a Balance Won’t Improve Your Credit Score appeared first on Stash Learn.

If you’ve got a high score you may feel proud, as it likely took some effort to maintain that status. You may want to install an app to help you stay on top of your score. And if you don’t even know what a credit score is, well, don’t worry—Stash Learn is here to help.

Jargon Hack.

What is credit score?

Credit Score

A point-based rating system that assesses how responsible you are with loans and debt over time.

Find out

Knowing your credit score is important because it helps you have a sense of what is possible financially—what loans you can expect to get for a home or car, for example. It also gives you a snapshot of your financial behavior, helping you see where you can improve.

And, finally, it’s necessary knowledge because if the credit score seems oddly low, it may point you in the direction of identity theft that could negatively affect your life in other ways. Numerous apps claim they can help you stay on track financially by staying on top of your credit report. We’ve decided to only review the free apps because, hey—we’re all trying to make better financial choices here, right?

We’ll get into a review of different apps in a moment, but first, let’s make sure we’ve got our terminology down. As this primer on building a credit history explains, credit score is not the same as a credit history: “your credit history is the sum of all the transactions that have been reported to credit bureaus in your name over the years; these are all recorded in your credit report.”

Your credit history helps credit bureaus create a credit score for you. Basically, they grade you on a few factors: how many credit cards you have, how large a portion of your available credit you use, how timely you are with your payments, and more. In theory, this helps future lenders assess the risk you pose to them.

Think of it this way: if your cousin who always pays her bills on time asks you if she can borrow $200, and your cousin who never pays his bills on time asks you the same, to whom are you more likely to lend that cash? In your mind, at least, cousin numero uno appears to pose a lower risk.

FICO Score, what is it?

You may have heard the term “FICO Credit Score,” which refers to a few different scores developed by Fair Isaac Corporation in 1989. There’s the FICO Score 8, a general grade of your credit history.

Then there’s the FICO Auto Score, the FICO Bankcard Score, and more. Base FICO Scores range from 250 to 850. According to FICO, scores consist of the following elements:

Payment history: 35%

Amounts owed: 30%

Length of credit history: 15%

New credit: 10%

Credit mix: 10%

There is also a popular credit-scoring model called VantageScore, which ranges from 300 to 850. It was created in the 2000s as a joint venture of the three major credit bureaus: Experian, Transunion, and Equifax.

Each bureau is required by law to give you a free credit report every twelve months at your request. Scores from bureaus and from the apps mentioned below vary depending on whether they’re pulling a FICO Score or a VantageScore. Other scoring models exist, but the aforementioned two are the most popular.

Confused yet? It’s okay. You’re certainly not alone. That’s why Stash Learn has an array of educational materials on the subject. You can learn about which states’ residents have the best average credit scores, how to improve your credit score, how to freeze your credit, and much more.

Now, on to these apps. They’ll all want some version of the following information: your name, address, birth date, email, and last four digits of your social security number, as well as answers to certain security questions to confirm your identity. And if you’re wondering why they’re free, it’s because they’re using this as a vehicle to sell you loans and credit cards. It’s not a charitable service, to be sure.

Scores for each app may be updated as often as once a week, though typically it seems to be refreshed at least once a month.

4 Free credit score apps

Credit Karma¹

Credit Karma helpfully offered me five tips on how to improve my credit, gave me the option of checking my credit card balances and reviewing my payment history, and encouraged me to look for errors on the lists of my credit accounts. It also allowed me to simulate my future score in a beautiful theoretical world where I’ve paid off a significant chunk of my credit card balances. It displayed my Transunion and Equifax scores, which differed by over 60 points.

Credit Wise from Capital One¹

This app was very similar to Credit Karma, with the added bonus of scaring the hell out of me by warning me about people accessing my info from the dark web (yes, I changed some passwords.) It provides your VantageScore 3.0 credit score from Transunion. It also sends you any credit alerts from Transunion or Experian and tracks the use (or misuse) of your social security number.

Experian¹

Experian asked me for my astrological sign. That was a first, at least from a personal finance app. It also gave me my FICO Score 8 and tried to sell me a few (not great) credit cards. Then it tried to get me to obtain an “Experian Boost,” effectively gaming its own system by adding my utility and phone payment history to my credit file—what it calls “non-traditional credit information.”

It’s not a bad idea, necessarily, depending on your appetite for giving out even more information to such an entity. And it could, in theory, boost your score by a few points if you’ve been great at paying those bills on time.

Equifax appears to only have a Lock and Alert app at this time. You can also use myTransunion but apparently just to freeze your Transunion report.

Mint²

I’ve used Mint for several months to track my expenses. It also regularly updates my TransUnion VantageScore, and it’s useful. Mint isn’t great at “remembering” categories for expenses, and I’ll often find I’ve changed an expense category only to have it changed back by the time I log in again. That’s annoying, but the credit score reporting is always useful.

I think the best option is Mint—it offers the largest variety of functions. Why have separate budgeting and credit monitoring services when you’ve got an all-in-one option? Sure, Mint’s app doesn’t offer the specificity that Experian’s does.  But you can always write down a calendar reminder to request your three credit reports once a year, at which point you can scan them for errors and call the individual bureaus to correct them.

Good luck, and try not to obsess over it—making small changes to your financial life can add up to improving your credit score rather swiftly. Make your credit card payments on time, don’t apply for new cards or loans frequently, and do your best to rely on cash and your debit card rather than your credit cards. You can do this.

If any of this feels scary, take a deep breath. It’s going to be okay. Avoid the trap of paying for services that claim they can “fix” your credit score for a fee. Take the time to look at your credit reports to check for errors.

If the thought of looking at an app makes you fear obsessing over it, consider signing up, checking it, deleting the app (but not deleting your profile) and reinstalling once a month to check. You can even set a calendar alert for yourself to do so. Just remember to write down that login information somewhere safe where you’ll remember it.

And you can improve your credit score with time and effort. You got this.

The post Free Credit Score Apps: What You Need to Know appeared first on Stash Learn.

Fair Isaac Co, the company that creates the FICO score, said it could lower scores for consumers if their debts increase, and they skip payments, according to the Wall Street Journal.

The changes come as U.S. consumers have taken on record amounts of debt in recent years, and could be an acknowledgement that financial lenders may be losing confidence in the economy, according to some reports. Total U.S. consumer debt stood at nearly $14 trillion in the third quarter of 2019, according to the New York Federal Reserve, eclipsing the previous record of $12.7 trillion set in the third quarter of 2008.

The changes also come despite increases in credit scores nationally.

Who will be affected?

Approximately 110 million consumers are likely to experience changes to their credit scores, according to CNBC. Most people will reportedly see a movement of less than 20 points in either direction. Forty million will reportedly see a shift of more than 20 points upward, and another 40 million will see a shift downward. 

People with scores of 680 or higher (considered good credit) are likely to see increases to their scores, while those with scores less than 600 (considered fair to bad) who miss payments or increase their debts, are likely to experience decreases, according to the Wall Street Journal. FICO will also begin flagging people who sign up for personal loans, a category of riskier loans that has surged in recent years. 

Why is this happening now? 

Fair Isaac is introducing a new credit scoring model that it’s selling lenders to help them to identify the best credit risk opportunities as indebtedness rises, according to reports. However, lenders have a choice of which credit score models they use, including older models from Fair Isaac. 

It’s something of an about-face for Fair Isaac, which has spent years trying to incorporate other consumers information that might help increase consumer scores, such as cell phone bills and on-time rent payments.

More about credit scores

Your credit score is a key part of your financial life. It determines how much credit you can get, the interest rates you pay on your loans, and how much it might ultimately cost you to buy a house or a car, among other things.

Fair Isaac uses credit history data compiled by credit bureaus Experian, Transunion, and Equifax to determine your credit score. Your credit usage information is regularly transmitted to these three agencies.

A credit score can range from 300 to 850. The better your credit, the higher your score. Perfect credit is 850.

Your credit score is determined based on your use of credit.

What you can do

The most important factor is how well you handle credit, which chiefly means how timely your payments are. If you’re late with payments or have stopped paying a loan, that’s going to have a negative impact on your credit. Another key factor is how much of your available credit you use. As a general rule, try not to use more than 30% of your total credit lines. 

You can find out more about how to improve your credit score here. 

The post Why Your Credit Score Could Take a Hit appeared first on Stash Learn.

That’s according to credit-reporting company Experian, which released its latest annual Consumer Credit Review, a survey that ranks each state by credit score. In 2019, the average credit score in the U.S. was 703, increasing two points compared to 2018. Additionally, 59% of Americans have a credit score that falls above 700, the survey found, which is generally considered a good score. 

States with the highest and lowest credit scores

Minnesota has topped the list of highest credit scores for the past eight years, according to Experian. The winner is followed closely by South Dakota, North Dakota, Vermont, and Wisconsin on the list of highest credit scores. The states with the lowest credit scores are South Carolina, Texas, Alabama, Louisiana, and Mississippi.

Wisconsin had the biggest jump of any state this year, seeing an increase of seven points. Here’s how the top five states scored:

*Source: Experian

Here is how the bottom five states scored:

*Source: Experian

In 2019, 42 states saw increases in their average credit scores compared to 2018, while nine states saw no change. Thirty-four states reported an average credit score of 700 or higher. If you don’t see your state in the top five, you can find where your it falls on the map below.

*Source: Experian

What does a “good” credit score mean?

A credit score is a point-based score developed by a company called Fair, Isaac Co. It’s sometimes referred to as a FICO score. It uses credit history data compiled by credit bureaus Experian, Transunion, and Equifax. Your credit usage information is regularly transmitted to these three agencies.

A credit score can range from 300 to 850. The better your credit, the higher your score. Perfect credit is 850.

Banks and lenders use your credit score to assess how responsible you are with loans and debt over time. Your credit score is determined by a variety of factors including your credit history, which is based on how many credit cards and loans you have, how large a portion of your available credit you use, how timely you are with your payments, and more. In theory, this helps future lenders assess the risk you pose to them.

Credit scores are considered within these general guidelines, according to Experian:

If you’re on top of paying your bills, your credit score is more likely to fall into the good to excellent range. You can work to improve it if your credit score doesn’t fall within that range.

Increasing debt in the U.S.

While personal loan debt is the fastest-growing debt in the United States, average credit card debt grew second fastest, increasing nearly 3% to $6,194 from 2018 to 2019, according to Experian.

Personal loan debt is different from credit card debt. Consumers usually apply for a personal loan from a financial institution, and they often use it to consolidate credit card debt and other loans. It often carries a lower interest rate, according to Experian.

How to Catch Up

Raising your credit score is probably easier than you’d think. But it’ll require organization and a disciplined approach. If you have bad credit, here’s how to start improving your score:

• Make all of your payments on time—setting up payment reminders can be helpful.
• Try to keep your balances low.
• Keep an eye on your credit reports.
• Try using a free credit score app on your phone to stay on top of your score.
• Only apply for more credit if you need it; Opening too many accounts in short order can hurt your score.

The post Giving Credit Where Credit Is Due appeared first on Stash Learn.

The change is part of a new law, passed in May, that rolls back some of the bank regulations put into place following the financial crisis, in 2010.

We’ll break it down for you.

What’s a credit freeze?

A credit file freeze prevents anyone from taking out new credit in your name. Credit bureaus had previously charged for the service in at least half of all states.

What’s a credit file?

A credit file contains all of the information about your loans and credit accounts, in addition to personal information about you, including your name, address, Social Security number, and employment information.

Each of the three credit reporting bureaus—Experian, Transunion, and Equifax—collects this information and provides it to lenders when they perform a credit check on you.

What’s a credit score?

The information in your credit file is turned into a credit score.

A credit score is a point-based record developed by a company called Fair, Isaac Co. It’s sometimes referred to as a FICO score. It uses credit history data compiled by the three credit bureaus. Your credit usage information is regularly transmitted to these agencies.

The score is determined by a range of factors, including your credit mix, repayment record, the amount you owe, and how often you apply for credit.

That information is then compiled into a score, which changes over time based on your credit habits.

A credit score can range from 300 to 850. The better your credit, the higher your score. Perfect credit is 850. Many banking and credit card apps will give you access to your credit score

How do I freeze my files?

You must contact each of the credit bureaus individually to place a freeze on your file.

You can do that online, at the websites listed below. After answering some security questions, each site will give you a PIN that you’ll need to unfreeze your file if you plan to apply for new credit.

TransUnion: transunion.com/credit-freeze

Experian: experian.com/freeze/center.html

Equifax: www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp

You can also call each agency, or write a letter requesting a freeze.

Some experts also recommend freezing your credit at something called the National Consumer Telecom and Utilities Exchange, as criminals could also use your information to open a cellular account in your name.

National Consumer Telecom and Utilities Exchange: www.nctue.com/Consumers

Good to know: In addition to checking your credit score, you should check your credit file, or report, at least once a year for any mistakes, which could include evidence of fraudulent accounts opened in your name.

By law, you’re entitled to one free credit report annually from each of the three credit bureaus.  You can get all three at a centralized website set up by the credit bureaus, called annualcreditreport.com.

Additional information

You can set something called a fraud alert on your credit report. A fraud alert requires businesses and lenders to verify your identity before they open a credit account in your name. These alerts are free and last for one year. When you put an alert on your file with one credit bureau, it will notify the other two to do the same.

Why is online security a big deal?

The change comes as a result of a hack attack about a year ago.

In September 2017, cybercriminals stole the personal details of 148 million U.S. consumers from Equifax, one of the three credit reporting bureaus in the U.S. The information taken included Social Security numbers, home addresses, credit card numbers, driver’s license numbers, birth dates, and passport information.

The stolen information is typically bought and sold by criminals on the black market, and via something called the dark web.

It’s likely that your information has been stolen in at least one of these breaches. Consumers can check to see if they were affected in the Equifax breach by entering their information at this website.

Numerous other companies in recent years have also suffered big hack attacks resulting in the loss of important customer data. Two such attacks include Yahoo, where names and email addresses for 1.5 billion customers were stolen in 2016, and JPMorgan Chase which lost names and logins for about 80 million accounts in 2014.

In 2015, health insurance provider Anthem lost nearly 40 million records, also affecting 80 million customers.

What can criminals do with my information?

• The Equifax break affected just about every U.S. consumer who has applied for credit and involves up to five pieces of personal information, which is enough for criminals to open accounts in your name.
• In addition to credit card accounts, cybercriminals can apply for other loans in your name, including mortgages. Additionally, they can commit medical insurance fraud, or file for tax returns. With your personal information, it’s also possible for cybercriminals to commit non-financial crimes in your name.
• Identity theft resulting in the opening of fraudulent accounts can affect your credit score.

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