FHA vs. Conventional Loans: Which Is Better?

When it comes to affording a new home, you have a few types of home loans to choose from. Prospective homebuyers often compare the FHA vs. the conventional loan when researching loans. Each loan type has certain stereotypes associated with them, but we are here to give you the facts about both FHA and conventional loans. This post will help you understand what each loan is, familiarize you with the differences between them, and provide some guidelines for how to pick which one is best for you.

What Is An FHA Loan?

An FHA loan is insured by the Federal Housing Administration (FHA). These loans are issued by private lenders, but lenders are protected from losses by the FHA if the homeowner fails to repay. FHA loans are generally used to refinance or buy a home.

What Is A Conventional Loan?

A conventional loan is supplied by a private lender and isn’t federally insured. Requirements for obtaining a conventional loan vary depending on the lender. When used to buy property, conventional loans are typically known as mortgages.

What Is A Conventional Loan?

Differences Between FHA and Conventional Loans

The main difference between FHA and conventional loans is whether or not they are insured by the federal government. Conventional loans aren’t federally backed, so it’s riskier for the lender to loan money. On the other hand, FHA loans are protected by the government, and as a result of less risk, they can typically offer better deals.

This difference in federal insurance is the reason why FHA and conventional loans vary when it comes to the details of the loan. Keep reading to learn the differences regarding credit requirements, minimum down payments, debt-to-income ratios, loan limits, mortgage insurance, and closing costs.

FHA Loan Conventional Loan
Minimum Credit Score 500 620
Minimum Down Payment 3.5% 3%
Maximum Debt-to-Income Ratio Credit score of 500: 43%
Credit score of 580+: 43-50%
Credit score of 620: 33-36%
Credit score of 740+: 36-45%
Loan Limits Low-cost counties: $356,362
High-cost counties: $822,375
Contiguous US: $548,250
High-cost counties, AK, HI, and US territories: $822,375
Mortgage Insurance Mortgage insurance premiums required. Private mortgage insurance required with down payments less than 20%.
Property Standards Stricter standards, property purchased must be a primary residence. Flexible standards, property purchased doesn’t have to be a primary residence.

Sources: FHA Single Family Housing Policy Handbook | Fannie Mae 1 2 | Federal Housing Finance Agency | Freddie Mac | HUD 1 2 | Consumer Financial Protection Bureau 1 2

Credit Score

Your credit score is a determining factor in your loan eligibility. Your credit score is measured on a scale of 300 (poor credit) to 850 (excellent credit). Good credit helps you get approved for loans more easily and at better rates. FHA and conventional loans differ in their credit score requirements and represent financial options for individuals at either end of the credit spectrum.

Minimum Credit Score for FHA Loan: 500

  • Accepts a credit score as low as 500, but usually with a 10% down payment
  • These loans accept lower credit scores because they are insured
  • Note: Some lenders may only issue FHA loans with higher credit scores

Minimum Credit Score for Conventional Loan: 620

  • Accepted score may vary from lender to lender
  • These loans are usually offered to individuals with strong credit because they present less risk to lenders

Minimum Down Payment

A down payment is the sum of money that is paid as a percentage of your purchase up-front.

Minimum Down Payment on an FHA loan:

  • 10% of your purchase with 500 credit score
  • 3.5% of your purchase with 580+ credit score

Minimum Down Payment on a Conventional Loan:

  • 3% of your purchase can be put down with good credit
  • 5% to 20% of your purchase price is typical

Debt-to-Income Ratio

Your debt-to-income ratio is the amount of money paid toward debt each month divided by your total monthly income. To be eligible for a loan, you must be at or below the maximum debt-to-income (DTI) ratio.

Maximum DTI Ratio Guidelines for FHA loans:

  • 43% with a credit score of 500
  • 43–50% with a credit score of 580

Maximum DTI Ratio Guidelines For Conventional Loans:

  • 33-36% with a credit score lower than 740
  • 36-45% with a credit score of 740 or higher
  • 50% highest allowed through Fannie Mae

Loan Limits

Both FHA and conventional loans have limits on the amount that you can borrow. Loan limits vary based on your location and the year your loan is borrowed. Find 2021 loan limits specific to your county through the Federal Housing Finance Agency.

2021 FHA Loan Limits

  • High-cost counties: $822,375
  • Low-cost counties: $356,362

2021 Conventional Loan Limits

  • Contiguous US (excluding high-cost counties): $548,250
  • Alaska, Hawaii, US territories, and high-cost counties: $822,375

Mortgage Insurance

Mortgage insurance is taken out to protect the lender from losses in case you fail to repay your loan. Whether you will pay private mortgage insurance or mortgage insurance premiums is based on your loan type and down payment percentage.

FHA Loan

  • Mortgage insurance is required for all FHA loans.
  • It is paid to the FHA in the form of mortgage insurance premiums and includes an up-front and monthly premium.
  • MIP payments last the entire life of your FHA loan.
  • To get rid of MIPs after paying 20% of your loan, you can choose to refinance into a conventional loan.

Conventional Loan

  • Private mortgage insurance (PMI) is only required when a down payment below 20% is made.
  • PMI comes in different forms: monthly premium, up-front premium, and split premiums.
  • PMI requirements stop once you have met one of three requirements:
    1. Principal loan amount is reduced to 80% before the loan term ends.
    2. At least 78% of the principal balance is scheduled to be paid down.
    3. The halfway point of your loan term has passed.

Property Standards

There are different property standards that must be met to use each loan. FHA loans have stricter requirements, while conventional loans have more flexibility.

FHA Loan

  • Property purchased with FHA loans must be your principal residence, meaning the borrower has to occupy the residence
  • FHA loans can’t be used to invest in property (e.g., renting out or flipping)
  • Title must be in the borrower’s name or name of a living trust

Conventional Loan

  • Property purchased with a conventional loan doesn’t have to be a principal residence — second or third residences are allowed
  • Conventional loans can be used to purchase investment properties

Pros and Cons of FHA vs. Conventional Loans

As a result of the various differences between FHA and conventional loans, each type has its respective pros and cons.

FHA Loan

Conventional Loan

Pros

  • Qualify with low credit and high DTI
  • Smaller down payments overall
  • More affordable with low credit
  • Lowest option for down payments with good credit
  • PMI cancellable
  • More affordable with good credit
  • Property doesn’t have to be your main home

Cons

  • Mortgage insurance premiums required for life of loan
  • Property purchased must be your main home
  • Need higher credit and lower DTI to qualify
  • Typically has larger down payments
  • PMI required with a down payment less than 20%

Pros and Cons of FHA Loans

FHA loans are government-regulated and insured to extend flexible opportunities for homeownership. They’re flexible regarding credit and DTI, but stricter about insurance and property standards.

Pros

  • Flexible qualification with low credit and high DTI
  • Smaller down payments overall
  • More affordable with low credit

Cons

  • Mortgage insurance premiums required for life of loan
  • Property purchased must be your primary residence

Pros and Cons of Conventional Loans

Conventional loans can also offer flexibility, but generally only if you have good credit and demonstrate reduced risk to the lender. These loans have stricter qualifications, but flexibility in other areas.

Pros

  • Lowest option for down payments (3% with good credit)
  • Private mortgage insurance can be canceled (must meet requirements)
  • More affordable with good credit
  • Property purchased doesn’t have to be a primary residence

Cons

  • Strict qualifications require higher credit and lower DTI
  • Larger down payments are typical
  • Private mortgage insurance required with a down payment less than 20%

Which Loan Is Better For You?

Both FHA and conventional loans have their advantages and disadvantages. Here are some general guidelines for when to use an FHA loan or a conventional loan.

When To Use an FHA Loan

  • You have a low credit score (500–619)
  • Your DTI ratio is on the higher side (between 45–50%)
  • You can only afford a small down payment
  • You plan to use the property as your primary residence

When To Use an FHA Loan

When To Use a Conventional Loan

  • Your credit score is fairly good (620 or above)
  • Your DTI ratio is on the lower side (33–36%)
  • You can afford a larger down payment
  • You want flexibility with insurance and repaying your loan

When To Use a Conventional Loan

It’s important to thoroughly research your options before choosing a loan. A key takeaway when comparing FHA vs. conventional loans is that FHA loans are federally insured and conventional loans aren’t. This distinction results in different qualification and payment requirements for each loan.

Use the information in this post to carefully compare the differences in accepted credit scores, minimum down payments, loan limits, maximum debt-to-income ratios, mortgage insurance and property standards. In doing so, choose the loan that works for your circumstances and helps you best afford the home of your dreams.

Sources: FHA Single Family Housing Policy Handbook | US Dept. of Housing and Urban Development | Federal Housing Finance Agency | Freddie Mac

The post FHA vs. Conventional Loans: Which Is Better? appeared first on MintLife Blog.

Source: mint.intuit.com

Why Refinance Rates Are Higher Than Purchase Loan Rates

Mortgage interest rates dropped dramatically over the summer, to the point where home loans have never been cheaper in most of our adult lifetimes. With rates at historic lows, you might’ve considered taking advantage of them, either by purchasing a new home or refinancing your current mortgage.

Recent figures from Freddie Mac show that mortgage refinances surged in the first quarter of 2020, with nearly $400 billion first home loans refinanced. However, as it turns out, refinancing your mortgage might actually be more expensive than purchasing a new home. 

This surprised us, too — why would there be a difference at all? 

We investigated how refinancing rates and new purchase home loan rates are set, and found several reasons for this rate disparity. On top of the rate difference, mortgage refinancing is even more difficult to qualify for, given the current economy.

Before rushing to refinance your home, read on to gather the information you need to make the right financial decision for your situation.

Pandemic Effects on Home Lending

Just as mortgage rates have stumbled, banks and lenders have tightened the screws on borrowers due to COVID-19, requiring higher credit scores and down payment amounts. Chase, for example, raised its minimum FICO score requirements for home purchases and refinances to 700 with a down payment requirement of at least 20%. 

Low rates have also driven a massive move to mortgage refinances. According to the same Freddie Mac report, 42% of homeowners who refinanced did so at a higher loan amount so they could “cash out.”

Unfortunately, homeowners who want to refinance might face the same stringent loan requirements as those who are taking out a purchase loan. Mortgage refinance rates are also generally higher than home purchase rates for a handful of reasons, all of which can make refinancing considerably less appealing. 

How Refinance Rates Are Priced

Although some lenders might not make it obvious that their refinance rates are higher, others make the higher prices for a home refinance clear. When you head to the mortgage section on the Wells Fargo website, for example, it lists rates for home purchases and refinances separately, with a .625 difference in rates for a thirty-year home loan. 

There are a few reasons why big banks might charge higher rates to refinance, including:

Added Refinance Fees

In August of 2020, Fannie Mae and Freddie Mac announced it was tacking on a .5% fee on refinance mortgages starting on September 1. This fee will be assessed on cash-out refinances and no cash-out refinances. According to Freddie Mac, the new fee was introduced “as a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty.”

By making refinancing more costly, lenders can taper the number of refinance loans they have to process, giving them more time to focus on purchase loans and other business.

Lenders Restraining New Application Volume

Demand for mortgage refinancing has been so high that some lenders are unable to handle all requests. Reluctant to add more employees to handle a surge that won’t last forever, many lenders are simply limiting the number of refinance applications they process, or setting additional terms that limit the number of loans that might qualify.

Also note that some lenders are prioritizing new purchase loans over mortgage refinance applications since new home buyers have deadlines to meet. With the housing market also on an upswing in many parts of the country, many major banks and lenders simply can’t keep up.

Rate Locks Cost Money

Generally speaking, it costs lenders more to lock the rate for refinance loans when compared to purchase loans. This is leaving lenders disinterested in allocating resources on the recent surge in mortgage refinance applications.

This is especially true since many refinancers might lock in a rate with one provider but switch lenders and lock in a rate again if interest rates go down. Lenders exist to turn a profit, after all, and it makes sense they would spend their time on loans that provide the greatest return.

Tighter Requirements Due to COVID-19

According to the Brookings Institute, Fannie Mae and Freddie Mac have been asking lenders to make sure any disruption to a borrower’s employment or income due to COVID-19 won’t impact their ability to repay their loan. 

Many lenders are also increasing the minimum credit score borrowers must have while making other requirements harder to meet. As an example, U.S. Bank increased its minimum credit score requirement to 680 for mortgage customers, and it also implemented a maximum debt-to-income ratio of 50 percent.

This combination of factors can make it difficult to save as much money with a refinance, or to even find a lender that’s willing to process your application. With this in mind, run the math and to see if refinancing is right for your situation before contacting a mortgage lender.

How Mortgage Purchase Rates Are Priced

Mortgage purchase rates are priced using a similar method as refinance rates. When you apply for a home mortgage, the lender looks at factors like your credit score, your income, your down payment and your other debt to determine your eligibility.

The overall economy also plays a giant role in mortgage rates for home loans, including purchase loans and refinance loans. Mortgage rates tend to go up during periods of speedy economic growth, and they tend to drop during periods of slower economic growth. Meanwhile, inflation can also play a role. Low levels of inflation contribute to lower interest rates on mortgage loans and other financial products.

Mortgage lenders can also price their loans based on the amount of business they have coming in, and whether they have the capacity to process more loans. They might lower rates to drum up business or raise rates when they’re at or nearing capacity. This is part of the reason rates can vary among lenders, and why it always makes sense to shop around for a home loan.

Many people believe that the Federal Reserve sets mortgage rates, but this is not exactly true. The Federal Reserve sets the federal funds rate, which lenders use to ensure they meet mandated cash reserve requirements. When the Fed raises this rate, banks have to pay more to borrow from one another, and these costs are often passed on to consumers. Likewise, costs can go down when the Fed lowers the federal funds rate, which can mean lower costs and interest rates for borrowers.

The Bottom Line

Refinancing your existing mortgage can absolutely make sense in terms of interest savings, but don’t rule out buying a new home instead. Buying a new home could help you save money on interest and get the space and the features you really want. 

Remember, there are steps you can take to become a more attractive borrower whether you choose to refinance or invest in a new place. You can’t control the economy or the Federal Reserve, but you have control over your personal finances.

Improving your credit score right away, and paying down debt to lower your debt-to-income ratio are just a couple of strategies to start. And if you’re planning on buying a new home, make sure you save a hefty down payment amount. These steps help you improve your chances at getting the best rates and terms whether you choose to move or stick with the home you have. 

The post Why Refinance Rates Are Higher Than Purchase Loan Rates appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

6 Things Your Mortgage Lender Wants You To Know About Getting a Home Loan During COVID-19

mortgage during coronavirusGetty Images

Getting a mortgage, paying your mortgage, refinancing your mortgage: These are all major undertakings, but during a pandemic, all of it becomes more complicated. Sometimes a lot more complicated.

But make no mistake, home buyers are still taking out and paying down mortgages during the current global health crisis. There have, in fact, been some silver linings amid the economic uncertainty—hello, record-low interest rates—but also plenty of changes to keep up with. Mortgage lending looks much different now than at the start of the year.

Whether you’re applying for a new mortgage, struggling to pay your current mortgage, or curious about refinancing, here’s what mortgage lenders from around the country want you to know.

1. Rates have dropped, but getting a mortgage has gotten more complicated

First, the good news about mortgage interest rates: “Rates have been very low in recent weeks, and have come back down to their absolute lowest levels in a long time,” says Yuri Umanski, senior mortgage consultant at Premia Relocation Mortgage in Troy, MI.

That means this could be a great time to take out a mortgage and lock in a low rate. But getting a mortgage is more difficult during a pandemic.

“Across the industry, underwriting a mortgage has become an even more complex process,” says Steve Kaminski, head of U.S. residential lending at TD Bank. “Many of the third-party partners that lenders rely on—county offices, appraisal firms, and title companies—have closed or taken steps to mitigate their exposure to COVID-19.”

Even if you can file your mortgage application online, Kaminski says many steps in the process traditionally happen in person, like getting notarization, conducting a home appraisal, and signing closing documents.

As social distancing makes these steps more difficult, you might have to settle for a “drive-by appraisal” instead of a thorough, more traditional appraisal inside the home.

“And curbside closings with masks and gloves started to pop up all over the country,” Umanski adds.

2. Be ready to prove (many times) that you can pay a mortgage

If you’ve lost your job or been furloughed, you might not be able to buy your dream house (or any house) right now.

“Whether you are buying a home or refinancing your current mortgage, you must be employed and on the job,” says Tim Ross, CEO of Ross Mortgage Corp. in Troy, MI. “If someone has a loan in process and becomes unemployed, their mortgage closing would have to wait until they have returned to work and received their first paycheck.”

Lenders are also taking extra steps to verify each borrower’s employment status, which means more red tape before you can get a loan.

Normally, lenders run two or three employment verifications before approving a new loan or refinancing, but “I am now seeing employment verification needed seven to 10 times—sometimes even every three days,” says Tiffany Wolf, regional director and senior loan officer at Cabrillo Mortgage in Palm Springs, CA. “Today’s borrowers need to be patient and readily available with additional documents during this difficult and uncharted time in history.”

3. Your credit score might not make the cut anymore

Economic uncertainty means lenders are just as nervous as borrowers, and some lenders are raising their requirements for borrowers’ credit scores.

“Many lenders who were previously able to approve FHA loans with credit scores as low as 580 are now requiring at least a 620 score to qualify,” says Randall Yates, founder and CEO of The Lenders Network.

Even if you aren’t in the market for a new home today, now is a good time to work on improving your credit score if you plan to buy in the future.

“These changes are temporary, but I would expect them to stay in place until the entire country is opened back up and the unemployment numbers drop considerably,” Yates says.

4. Forbearance isn’t forgiveness—you’ll eventually need to pay up

The CARES (Coronavirus Aid, Relief, and Economic Security) Act requires loan servicers to provide forbearance (aka deferment) to homeowners with federally backed mortgages. That means if you’ve lost your job and are struggling to make your mortgage payments, you could go months without owing a payment. But forbearance isn’t a given, and it isn’t always all it’s cracked up to be.

“The CARES Act is not designed to create a freedom from the obligation, and the forbearance is not forgiveness,” Ross says. “Missed payments will have to be made up.”

You’ll still be on the hook for the payments you missed after your forbearance period ends, so if you can afford to keep paying your mortgage now, you should.

To determine if you’re eligible for forbearance, call your loan servicer—don’t just stop making payments.

If your deferment period is ending and you’re still unable to make payments, you can request delaying payments for additional months, says Mark O’ Donovan, CEO of Chase Home Lending at JPMorgan Chase.

After you resume making your payments, you may be able to defer your missed payments to the end of your mortgage, O’Donovan says. Check with your loan servicer to be sure.

5. Don’t be too fast to refinance

Current homeowners might be eager to refinance and score a lower interest rate. It’s not a bad idea, but it’s not the best move for everyone.

“Homeowners should consider how long they expect to reside in their home,” Kaminski says. “They should also account for closing costs such as appraisal and title insurance policy fees, which vary by lender and market.”

If you plan to stay in your house for only the next two years, for example, refinancing might not be worth it—hefty closing costs could offset the savings you would gain from a lower interest rate.

“It’s also important to remember that refinancing is essentially underwriting a brand-new mortgage, so lenders will conduct income verification and may require the similar documentation as the first time around,” Kaminski adds.

6. Now could be a good time to take out a home equity loan

Right now, homeowners can also score low rates on a home equity line of credit, or HELOC, to finance major home improvements like a new roof or addition.

“This may be a great time to take out a home equity line to consolidate debt,” Umanski says. “This process will help reduce the total obligations on a monthly basis and allow for the balance to be refinanced into a much lower rate.”

Just be careful not to overimprove your home at a time when the economy and the housing market are both in flux.

The post 6 Things Your Mortgage Lender Wants You To Know About Getting a Home Loan During COVID-19 appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

Boost Your Credit Score: 8 Helpful Credit Monitoring Apps

Two smiling women look at credit monitoring apps on their cellphones.

Maintaining a healthy credit score requires a good bit of focus, determination and hard work. There’s a lot to keep up with: We need to pay our bills on time, reduce debt and maintain a low debt-to-credit ratio, among other requirements—all to ensure a top-notch credit score. We can use all the help we can get! To that end, here are eight credit monitoring apps that can help keep your credit building on track.

1. Credit.com

One of the only truly free credit monitoring apps—most others require you to have a paid subscription to their digital service in order to use the “free” app—the Credit.com mobile app allows you to access your entire credit profile, including your credit score and insight into how it compares to your peers. You’ll see where you currently stand, see how your score has changed—and why—and get credit information and money-saving tips tailored to your score.

Availability: Apple and Android

Cost: Free

2. myFICO

The myFICO app is free, but it requires an active myFICO account, which means it effectively costs $20 per month or more, depending on which features you want. With this app, though, you can view and monitor your FICO scores—the most widely used credit score—and credit reports. They also provide a FICO Score Simulator, which shows you how your score may be affected if you take certain actions.

Availability: Apple and Android

Cost: Free, but requires an active myFICO account

3. Lock & Alert from Equifax

Lock & Alert from Equifax lets you lock and unlock your Equifax credit report to protect against identity theft and fraud. You’ll get an alert any time your account is locked or unlocked so you know you’re the one in control. A credit lock is not as secure as a credit freeze, but it does offer some level of protection and is generally easier to turn on and off. This app works only for your Equifax credit report, so if you want to lock all three reports, you’ll have to work with TransUnion and Experian separately.

Availability: Apple and Android

Cost: Free

4. Experian

The Experian mobile credit monitoring app lets you track your Experian credit report and FICO score, with an automatically updated credit report every 30 days. The app also comes with Experian Boost, which can help you boost your score. The app alerts you when changes to your report or score occur, and offers suggested credit cards based on your FICO score.

Availability: Apple and Android

Cost: Free, but some features require a paid Experian account

5. Lexington Law

If you’ve signed up for credit repair services with Lexington Law, you can use their free mobile app to keep track of your progress. In addition to providing access to your credit reports from all three credit bureaus and updates on ongoing disputes, the money manager feature, similar to Mint, helps you track your income, spending, budgets and debts.

Availability: Apple and Android

Cost: Free, but requires a paid Lexington Law account

6. TransUnion

The TransUnion mobile app allows you to refresh your credit score and credit report daily to see where you stand. It offers instant alerts if anything changes and offers Credit Lock Plus, which allows you to lock your TransUnion credit report to avoid identity theft and fraud. The Debt Analysis tool lets you calculate your debt-to-income ratio, and it allows you to view public records associated with your name.

Availability: Apple and Android

Cost: Free, but requires a paid TransUnion Credit Monitoring account

7. ScoreSense Scores To Go

ScoreSense offers credit scores and reports from all three credit bureaus and daily credit monitoring and alerts to changes on your reports. This app also provides creditor contact information so you can address errors on your report quickly and efficiently. Score tracking features let you review how your score changes over time and how it compares to your peers.

Availability: Apple and Android

Cost: Free, but requires a paid ScoreSense account

8. Self

Self helps you build—and track—your credit, making it great for people just establishing their credit profile or trying to rebuild damaged credit. Self offers one- and two-year loan terms, but instead of getting the money up front, the amount is deposited into a CD. You make regular payments for the term of the loan (at least $25 per month), and then get access to the money. There is no hard inquiry to open the account, but your payments are reported to all three credit bureaus, helping build your credit. Plus, while you are repaying your loan, you will have access to free credit monitoring and you VantageScore so you can track your progress.

Availability: Apple and Android

Cost: Free, but requires a Self loan repayment of at least $25 per month

Credit Monitoring Apps to Fit Your Needs

With so many different options, you’re sure to find a credit monitoring app that meets your needs. And don’t forget: you can always check your score for free using Credit.com’s free Credit Report Card.

The post Boost Your Credit Score: 8 Helpful Credit Monitoring Apps appeared first on Credit.com.

Source: credit.com

How to Build Credit with Fingerhut

If you’ve been wanting to make a big purchase, but your credit is less than spectacular, you might have looked into Fingerhut as an option. 

Fingerhut is an online catalog and retailer that showcases a multitude of products. On this website, customers can shop for anything from electronics to home décor to auto parts. Fingerhut offers financing through their own line of credit, making it appealing to shoppers with poor credit or a nonexistent credit history. Many consumers have a better chance of getting approved by Fingerhut, than they might have of getting approved through most other credit card companies. It’s an option worth looking into if you want to improve your credit score through credit utilization.  

The major difference between Fingerhut and credit cards that cater to low credit scores is that Fingerhut credit is exclusively available for use with its own company’s products and authorized partners. You’ll also find that the company’s products are pricier than they would be through most other retailers, while also bearing the weight of higher interest rates. While it might seem like a good idea if you don’t have good credit, it’s best to familiarize yourself with the ins and outs of the company beforehand so that you know what you’re signing up for. 

How Fingerhut credit works

When you apply for a Fingerhut credit account, you can get approved by one of two accounts:

  • WebBank/Fingerhut Advantage Credit Account.
  • Fingerhut FreshStart Installment Loan issued by WebBank.

As it happens, by submitting your application, you are applying for both credit accounts. Applicants will be considered for the Fingerhut FreshStart Installment Loan issued by WebBank as a direct result of being denied for the WebBank/Fingerhut Advantage Credit Account. In other words, you won’t have a way of knowing which one you will be approved for prior to applying. Both credit accounts are issued by WebBank and are set up so that customers can purchase merchandise by paying for them on an installment plan with a 29.99% Annual Percentage Rate (APR). These are the only things that the different Fingerhut credit accounts have in common.

The WebBank/Fingerhut Advantage Credit Account

The WebBank/Fingerhut Advantage Credit Account works very much like an unsecured credit card, except that it’s an account that you can only use it to shop on Fingerhut or through its authorized partners. 

This credit account features:

  •  No annual fee.
  • A 29.99% interest rate.
  • A $38 fee on late or returned payments.
  • A possible down payment; it may or may not be required. You won’t know prior to applying. 

If you get denied for this line of credit, your application will automatically be reviewed for the Fingerhut FreshStart Credit Account issued by WebBank, which is both structured and conditioned differently.

Fingerhut FreshStart Installment Loan issued by WebBank

If you get approved for the Fingerhut FreshStart Installment Loan, you must follow these three steps to activate it:

  • Make a one-time purchase of no less than $50.
  • Put a minimum payment of $30 down on your purchase, and your order will be shipped to you upon receipt of your payment. You may not use a credit card to make down payments, but you can use a debit card, check, or a money order. 
  • Make monthly payments on your balance within a span of six to eight months.

You can become eligible to upgrade to the Fingerhut Advantage Credit Account so long as you are able to pay off your balance during that time frame or sooner without having made any late payments. Keep in mind that paying for the entire balance in full at the time you make your down payment will result in you not qualifying for the loan as well as being ineligible for upgrade. 

How a Fingerhut credit account helps raise your credit score

The fact that it can help you improve your credit is one of the biggest advantages of using a Fingerhut credit account. 

When you make your payments to Fingerhut in full and on-time, the company will report that activity to the three major credit bureaus. This means that your good credit utilization won’t go unnoticed nor unrewarded. If you use Fingerhut to improve your credit score, you will eventually be able to apply for a credit card through a traditional credit card company—one where you can make purchases anywhere, not just at Fingerhut. 

Additional benefits of a Fingerhut credit account

Besides using it as a tool to repair your bad credit, there are a few other benefits to using a WebBank Fingerhut Advantage Credit Account such as:

  • No annual fee.
  • Fingerhut has partnerships with a handful of other retailers, which means you can use your Fingerhut credit line to make purchases through a variety of companies. Fingerhut is partnered with companies that specialize in everything from floral arrangements to insurance plans.
  • There are no penalties on the WebBank Fingerhut Advantage Credit Account when you pay off your balance early.

How to build credit with Fingerhut

Fingerhut credit works the same way as the loans from credit card companies work: in the form of a revolving loan. 

A revolving loan is when you are designated a maximum credit limit by your lender, in which you are allowed to spend. Whatever you spend, you are expected to pay back in full and on-time through a series of monthly payments. This act of borrowing money and paying off bills using your Fingerhut account causes your balances to revolve and fluctuate, hence, its name. 

Your credit activity, good or bad, gets reported to the three major credit bureaus and in turn, will have an effect on your credit report. Revolving loans play a large role in your credit score, affecting approximately 30% of your score through your credit utilization ratio. If your credit utilization ratio, the amount of available revolving credit divided by your amount owed, is too high then your credit score will plummet. 

When using a Fingerhut account, the goal is to try to keep your amounts owed as low as you possibly can so that you can maintain a low utilization ratio, and as a result, have a higher credit score.

Alternatives to Fingerhut

If you’ve done all your research and decided that Fingerhut isn’t the right choice for you, there are other options that might serve you better, even if you have bad credit. There are a variety of secured credit cards that you can apply for such as:

  • The OpenSky Secured Visa Credit Card: You will need a $200 security deposit to qualify for this secured credit card, but you can most likely get approved without a credit check or even a bank account. It can also be used to improve your credit, as this card does report to the three major credit bureaus. While this card does come with an annual $35 fee, you can use it to shop anywhere that will accept a Visa. 
  • Discover it Secured:  For all those opposed to paying an annual fee of any sort, this card might just be the one for you. With a $0 annual fee and the ability to earn rewards through purchases, there’s not much to frown about with this secured credit card. One of the best perks, is that it allows you the chance to upgrade to an unsecured card after only eight months. 
  • Deserve Pro Mastercard: This card is a desirable option for those with a short credit history. There is no annual fee and no security deposit required and, if your credit history isn’t very long-winded, that’s okay. The issuers for this card may use their own process to decide whether or not you qualify for credit, by evaluating other factors such as income and employment. This card is especially nifty because you can get cash-back rewards such as 3% back on every dollar that you spend on travel and entertainment, 2% back on every dollar spent at restaurants, and 1% cash back on every dollar spent on anything else. 

Final Thoughts 

Fingerhut is an option worth looking into for those with bad credit or a short credit history. If you want to use a Fingerhunt credit account to improve your credit score, be sure to use it wisely and make all of your payments on time, just as you would with any other credit card.

Even though it might be easy to get approved, the prices and interest rates on items sold through Fingerhut are set higher than they would be at most other retailers, so it’s important to consider this before applying. 

There are a ton of options available, regardless of what your credit report looks like, if you are trying to improve your credit. If the prices of Fingerhut’s merchandise are enough to scare you away, you might want to consider applying for a secured credit card. 

How to Build Credit with Fingerhut is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

What Does Having a Derogatory Public Record on My Credit Report Mean

I Found a Judgment on My Credit Report. Now What?

Since the National Consumer Assistance Plan went into effect in 2017, public records must meet strict requirements in order to appear on consumer credit reports. Civil judgments and tax liens do not meet these new requirements, so they were removed from credit reports. At this point, the only derogatory public record that should appear on your credit report is bankruptcy. If a tax lien or civil judgment still appears on your credit report, you should dispute that record with the credit reporting agencies.

How Much Do Public Records Affect Credit Scores?

Bankruptcy can cause a FICO score to drop by 200 points or more. A filing may lower credit scores for seven to 10 years and be difficult to remove from a credit report unless any information is inaccurate.

The decision to exclude other public records slightly increased FICO scores for many consumers and resulted in increases of 20 to 40 points in some cases.

Bankruptcies and Your Credit Report

Bankruptcies are the one public record that are still included on your credit report. In most cases, they will remain on your report for seven to 10 years.

You can dispute an inaccurate report of bankruptcy or one being reported beyond the statute of limitations. Review your report for any inaccuracies and contact the credit bureaus to dispute inaccuracies if need be. If a credit bureau claims to have court verification of a bankruptcy, you should send a procedural letter to determine how they verified the public record on credit report. Follow up with the courts to determine whether the bankruptcy was actually verified.

〉 Learn more about when and why you should file bankruptcy and how doing so will affect your credit.

Civil Judgments and Your Credit Report

Civil judgments result when a creditor sues you for an outstanding debt and wins. That creditor then has more avenues for pursuing payment: they may now satisfy delinquent or outstanding debt through wage garnishment or by seizing funds from checking or savings accounts.

Judgments are no longer factored into credit scores, though they are still public record and can still impact your ability to qualify for credit or loans. Lenders may still check to see whether any outstanding judgments against a potential borrower exist. You should pay legitimate judgments and dispute inaccurate judgments to ensure these do not affect your finances unduly.

〉 Learn more about how to deal with civil judgments.

If a civil judgment is still on your credit report, file a dispute with the appropriate credit reporting agencies to have it removed.

Tax Liens and Your Credit Report

Tax liens are filed by the IRS when you don’t pay your taxes. A lien is automatically filed when you owe more than $10,000. When the IRS files a tax lien against you, it essentially gives the agency first dibs on any payment you receive from selling or liquidating your assets to pay your debts.

While tax liens are no longer reported on credit reports, they can significantly impact your financial situation in ways that indirectly affect your credit score.

〉 Learn more about tax liens.

If a tax lien is being reported on your credit report, file a dispute.

How to Deal with Derogatory Public Records

Although judgments and tax liens are no longer filed on credit reports or factored into credit scores, these penalties can undermine your financial standing. If a derogatory public record is filed against you‚ you should monitor the effects on your credit and ensure that information pertaining to your filing is accurate.

Check your reports regularly to ensure they are fair, accurate and up-to-date. You can watch for changes by getting your free Credit Report Card and credit score monitoring from Credit.com.

〉Sign up now!

The post What Does Having a Derogatory Public Record on My Credit Report Mean appeared first on Credit.com.

Source: credit.com

Does Refinancing Hurt Your Credit?

Before you make any big financial decision, it’s crucial to learn how it may affect your credit score. If you’re looking to refinance, it’s natural to wonder if it might hurt your credit.

Typically, your credit health will not be strongly affected by refinancing, but the answer isn’t always black and white. Whether you’re still considering your options or already made your choice, we’ve outlined what you need to know about refinancing below.

What Is Refinancing?

Refinancing is defined by taking on a new loan to pay off the balance of your existing loan balance. How you approach a refinancing decision depends on whether it’s for a home, car, student loan, or personal loan. Since refinancing is essentially replacing an existing debt obligation with another debt obligation under different terms, it’s not a decision to take lightly.

If you’re worried about how refinancing will affect your credit health, remember that there are multiple factors that play into whether or not it hurts your credit score, but the top three factors are:

1) Having a Solid Credit Score

You won’t be in a strong position to negotiate refinancing terms without decent credit.

2) Earning Sufficient Income

If you can’t prove that you can keep up with loan payments after refinancing, it won’t be possible.

3) Proving Sufficient Equity

You’ll also need to provide assurance that the payments will still be made if your income can’t cover the cost. It’s recommended that you should have at least a 20 percent equity in a property when refinancing a home.

 

criteria-for-being-able-to-refinance-successfully

 

How Does Refinancing Hurt Your Credit?

Refinancing might seem like a good option, but exactly how does refinancing hurt your credit? In short, refinancing may temporarily lower your credit score. As a reminder, the main loan-related factors that affect credit scores are credit inquiries and changes to loan balances and terms.

Credit Inquiries

Whenever you refinance, lenders run a hard credit inquiry to verify your credit score. Hard credit inquiries typically lower your credit scores by a few points. Try to avoid incurring several new inquiries by using smart rate shopping tactics. It also helps to get all your applications in during a 14–45 day window.

Keep in mind that credit inquiries made during a 14–45 day period could count as one inquiry when your scores are calculated, depending on the type of loan and its scoring model. Regardless, your credit won’t be permanently damaged because the impact of a hard inquiry on your credit decreases over time anyway.

Changes to Loan Balances and Terms

How much your credit score is impacted by changes to loan balances and terms depends on whether your refinanced loan is reported to the credit bureaus. Lenders may report it as the same loan with changes or as an entirely new loan with a new open date.

If your loan from refinancing is reported as a new loan, your credit score could be more prominently affected. This is because a new or recent open date usually means that it is a new credit obligation, therefore influencing the score more than if the terms of the existing loan are simply changed.

How Do Common Types of Refinancing Affect Your Credit?

Refinancing could help you pay off your loans quicker, which could actually improve your credit. However, there are multiple factors to keep in mind when refinancing different types of loans.

 

main-types-of-refinancing-that-can-affect-your-credit

 

Refinancing a Mortgage

Refinancing a mortgage has the biggest potential impact on your credit health, and it can definitely affect your FICO score. How can you prevent refinancing from hurting your credit too much? Try concentrating your credit inquiries when you shop mortgage rates to a 14–45 day window — this will help prevent multiple hard inquiries. Also, you can work with your lenders to avoid having them all run your credit, which could risk lowering your credit score.

If you’re unsure about when to refinance your mortgage, do your research to capitalize on the best timing. For example, refinancing your mortgage while rates are low could be a viable option for you — but it depends on your situation. Keep in mind that losing your record of paying an old mortgage on time could be harmful to your credit score. A cash-out refinance could be detrimental, too.

Refinancing an Auto Loan

As you figure out if refinancing your auto loan is worth it, be sure to do your due diligence. When refinancing an auto loan, you’re taking out a second loan to pay off your existing car debt. In some cases, refinancing a car loan could be a wise move that could reduce your interest rate or monthly payments. For example, if you’re dealing with an upside-down auto loan, you might consider refinancing.

However, there are many factors to consider before making an auto loan refinancing decision. If the loan with a lower monthly payment has a longer term agreement, will you be comfortable with that? After all, the longer it takes to pay off your car, the more likely it is to depreciate in value.

Refinancing Student Loans

When it comes to student loan refinancing, a lower interest rate could lead to major savings. Whether you’ve built up your own strong credit history or benefit from a cosigner, refinancing can be rewarding.

Usually, you can refinance both your federal and private student loans. Generally speaking, refinancing your student loans shouldn’t be detrimental in the grand scheme of your financial future. However, be aware that refinancing from a federal loan to a private loan will have an impact on the repayment options available to you. Since federal loans can offer significantly better repayment options than private loans, keep that in mind before making your decision.

Pros Cons
If the cost of borrowing is low, securing a lower interest rate is possible Credit scores can drop due to credit checks from lenders
If your credit score greatly improved, you can refinance to get a better rate Credit history can be negatively affected by closing a previous loan to refinance
Refinancing a loan can help you lower expenses in both the short term and long term Refinancing can involve fees, so be sure to do a cost-benefit analysis

How to Prevent Refinancing from Hurting Your Credit

By planning ahead, you can put yourself in a position to not let refinancing negatively affect your credit and overall financial health.

Try to prepare by reading your credit reports closely, making sure there are no errors that could keep your credit application from being approved at the best possible rate. Stay one step ahead of any errors so you still have time to dispute them. As long as you take preventative measures in the refinancing process to save yourself time and money, you shouldn’t find yourself struggling with the refinancing.

If refinancing makes sense for your situation, you shouldn’t be concerned about it hurting your credit. It might not be the most ideal situation, but it’s extremely common and typically relatively easy for your credit score to bounce back.

If you notice that your new loan from refinancing causes alarming changes when you check your credit score, be sure to reach out to your creditor or consider filing a dispute. As long as you’re prioritizing your overall financial health through smart decision making and budgeting, refinancing shouldn’t adversely hurt your credit in the long run.

 

 

 

The post Does Refinancing Hurt Your Credit? appeared first on MintLife Blog.

Source: mint.intuit.com

What’s the Fastest Way to Boost My Credit?

boost-my-credit

Article originally published September 1st, 2016. Updated October 29th, 2018. 

It’s a common question around these parts: how do I fix my credit? And, while credit scores do have a lot of nuances, the answer is actually pretty straightforward: pay all your bills by their due dates, keep your debt levels low, add a mix of accounts as you can afford it and voila! — your credit score should rise steadily over time.

Still, for people plagued with bad credit or someone looking to get the absolute best rates on a new loan, waiting it out can seem like an unattractive option — and so the question gets a little more pointed: how do I fix my credit fast?

Truth be told, there are no guarantees when it comes to getting a quick credit boost. Exact point increases will vary depending on your full credit profile and, even if you’re teetering toward top-tier credit, your score’s beholden to a lender’s schedule when it comes to reporting new information to the major credit bureaus.

Most creditors provide updates to the big three bureaus every month — meaning, yes, you can boost your credit in 30 days, but any shorter timeframe is admittedly a long shot.

Still, there are few steps you can take to try to raise your credit score in the short-term. Here’s a breakdown of ten of your best options.

1. Pay Down Your Credit Card Balances

Credit utilization ratio— how much debt you’re carrying vs. your total available credit — is a huge part of credit scores, second only to payment history. But while you can’t just erase a missed payment from your credit file (most negative information takes seven years to age off of your credit reports), you can pretty readily boost your utilization rate by wiping out big credit card debts.

Experts generally recommend keeping the amount of debt you owe collectively and on individual cards below at least 30% and ideally 10% of your credit limit(s).

So, if you’re close to maxing out one card and/or you’re carrying big balances on all of them, paying those debts down can result in a fast boost. Just be sure to pay charges off by your statement’s billing date as opposed to their actual due date because that’s when most creditors will update account information with the credit bureaus.

And, of course, refrain from making any new purchases once the debt’s been eradicated.

2. Ask for a Credit Limit Increase

Essentially, a different solution to the same problem — you may be able to improve your utilization rate by getting an issuer to give you a higher limit on one of your existing cards. Just be sure not to use up that extra credit. Otherwise, this move can have the opposite effect.

And be prepared to see an initial ding to your score — creditors sometimes pull your credit when you ask for a limit increase, and that could generate a hard inquiry on your credit reports and cost you a few points.

You might easily make up those points and then some, however, if the credit limit increase is large enough.

3. Get an Error Removed

Errors on credit reports are more common than you may think, so it’s important not to simply take a bad score at face value — particularly because getting an error removed can be one of the faster ways to fix your credit.

The Fair Credit Reporting Act requires that the bureaus investigate and remove items deemed to be errors within 30 days of a dispute being filed.

That’s why it’s a good idea to pull your credit reports — you can do so for free each year at AnnualCreditReport.com — and routinely review them for any inaccuracies that may be unduly weighing your credit down.

4. Clean up and Polish Your Credit Report

Once you receive a copy of your credit reports from the three major credit bureaus- Experian, Equifax, and Transunion, you can take a closer look at each item that is on there.

You have already read about getting an error removed, and this is a good step to take, but don’t stop there. Look for accounts you have on your credit profile that show late or missing payments and verify the accuracy of each item. If you see something that is wrong, send your dispute so that the problem can be investigated.

5. Attempt to Pay Twice Monthly

Yes, you may be paying your balances each month, and you are paying them on time, but you need to keep in mind that your creditors are reporting your balances to the credit bureaus only once per month.

If you have a credit card, for example, that you are constantly maxing out and reaching your limit on throughout the month, the statement you receive will show the balance. You make the payment, but since it was reported only once that month, it is basically showing that you are using 100% of the available balance on that credit card.

If you send in payments twice a month, however, you are essentially breaking up your payments, and you are effectively keeping your overall credit card balances much lower than if you continue to only pay once per month.

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