Tag Archive for: Credit Score

When it comes to your credit score, you may have heard the terms “hard credit check” or “soft credit check”—but what do they mean?

Soft Credit Check

When potential creditors request your credit report, they may use a soft check or inquiry. This type provides a basic check of your credit score, and doesn’t go into very much depth on your credit history. A soft credit check doesn’t have a negative impact on your credit score, while a hard credit check does impact it. Creditors don’t need your explicit permission to request this information, as it just shows what you would see on your own credit report.

For an example of a soft inquiry, say you received an application for student loan refinancing in the mail from a company like U-fi. Before you received those offers, the lender likely pre-screened your credit with a soft check. These companies only offer credit to consumers who meet certain qualifications. That means they’re looking for applicants with a credit score meeting their minimum credit standards, and you exceeded those standards.

Soft checks of your credit score are typically done by employers, insurance companies, landlords, and utility companies. They do soft checks on your credit report to understand how responsible you are with your finances. These organizations use your credit score and history to determine the likelihood that you’ll pay on time. This type of information can sometimes factor into whether you’ll have to pay a deposit for utility services.

U-fi uses soft credit checks to see if you meet the minimum criteria for refinancing and find out what rates you qualify for. Getting your rate with U-fi won’t impact your credit score and it won’t cost you a cent.

Hard Credit Check

A hard credit check or inquiry is different than a soft check. It does require your permission, and is usually triggered by your active request (i.e., application) for a loan or extension of credit. When you apply for a student loan or another type of loan, the creditor checks your credit report to evaluate your eligibility. With a hard credit inquiry, the lender looks at your credit score in much more depth, as well as all relevant details of your credit history to determine your creditworthiness before granting or denying you that loan.

Hard credit checks are often done by mortgage lenders, auto lenders, and credit card companies. These types of credit checks do have an impact on your credit score because they show you are actively seeking new credit. While a hard check usually has a limited impact on your credit score, its impact depends on your individual circumstances. You may still want to minimize the number of hard inquiries on your credit report just to be safe, since a high number of hard checks in a short time shows potential lenders that you might need a lot of money. This can be seen as a bad indicator if you are looking for a student loan.

The largest factors determining your credit score are payment history and amounts owed. Be sure to check up on your credit score regularly and look for ways to improve where you can, so that when those credit checks happen, you’re seen as a good candidate for a student loan, or whatever you may be applying for. If you’d like to read more about your credit score, U-fi can help you learn about why good credit is crucial.

If you’re considering refinancing your student loans, U-fi can identify the best rate you qualify for using a soft credit check and we’ll only trigger a hard check when you’re ready to accept the loan.

Credit Score Tip: When you’re looking for a loan pre-qualification or a rate quote, make sure to read the fine print to find out what type of initial check the lender will make on your credit report. Just remember that once you formally apply for the loan, the creditor needs to make a hard credit inquiry and review your credit score and history in much greater detail.

If you need to borrow private loans to help pay for college, be smart about it. That’s what U-fi is here for, and we’ll only use a soft inquiry to check the rates you qualify for. Get started with U-fi today.

Have you ever applied for a loan from a bank and wondered why you received a certain interest rate? I remember when I applied for a loan to buy my first house. I’d taken out a few student loans that I paid off, but I was still making payments on my auto loan, and had a couple of open credit cards. Since I’d never had a late payment, I assumed I would qualify for the lowest advertised interest rate. I had no idea what my credit score was.

After submitting my loan application, to my surprise, I wasn’t offered the lowest rate. “But why?” I asked the mortgage loan officer. I had never missed a payment on any of my loans or credit cards. Isn’t that what they should be concerned about? They told me my credit score wasn’t high enough to warrant their lowest rate.

After some research, I discovered the quality of the applicant’s credit score is one of the most important factors lenders consider when deciding to whether to extend credit. It’s also taken into account when deciding what terms and rates are offered. And, that a person’s credit report determines the person’s credit score.

What is a credit score?

A credit score is a numerical representation of your credit risk. That essentially means how likely you are to pay back the loan. Credit scores range from 300 to 850, and are used by lenders to easily and objectively evaluate your credit risk. Higher scores usually mean less credit risk. Most lenders require a minimum credit score before they offer you a loan. They also create credit score tiers used to determine what interest rate they offer. That’s why you should have as high a credit score as possible before applying for any loan, regardless of type.

What can you do to raise your credit score?

The first thing to know is it takes time to improve your credit score. While you can ruin your credit score very quickly, it can take several years of good behavior to increase it. This is especially true if you have had a credit mishap like a missed payment. Below are six suggestions to help you improve (or maintain) your credit score.

  1. Review your credit report annually. At least once per year, check your credit report for accuracy, and that nothing is on it that shouldn’t be. Reviewing your credit report can also help you protect yourself from identify theft, which could ruin your good credit. If you have any questions about your credit report, or wish to dispute an error, immediately contact the credit reporting agency that issued the report. Tip: You can get one free credit report per year from each of the three major credit reporting agencies simply by visiting www.AnnualCreditReport.com and requesting your free credit report. Unfortunately, you won’t find your credit score on your credit report. Some credit card providers have partnerships with one of the three large credit bureaus to provide free credit scores to their customers. Check to see if your credit card provider has such an arrangement.
  2. Pay your bills on time. This may seem like a no-brainer, but it’s important to make your payments on time, as any late or missed payments are likely reported to the credit bureaus. If you’ve missed a payment, get your account current and stay current. The longer you go without missing a payment, the more your credit score should increase.
  3. Pay down your credit card balances. When your credit cards have high balances, it gives you a high debt-to-credit ratio (also known as utilization rate) and can signal credit providers and lenders that you are facing financial difficulty.Tip: Don’t move your balance from one credit card to another as this won’t help.
  4. Only apply for a new loan or credit card when you truly need one. When you apply for a new credit card, you add a “hard inquiry” to your credit report, which causes your credit score to drop slightly in the short term. You may also be adding more new debt than you can afford to repay, both of which could negatively impact your credit.
  5. Enroll in automatic payments. Enroll in automatic payments through your credit card and loan providers to have payments automatically debited from your bank account. Most student loan providers offer an interest rate discount for automatic payments, so there is that added benefit as well. Tip: When setting up automatic payments on credit cards, if you choose to make only the minimum required payment, you could be rolling over large balances each month and get hit with high interest charges.

How Does It All Help?

Having a clean credit report and a high credit score can help you in many ways, including lowering the cost of borrowing, obtaining insurance, setting up housing utilities, getting a job offer, and more. If you are having trouble making your payments, be sure to speak with your credit card provider or lender before you miss a payment. It’s in their best interest to work with you to find a mutually agreeable solution, so you may be able to work out an arrangement that meets your needs.

If you’re reading this, you probably have at least one credit card already. Credit cards can be a helpful tool when used appropriately, including helping you establish credit and build your credit score. However, you can also damage your credit score if you develop bad habits with your credit cards. Here are some tips to help you avoid going down the wrong path so you can better manage your finances. You can also check out our Credit Card Tips sheet for additional information.

Looking for a New Credit Card?

If you’re in the market for a credit card, there are some important factors to keep in mind. First, do you already have a credit card? If so, why do you need an additional card? Typically, one is all you really need. If you open several new accounts within a short period of time, your credit score could be damaged. You could be perceived as a higher credit risk because you increased your capacity to take on more debt. This might ultimately be hard to repay.

If you’re looking for your first credit card, be sure to compare different offers and find the card that will work best for you. Here are some things to look for in a credit card:

  • Find a card with the lowest interest rate
  • Avoid outrageous fees (make sure you read all the fine print to understand what fees can be charged)
  • Be cautious of low introductory interest rates that can increase greatly after their initial low interest period

Managing Your Existing Credit Cards

Once you have a credit card, it’s best to have a solid game plan in advance. Sticking to your strategy ensures you won’t get in trouble financially and find yourself with an impossibly high balance.

Credit Card Goals

Here are four goals that will help you stay in control of your credit cards:

  1. Try to pay your balance in full each month. Think of your credit card as an extension of your bank account. That way, you won’t be tempted to charge more than you can afford. Just remember not to charge more than you could pay if you had used your debit card.
  2. If you can’t pay your balance in full, try not to carry much of a balance from month to month. Make a goal to pay more than the minimum monthly payment due. This will help you pay down your balance as quickly as possible. Keep in mind the balance you are carrying is also charged interest, which can make that original purchase more expensive.
  3. Don’t be late with any of your payments. Make sure you know your monthly payment due date. Even if you plan to pay the balance in full, it’s important to make that payment on time. You may want to set a reminder for yourself so you won’t miss that date. If you’re late by even one day, your credit card company may charge a higher interest rate and late fees. Additionally, being late on a payment may lower your credit score.
  4. Avoid impulse purchases and cash advances. Just because you have a credit card doesn’t mean you’re obligated to use it. Although it may be tempting to buy something expensive on credit, it’s better to take your time and save for that purchase. Remember that using your credit card to buy something expensive this month means paying for it over several months. And, you’ll end up paying a lot more than that original purchase price with the added interest charges. Finally, don’t use your credit card for cash advances at the ATM. You could be charged a fee, and may also pay a higher rate of interest on that transaction.

Use Credit Responsibly

Remember, credit cards can be a helpful financial tool when used responsibly. Do you currently have a balance with a high interest rate? Are you looking for a smart way to pay off that debt? A personal loan is a solution worth exploring to pay off your high rate credit card balances. You can find more information about personal loan solutions, as well as additional tools and resources at U-fi.com.

Thinking about applying for a new private student loan, or refinancing your existing federal and private student loans? Expect the lender to check your credit history and credit score. They do this to ensure you are not a credit risk. You can proactively take steps to improve your credit health and raise your credit score. Start with understanding what’s in your credit report, and what student loan lenders are looking for.

What is Credit?

Have you ever taken out a student loan or credit card? If so, you entered into an agreement to receive funds that must be paid back later. Unlike credit cards, student loans are repaid in installments over a set number of payments. This term is usually 5 to 25 years.

When you take out a student loan, most lenders or servicers notify at least one of the three major credit reporting agencies. These are Equifax, Experian, or TransUnion. They do this so they can include the new account on your credit report as a trade line. Each trade line contains detailed information. This information includes account name and number, loan type, date opened, original and current balance, payment status, and monthly payment.

The lender or servicer notifies the credit agencies of all loan activity. This activity includes payment date, amount of payment applied to principal and interest, and timeliness of payments. The credit agency records this information, which makes up part of your credit history.

Understanding Your Credit Report

While each credit reporting agency’s reporting format may be slightly different, they essentially include the same information:

  • Personal Information, such as your name, address (current and previous), Social Security number, date of birth, and other information that identifies who you are.
  • Credit History, including your open and closed accounts, original loan amounts, current balances, and payment history.
  • Public Records, such as delinquent accounts, liens, and bankruptcies. Public records can remain on your credit report for many years, which will affect your ability to obtain future credit.
  • Credit Inquires, which are placed on your credit report when you request credit. Credit inquires remain on your file for two years.

Tip: Federal law entitles you to a free copy of your credit report each year from all three credit reporting agencies. Take advantage of this and check your report from each credit bureau annually. This ensures your personal information is accurate and up to date. To get a free credit report, visit www.AnnualCreditReport.com or call 877-FACTACT. If something on your report looks inaccurate, be sure to contact the credit agency immediately to have it addressed. Unfortunately the credit reports will not include your credit score.

What Student Loan Lenders Look For When Checking Your Credit

When making a credit decision, private student loan lenders check your credit report and credit score. They do this to determine whether you are an acceptable risk, and what interest rate they should charge you. If you have a cosigner, lender check their credit report and credit score too.  Most lenders, like U-fi, will want to see an adequate credit history, a track record of making on-time payments, how much debt you have outstanding, and a good credit score. Lenders also ask how much income you have to determine whether you, or your cosigner, have enough monthly income to make monthly payments.

To increase your chances of being approved and receiving a low interest rate for a new student loan or a student refinance loan, you and/or your cosigner will want to have at least two open trade lines, be no more than 30 days past due on more than one account, and have no public records for the past five years. Most lenders will also want to see a good credit score. While each lender is different, if you have a credit score above 700, you will generally be considered a good credit risk.

Tip: When shopping for a private student loan or student refinance loan you should complete all your applications within a short window (e.g. 30 days), since multiple credit inquires within a brief time period will have little impact on your credit score.

How Does Your Credit History Affect Your Credit Score?

Your credit score is a number that summarizes your credit risk at any moment in time. While there are several types of credit scores, 90% of lending decisions use a FICO score. Fair Isaac Corporation creates the FICO score. FICO scores range from a low of 300 to a high of 850, with higher being better. FICO scores are made up of the following:

  • 35%: Payment History – have you made your past payments on time?
  • 30%: Amount Owed – how much debt do you owe and how much of your available credit has been used?
  • 15%: Length of Credit History – how long have you been using credit?
  • 10%: New Credit – how much of your debt has been opened recently?
  • 10%: Types of Credit Used – do you have different types of credit such as credit cards, installment loans, and mortgages?

Tip: FICO scores can change from month to month due to several factors. Not having too much debt, and making full payments on time, over a long period gives lenders more confidence you will repay them. That increases the likelihood they will extend you credit at a lower interest rate.

Understanding what’s on your credit report and how it impacts your ability to get a good credit rate is extremely important. If you notice something incorrect on your credit report, call the credit agency immediately. Work with them to correct any problems. A better credit history and higher credit score means a better shot at approval and a low interest rate. Your credit could save you a lot of money on your student loans. It can also ensure additional credit is there for you when you need it most.

Your credit score is a three-digit number that can determine a lot. Credit scores are calculated using a number of factors. These include on-time payments, number of credit cards you have and their balances, and length of your credit history. Your credit score is used to determine your qualifications for loans, credit cards, apartments, and many other things. It’s important to know your score and what it means.

What is a good credit score?

If you look at five different websites, you will likely get five different answers to this question. These varying answers occur because each lender has a different definition of good credit. They each place varying importance on the factors they consider when determining if they will lend to you

Credit Score Composition

35% Payment history
30% Amounts owed on credit and debt
15% Length of credit history
10% New credit
10% Types of credit used

The higher the credit score, the less likely that person is to become delinquent on any future loans. Lenders take this into consideration when determining how much risk they take on by loaning you money. If you are low-risk, you are more likely to get a better interest rate on your loan.

Who checks my credit?

Banks and credit card institutions aren’t the only entities using your credit history to make decisions. In most cases, you must consent for a party to check your credit, but they do not always require your permission. Landlords, current or future employers, insurance companies, mobile service providers, utility companies, as well as television and internet providers may use your credit to decide whether or not do to business with you. While some businesses, like public utility companies, cannot deny you service for having poor credit, they might require you to pay a deposit before turning on your service.

How do I check my credit score?

You get one free credit report every 12 months from each of the three credit reporting agencies (Equifax, Experian, and TransUnion). Visit AnnualCreditReport.com to request your free credit reports. If you want to monitor your credit more frequently, sites like Credit Karma will offer you free credit scores, reports, and recommendations to maintain or better your credit.

How do I attain and keep a good credit score?

Improving your credit score is a long, ongoing process. When it comes to credit cards, you should pay down your balances and keep them low. Your score can also benefit from reducing the amount of credit cards you use to just one or two cards. To keep your credit score high, make sure you make all of your monthly payments on time, pay off your credit cards in full every month, work hard to reduce any debt that you owe, and only spend the money you’ve earned.

Credit will play an important role in financial decisions throughout your life, and while it’s possible to rebuild a poor credit score, it can take years and a lot of planning. When you begin establishing credit, make sure you are making responsible financial decisions to avoid having a poor decision now, affect your opportunities later in life.