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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.

Does your January credit card statement have you feeling blue? Find out how personal loans could provide credit relief.

It Happens to the Best of Us

The holidays have come and gone. You may be feeling a bit relieved that all the seasonal hustle and bustle is over. Sure, it may be a bit cold outside. Sure, work is back in full swing. But, things are looking good with your New Year’s resolutions. You’re feeling optimistic and energized.

Then, you receive your January credit card bill. Whoa, the new balance is much higher than you expected. As you go down the list of purchases on your statement you ask yourself, “Did I really spend that much?” You also notice the available credit on your credit card is pretty low. There are some big purchases coming up in your future. You were planning on using your credit card to pay for them. Now, you no longer have enough available credit to pay for everything as planned.

With average credit card APRs over 16%, and many exceeding 20%, you know if you don’t pay your balance in full you’ll be hit with a hefty finance charge, which will be added to your outstanding credit card balance. And even worse, if you’re late making the minimum payment that’s due, you could be hit with a penalty APR, which can be as high as 29.99%.

Personal Loans Could Provide Credit Relief

This is where personal loans could provide credit relief. Unlike a credit card, which is a revolving line of credit, a personal loan is an unsecured loan that doesn’t require any collateral, such as a car or house. Personal loans come with a specific repayment period, usually between 1 and 7 years. Fixed interest rates are more common than variable interest rates, and some lenders will offer you a choice.

The main reason people take out personal loans is to pay off existing debt, such as high interest rate credit cards or loans. Other common reasons include making major purchases, for home improvement projects, for special occasions like weddings, to take a vacation, and to pay off medical bills.

Personal loans can range from as little as $1,000 to as high as $100,000. APRs vary widely among lenders and are based on the borrower’s (or co-signer’s) credit history, annual income, repayment term selected, and type of interest rate chosen. Some personal loans even come with money saving automatic payment discounts and loyalty discounts.

Tip: Some lenders charge upfront fees, which add to the total cost of the loan, so be sure to take that into account before choosing a lender.

A really nice feature for personal loans is how quick and easy the process can be. If you submit a completed loan application, you can receive a decision in a matter of minutes, and if approved, receive funds in your bank account as soon as the next business day, provided your application has no typos or errors.

Now that the holidays are over, you may be suffering from the post-holiday credit card blues. If so, check out a personal loan for credit relief from U-fi From Nelnet’s partner. It just may be what the doctor ordered.

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 Inquiries, which are placed on your credit report when you request credit. Credit inquiries 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 checks their credit report and credit score too.  Most lenders, like U-fi From Nelnet, 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 inquiries 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.