Chapter 1

What is a Rainy Day Fund?

Financial mishaps and issues come up all the time, some bigger than others. Rainy day funds are designed for the “smaller” fiscal emergency. According to the Federal Reserve Board, about 44 percent of adults have to borrow money, sell belongings, or otherwise make sacrifices to pay for an emergency cost of $400. That means a sudden home repair or a parking ticket could be enough to throw a wrench into your monthly budget or even force you into debt due to this expenditure.


This is where a rainy day fund comes into play. This rainy day fund balance ensures that you have the money that you need for sudden spending or living expenses.

Chapter 2

Rainy Day Fund vs. Emergency Fund

It’s easy for people to group rainy day funds and emergency savings together, and it’s true that they share general similarities. They are both designed for expenses that can show up in your everyday life, but it’s important to treat the two savings differently because they do have their specific applications. The main differences between the two are their size and scope.

Rainy day funds are for smaller, occasional expenses, while emergency funds are for larger expenses that can truly upend your life.

Rainy Day FundEmergency Fund
Smaller unpredictable expenses that don’t cause finances to spiral out of controlLarger unexpected expenses that can have a significant impact on your finances
Home maintenance, routine medical expenses, car repairs, etc.Job loss, divorce, medical emergencies that prevent you from working
Most experts recommend having $1,000 for a rainy dayMost experts recommend saving about 3-6 months of average monthly living expenses in case of a fiscal emergency

You should ideally have both a rainy day fund and an emergency fund.

Both funds can be placed in separate savings accounts. Some experts suggest putting your emergency savings in an account that will gain interest, like a money market fund or certificate of deposit. While this isn’t a terrible idea, just keep in mind that money kept in an investment account typically takes a few days to access, which could be a problem if you’re in an emergency and need money at a moment’s notice. You generally want both rainy day and emergency funds to be as liquid as possible, ensuring easy and immediate access when you need it.

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Chapter 3

Why a Rainy Day Fund is Important

As rainy day funds can be such a relatively small expense (at least compared to other forms of savings), it can be tempting to not bother with them at all and dip into your main checking account when an expense does arise. Why is a rainy day fund important in the first place?

Financial Stability

As mentioned, even small expenses are enough to throw your monthly budget out of sync. At worst, a sudden expense can have you taking out more loans, which can lead to further financial issues. Keeping a separate rainy day fund keeps you financially stable. Your main checking account is left completely intact, so you don’t have to worry about your regular, everyday budget.

Peace of Mind

As much as you pay attention to your money and finances, it is easy for any expense to sneak up on you. That feeling can leave you perpetually anxious about every little thing. Having a rainy day fund just brings peace of mind. Whenever a sudden expense or unexpected bill comes up, you won’t have to worry about not having enough money or reaching a negative balance in your checking account. It’s just easier going to bed knowing that, even if something does come up, you are fully prepared to deal with it without going bankrupt.

Avoiding Debt

Without a rainy day savings fund, you may have to charge it to your credit card or take out a personal loan. Both usually involve high-interest rates, which means you’ll essentially be paying more for that unexpected expense than you initially anticipated. That could eventually lead to lower credit scores, which can have a larger impact on future spending.

Chapter 4

How Much Should You Have in a Rainy Day Fund?

The exact amount of money in a rainy day fund will vary from person to person based on a whole host of factors, from the monthly budget to job type to family status. For the average adult, most experts recommend $1,000 as a good goal. While you can obviously build off of that even more, $1,000 is usually enough to cover a car repair or minor health expense.

The recommended amount for a rainy day fund is $1,000.

To truly get a handle on your rainy day fund, start by considering any potential future expenses. Make a list of expenses that will likely come up in the coming years. That could include home repairs, car maintenance, veterinary bills, and your kids’ orthodontics. Your rainy day fund would ideally equate to at least the highest you might expect to pay for any single unexpected bill. Car repairs will range in price, but common repairs will typically cost about $400 to $700. It’s also a good idea to gradually increase your rainy day financial goal in case you get two rainy day expenses that happen close together.


On top of your rainy day fund, you can rest easy knowing that Possible Finance offers fast, affordable, risk-free payday loan alternatives. You can borrow up to $500 payday loans fast, regardless of your credit, and the repayment plans are flexible while allowing you to build your credit history.

Where to Keep Your Rainy Day Fund

With your rainy day fund in hand, you need a safe and secure place to put that revenue. As mentioned, you want the money to be as liquid as possible. That means putting it somewhere that is easy to access at a moment’s notice, but adding some interest along the way doesn’t hurt.

Savings Account
A savings account is probably the easiest option for most people. They offer better interest rates than any checking account, and they are FDIC insured. They are also relatively easy to open, especially if you already have a checking account with the bank branch. 

Money Markets
Money markets are also a common place to put your rainy day fund. Money markets are essentially a type of short-term debt investment. They offer much higher interest rates than even savings accounts. However, money market accounts typically have minimum balance requirements, and they may limit the number of withdrawals you can perform each month.

Where to Avoid Storing Your Rainy Day Fund

Checking Accounts
You generally want to avoid just keeping your rainy day fund in a separate checking account. Most don’t offer any interest, and while checking accounts are easy to access, they might be a little too easy to access. It can be tempting to spend that cash.

Certificate of Deposit
Avoid keeping your rainy day fund in a certificate of deposit (CD). While they do offer good interest rates, CDs can be highly inaccessible. Withdrawn money can take a few days to process, and many CDs charge penalties when you make withdrawals prior to the end of the term. That can be a lot of trouble for a fairly small amount of money reserved for rainy days.

Chapter 5

Tips for Starting a Rainy Day Fund

Set up a direct deposit or money transfer

One of the easiest ways to get started with your rainy day fund is to make some small deposits or transfers from your paycheck every month to this reserve fund. Just $50 per month gets you to $600 by the end of the year. Factoring in interest and any cash gifts or other windfalls, it can be easy to build up a small rainy day fund fairly quickly.

Download a saving app

The digital market offers an expansive range of saving and budgeting apps that allow you to easily save and transfer money between bank accounts. Many of these apps work by building out your budget and calculating what you’re safe to save in a given month, which can take a lot of the math and pressure off your shoulders.

Set up multiple savings accounts

Go that extra step by setting up multiple savings accounts for different categories. For instance, you could have one account for potential medical expenses, one for automotive costs, and one for home repairs. Get into the habit of putting a little money into each bucket. This ensures that you are truly prepared for multiple rainy day emergencies. Mentally, creating these categories will prevent you from paying for computer repairs using your medical funds.

Avoid a single savings account

Most people operate their savings account as a sort of secondary checking account. They throw money into it and then take money out of it when their checking balance gets low. This sort of passive saving becomes purposeless, and you may find yourself without sufficient funds when you do run into an emergency.

Rainy day funds can seem extraneous, but you’ll thank yourself later for having this budget stabilization fund. If you need some extra help with a sudden expense, Possible Finance offers alternative payday loans that are easy to access and afford, giving you extra flexibility for when you do experience a rainy day.

Sources

Chang Fu

Chang is an avid writer, among other things, at Possible. He grew up loving reading and writing, creating his own poems and even a book he's now hidden in an old closet, unpublished. His financial experience at a large bank along with his passion for technology to help underserved communities inspires him to write for Possible.

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Chapter 1

Getting Approved for Installment Credit

Unlike payday loans (usually single payment or paid in a lump sum), short term loans, or certain credit cards, a loan application for installment credit may be more difficult to qualify for. Installment lenders may look at:

Credit scores and previous credit inquiries

income and work history

personal identification

purchase data and other underwriting factors

collateral for the loan, such as the house or car

The approval process for installment credit can be as short as 1 day and as long as a week. There are home mortgages that take weeks to finalize due to unexpected issues that arise. But an installment loan with Possible Finance can take as little as a few minutes to apply for and get approved.

The approval process for installment credit can be as short as 1 day and as long as a week.

Chapter 2

Installment Credit vs Revolving Credit

Installment credit is a loan that is repaid back in fixed payments, usually monthly payments, during a set term. In contrast, revolving credit has a limit to the amount that can be borrowed but has no fixed payment schedule. Instead, the borrower of revolving credit makes charges, repays some or all of those charges, and continues to make charges. The most common form of revolving credit is credit cards. Folks with high credit card balances (revolving credit) may often consolidate their debt into an installment loan.

Installment credit is repaid back in fixed payments while revolving credit has a loan limit and no fixed payment schedule.

Both revolving credit and installment credit affect your credit score. Payment history is a big factor for installment credit. You’ll want to make sure you don’t miss an installment payment and that you pay on time.

Chapter 3

Does Installment Credit Hurt Your Credit Score?

Like with most loans, installment credit is reported to credit bureaus and will only hurt your credit score if you are not paying your loan payments on time.

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Chapter 4

Pros and Cons of Installment Credit

Pros

Installment credit comes with predictable and periodic payments. The loan agreement has a set schedule of when amounts need to be repaid and borrowers can plan in advance and budget accordingly. That also means you can build positive credit history since lenders will report installment payments to the credit bureaus like TransUnion, Experian, and Equifax.

Many forms of installment credit such as mortgages allow for early prepayment. So if you have the funds to pay off a part of your installment credit early, you will save on the total amount of interest paid over the life of the loan.

Annual percentage rate of interest (APR) is lower than many credit cards and short-term loan options such as payday loans, pawnshops, payday advance apps, and title loans.

Cons

Unlike credit cards or lines of credit, you cannot add to the amount of an installment loan easily. You’ll need to take out a new loan and go through another loan application and approval process to borrow additional funds.

A borrower's creditworthiness is important and installment credit lenders may have a minimum credit score requirement. Your credit score is calculated from your previous repayment history, credit utilization ratio, types of credit, and other factors and depends on the credit scoring model used (VantageScore and FICO score are two examples). The lower your credit score, the higher the interest rate your lender will charge. You might want to borrow elsewhere if you have bad credit or improve your credit to reduce the interest rate you have to pay to borrow money.

Installment credit can come with other fees and charges such as origination fees, credit check fees, fees for late payments, finance charges, and prepayment penalties. Read your loan agreement and understand your loan terms before accepting your loan.

Chapter 5

Types of Installment Credit or Installment Debt

Mortgage loan

A mortgage loan is secured by property or real estate, usually paid back in monthly payments consisting of both principal and interest over the term of the loan. The most common term of a mortgage is 30 years. Principal is the repayment of the original loan balance while interest is the cost of borrowing the principal. The lender of a mortgage has a claim on the property if the borrower defaults on the loan. The process of applying for a mortgage can be stressful and take a few weeks. An appraisal of the property value must be performed and the lender uses a considerable amount of borrower information as well as property information to underwrite and approve the loan.

auto loan

Over 85% of new cars are financed with a car loan. There are two primary methods – direct where the lender works with the borrower directly and indirect where the car dealership arranges financing with the lender for the borrower. The collateral for the car loan is the car itself, meaning the lender can possess the car if the borrower defaults on the loan. The majority of car loans have monthly payments of principal and interest and are usually paid off in 5-7 years. The application process is detailed and almost always requires a hard credit check. If you have poor credit, you can find auto lenders for bad credit and still buy a car.

student loan

A student loan is a type of loan designed to help students with post-secondary education including tuition fees, books, and living expenses. The interest is usually lower than other loans and the installment payments may be deferred until the student finishes school. In the US, student loans are regulated and there are strict laws around repayment period, renegotiation, and bankruptcy. Most college students can qualify for federal student loans while the qualification criteria from private lenders can vary but may include credit score, income of parents, and other financial considerations.

personal loan

A personal loan is money borrowed from a bank, financial institution, or other lender than is usually repaid back in installments over a 2-5 year period. Personal installment loans are usually unsecured, meaning there is no collateral backing the loan. In addition, the borrower can use the money for anything. When applying, lenders may check your credit score, debt-to-income ratio, monthly income, credit utilization, and other information as part of underwriting and to determine whether to approve you for a personal loan. Even if you have poor credit, you can still find unsecured personal loans for bad credit. Loan APRs can range from 6% to 36%, and personal loans can be a good way to consolidate more expensive debt such as short-term loans, payday loans, and credit card debt.

Chapter 6

Example Lenders of Installment Credit

We’ve included three installment loan direct lenders that serve a variety of customers. There are many lenders out there and be sure to do your own due diligence and research before getting a loan from any brick and mortar or online lender.

Possible Finance has installment credit or loans that are repaid back over two months in multiple paychecks. If you have a low credit score or no credit score, you can apply and get approved with Possible Finance easier than other lenders. Possible does not check your FICO score and just uses your bank transaction history and your personal details to approve you for a loan. Repaying your loan with Possible Finance on-time can help build positive credit history and improve your long-term financial health. The APR for loans with Possible Finance will be higher than other installment credit products and installment accounts including most personal loans and credit cards – this is because many of their customers have trouble accessing these products due to the stringent requirements and credit checks done on the borrower.

SoFi is a financial company that offers student loans, home loans, personal loans, and a variety of other financial products. They may or may not be the direct lender depending on the loan they offer. Most of their student loans, home loans, and personal loans are considered installment loans or credit because they are repaid back in fixed installments over a scheduled period of time. Because of their size and funding, they have competitive rates across a wide breadth of products. However, most of their products will require a credit check and have specific requirements on income and other underwriting criteria. Please note that we are not affiliated with SoFi.

PenFed is one of many financial institutions that offer personal loans along with a variety of other credit products. Their personal loans can be used for things such as home renovations, debt consolidation, travel and vacation, and auto repairs. The personal loans are usually unsecured, meaning there is no collateral associated with the loan. The application process, credit score minimums, APRs and origination fees can range depending on the product and what you’re looking for. Please note that we are not affiliated with PenFed Credit Union.

Chapter 7

Alternatives to Installment Credit

credit card

A credit card is a type of revolving credit in which a borrower can purchase goods or services “on credit” and pay back part or all of the balance every month. The borrower can only purchase goods or services up to a certain amount outstanding up to a credit limit. Although the minimum payment on a credit card every month can be a low amount of the outstanding, APRs on consumer credit cards are often higher than other types of credit, including most personal loans. To qualify for a credit card, you’ll need to apply and get approved. Most consumer credit card issuers will check your credit score when you apply.

revolving line of credit

A revolving line of credit or revolving account involves a bank or financial institution offering a certain amount of available credit for a set period of time or for an indeterminate amount of time. The debt on the line of credit can be paid periodically and borrowed again once it is repaid. A credit card is a form of a revolving line of credit but you can also ask a bank or financial institution for a line of credit separately, especially since they are usually cheaper than having outstanding amounts on a credit card. However, research into whether there are other fees such as origination fees when evaluating between a revolving line of credit, revolving credit card, or installment credit.

Payday Or Other Short-Term Loan

A payday loan or other short term loan is an unsecured single payment loan usually due on the next payday. A typical payday loan will have an annual percentage rate of interest (APR) of 400%, substantially higher than most other types of borrowings. Borrowers still use payday and other short term loans because applying may not require a credit check and the requirements to get a payday loan are less than many other types of installment or revolving credit. In addition, most payday lenders can offer money in minutes, whether through instant cash loans or on the debit card.

friends or family

Getting a loan isn’t always the best solution, especially if you have bad or no credit and borrowing can be expensive. If your friends or family are willing to spot you some money, go for it! Be sure to write up an agreement even though you are borrowing from someone you know – it prevents sticky conflicts with the folks you care about. In addition, treat it as a loan and repay it back similar to how you would repay back a loan with a financial institution. Your friends and family will appreciate that!

Final Verdict

On one of our iTunes reviews, a Possible Finance customer mentioned that borrowing from Possible Finance is like borrowing from a good friend plus it builds credit! We believe that’s absolutely true and hold ourselves accountable to providing the best service and support for our customers. We believe in fair and affordable access to credit and want you to be able to build credit history and improve your long-term financial health.

There are many types of installment credit out there – mortgages, personal loans, online installment loans (including Possible Finance), and others. These types of installment loans can be used for specific situations and have their own pros and cons. Some have little application requirements, require little or no credit, but will have higher interest rates and fees. Others are more stringent, have a minimum credit score, and have lower interest rates and fees. Do the research and find the best option for your financial profile. Your wallet will thank you!

Sources

Chang Fu

Chang is an avid writer, among other things, at Possible. He grew up loving reading and writing, creating his own poems and even a book he's now hidden in an old closet, unpublished. His financial experience at a large bank along with his passion for technology to help underserved communities inspires him to write for Possible.

A Possible loan doesn’t use your credit score.

Get up to $500* and build credit.
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Chapter 1

What is a FICO Score?

Your FICO Score is a credit score that lenders use to determine your potential risk factor. That is, whether you are more likely to pay them back (low risk) or more likely to default on your payments (high risk). Your FICO Score is calculated using data collected from your credit report. Scores range from 300 to 850. The higher you are able to boost your score, the lower risk you’re considered to be. Typically, credit ratings range from “poor” to “excellent”.

Below are a few examples of credit scores and where they fall within this range:

A 550 credit score would be considered poor

A score of 700 is generally considered “good”

A score of 800 and above is considered “excellent”

With that said, average credit scores typically range from 600 to 750. Read on to find out why your FICO Score is important and how you can improve yours.

Chapter 2

Why a good FICO Score is important

Having a high FICO Score reassures lenders that your track record has shown that you are likely to be able to keep up with your obligations to them. In return, they’re able to offer you their best interest rates and repayment terms. Being approved for credit under better terms can save you thousands of dollars, improve your overall financial health, and put you a step closer to achieving your personal finance goals.


Not only does an excellent credit score give you access to the best financial options out there, but auto insurers and property management agencies also evaluate your FICO score. This means a higher FICO score can get you to lower auto insurance rates and improve your chances of being approved for that place you’re hoping to rent. If homeownership is something you’re hopeful for, a good FICO score can also help get you there.

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Chapter 3

What's included in your FICO Score?

You may not know that you have more than one FICO Score. The Fair Isaac Corporation regularly updates the formulas they use to calculate FICO Scores and create new versions. Some versions are industry-specific and some are newer, like FICO Score 9. For more information, check out Fair Isaac Corporation’s website.


For this article’s purpose, we’re going to focus on the FICO Score formula most commonly used by lenders — FICO Score 8. Below we’ve provided a breakdown of the factors that make up your FICO Score 8 and the impact each of those factors has on your overall credit score.

Payment history (35%)

Your payment history is the most important factor in your FICO Score. Does a one day late payment affect credit score? It won’t show up on your credit report, but lenders want to be sure that you can make your payments on time. If you have consistently made on-time payments to previous lenders, you will likely be able to make your payments to them.

Credit utilization (30%)

The second most important factor in your FICO Score is how much of your available credit you’re using. If you’re using a large portion of your overall credit, lenders may perceive you as being overextended and at risk for defaulting on payments. 

Length of credit history (15%)

Lenders want to know the average age of all of your credit accounts, the age of your oldest and newest accounts, and when you last used your accounts. Showing consistency over the long term is important for demonstrating your ability to be consistent going forward. 

Credit Mix (10%)

There are different types of credit. Most credit accounts fall under one of two major categories: revolving or installment. Revolving credit accounts include credit cards, retail cards, and lines of credit. Installment accounts include things like auto loans, personal loans, and mortgages. Lenders like to see that you’ve demonstrated an ability to manage different types of credit accounts. 

New credit (10%)

Every time you open a new credit account, it shows up on your credit report. Opening too many new accounts over a short period may mean that you’re taking on more than you can handle. This could mean that you’re at risk of defaulting on your payments to them.  

Something to consider when you’re learning how to build a credit score is that your own credit profile is unique and lenders also look at other factors when making their lending decision, like your income and how long you’ve been with your current employer.

Chapter 4

How to improve FICO Score

Now that you know what’s included in your FICO Score, you’re probably wondering how to raise FICO score. We’ve got you covered. Below we’ve provided some of the best recommendations out there.

Check your credit report regularly

You have to start somewhere. The first step to improving your credit score is knowing what it is and monitoring it regularly. You can do this by signing up for a free credit-monitoring service like Credit Karma or a paid credit-monitoring subscription service like PrivacyGuard. It’s important to keep in mind that these services provide very close estimates of your FICO Score, but they are not actual. 

There are a few different ways to get your actual FICO Score, you can sign up at freecreditscore.com or see if your credit card company provides you with access to it as part of your cardholder benefits.  

Regularly checking your credit report will help give you an idea of where you’re at, set goals, and catch any errors that need to be corrected.

Dispute inaccuracies on your credit report

According to the Federal Trade Commission, five percent of consumers have errors on their credit reports, resulting in less favorable loan terms. These errors could negatively affect your credit score. If you find any when reviewing your credit report, be sure to dispute them. You can do this by submitting a letter or an online dispute to the credit bureaus. It may take up to 45 days to receive a response from the credit bureaus. Assuring that your letter is as detailed as possible will help expedite the process. 

Make your payments on time

The single most important thing you can do to increase FICO score is to make your payments on or before their due date. Life is busy and it isn’t always easy to remember to pay your bills on time, but missed payments are one of the factors that impact your credit score as they can stay on your credit report for up to seven years. Setting up automatic payments can be helpful to keep you on track. If you do this, make sure you have enough money in your bank account on the day that the payment is due to avoid a late payment fee from your lender or overdraft and insufficient funds (NSF) fees from your bank. 

Ask for a little grace from your creditors

If you do miss a payment, get in touch with your creditor as soon as possible to make them aware of the situation. Maybe you got paid less this month because you were short on work hours due to illness, or you simply missed your due date because you had something going on in your life. They may have the ability to remove the late mark from your report if you have a legitimate reason and make your request in a timely manner.

Reduce the amount of debt you owe

A large part of your FICO Score weighs on how much of your available credit you’re using. This is specific to your revolving credit accounts. That’s why it is important to know when to pay off debt versus saving and working towards paying off debt before it has a chance to accumulate. As a guideline, experts recommend using no more than 30% of your credit card balances (the less you use, the better). This Nerdwallet article explains how you can calculate your credit utilization ratio. 

Credit limit increase

Suppose you’re already using 30% or more of your available credit and it will take you some time to pay down your balances. In that case, one other way to consider improving your credit utilization ratio is by increasing your credit limits. This may or may not be an option available to you. If you’re a long-time customer who pays on time regularly and your income has increased since you first opened your account, you have a good shot. What you’ll need to do is get on the phone with your creditor to see if they’re able to increase your credit limit. Be careful not to increase your credit limit if you have trouble controlling your spending or this could put you into more debt and lower your FICO credit score in the long run. 

Consolidate your credit card debt — and lower your interest rate

Another strategy to consider for improving your credit utilization ratio is to consolidate your debt. This is tricky because there are negative impacts to consolidating your debt (new credit inquiries, a new account opened, and a possible reduction in your average account age), but overall it could be a good option to consider if you can reduce your interest rates, lower your monthly payments, and make your payments on time. This also increases your overall available credit. 

Settle up collections and charge-offs

Once an account is sent to collections or charged off, it will remain on your credit report for 7 years. Try to pay your accounts off before they enter into those statuses. If they do get to that point, it’s still worth paying them off. Lenders are less likely to approve you if they see unpaid balances on your credit report.

Keep up with your student loans

Student loans have a long repayment period, so paying them on time, over time, is a great way to increase your FICO credit score. Student loan payments also offer a little more flexibility in their reporting. Federal student loans are reported late 90 days after a payment is due, while private student loans are reported late 30 days after a payment is due. Forbearance and deferment plans may also be available to temporarily put your payments on hold without impact to your credit score. Ensure you keep in touch with your student loan providers and know what options are available to you. 

Become an authorized user

If you have never had a credit card or loan and you have no credit history, lenders may be unwilling to take a risk on approving you. One option to consider if you’re trying to build credit is to request to be added as an authorized user on your parent, spouse, or a close family member’s credit account. Be sure that it’s someone you trust and who trusts you. Come to an agreement with them on what you can spend and contribute every month toward their payment. When they make their payments on time, this will also reflect positively on your credit report. However, you have to be really cautious about this because if their payments are not made on time, it will reflect negatively on your credit report. Once you’ve established some credit history, you should be able to move off of their bank account and get an account of your own.

Request to add your utility payments to your Experian credit report

Utility companies do not report your on-time payments to the credit bureaus by default. In the past, utility accounts were not included in credit reports because they aren’t credit accounts. This is beginning to change as it becomes evident that consumers should be recognized for making these utility payments on time. Now, you can have certain utility bills, like your phone bill, reported on your Experian credit report by using their Experian Boost tool. This will only affect your Experian report, but it’s still worth a shot as some lenders may find it helpful.

The bottom line with FICO scores

A good FICO score is important to your financial health and it’s achievable, but it won’t happen overnight. It takes knowledge, creating good habits, and consistency over time. Play it smart and you’ll get there. And if you’re looking to start building credit, check out Possible Finance.

With our credit building loans, your repayments are reported to all 3 major credit bureaus - TransUnion, Equifax, and Experian - you’ll build a positive credit history with on-time payments.

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Chapter 1

What is Predatory Lending?

Predatory lending generally refers to unfair lending practices that benefit the lender at the borrower’s overwhelming expense. This is accomplished through unfair and abusive loan terms. That can involve a variety of different methods and strategies, but most predatory lending practices typically uses a combination of:

Unfair lending practices that benefit the lender at the borrower’s expense.

High introductory fees

High interest rates

Removing equity from the borrower

Putting a borrower in a lower credit-rated loan

All of these unfair lending practices are designed to benefit the lender, which also often means over-aggressive sales tactics to force you into deals. This lending practice is often designed to take advantage of the average borrower’s lack of understanding of loans and financial transactions. Many completely resort to lying and deception, and in worst cases, predatory lenders will threaten violence or litigation against borrowers in order to collect debts.

Chapter 2

Who is at Risk of Predatory Lending?

While predatory lenders can target anyone, they most often go for more vulnerable populations, like:

The elderly

Consumers with less education

Low-income workers having trouble with their everyday finances

People who are denied access to other loans and forms of credit

People who have recently lost their jobs

People who need immediate cash for emergencies, like for hospital bills, car payments, and mortgage payments

There is thankfully a wide range of low-risk, affordable options for people who need money quickly, like the alternative payday loans available from Possible Finance. However, those who don’t know about alternative options can easily fall prey to predatory lending practices.

Chapter 3

What are the Warning Signs of Predatory Lending?

People who are desperate for money or simply don’t know better are easy targets for predatory lenders. Knowing what to look for and avoiding them can prevent you from falling victim to this kind of abusive lending practice. Here are some common warning signs for a predatory loan.

They Don’t Check Your Ability to Repay

Most legitimate lenders will look at your current income and check your credit before even offering a loan. If you are working with a reputable lender, they will not skip this step. This helps the lender assess how you have dealt with previous debts, your ability to repay future loans, and the potential impact of taking on more loans. A lender who does not, at the very least, consider your regular income likely does not care about your ability to repay.

If you are working with a reputable lender, they will not skip this step.

A reputable lender will likely take the extra step of making sure you can repay the loan while also affording your everyday expenses. In fact, Possible Finance makes this a requirement for its loans. Predatory lenders will not consider your ability to pay for food, rent, and bills.

They Only Require Electronic Payments

While plenty of modern transactions are done digitally, no lender should require electronic payments. More specifically, no lender can demand access to your bank account for payment collection. Many legitimate lenders may ask for access to allow for convenient automatic payments, but this is by no means the only option they will provide for receiving payments.

No lender can demand access to your bank account for payment collection.

Predatory lenders may use your bank account as their own personal ATM and make constant payment requests and withdrawals until your account is empty, at which point you may have to deal with an excess of overdraft fees.

Bad Reputation

Reputations can be hard to gauge, but before you ever sign a loan agreement, make sure you do some research on the lender. The Better Business Bureau frequently offers customer ratings and reviews, allowing you to see any potential complaints prior borrowers have made so you can avoid signing up for a predatory loan. The Federal Trade Commission also offers scam alerts, while the Consumer Financial Protection Bureau has a complaints database that allows you to look up lending companies by state.

Hidden Fees That Inflate APR

All lenders are legally required to state the APR (annual percentage rate) of the loan. This includes the full sum of the interest rate plus any upfront fees. Any fees that are hidden in the fine print will arbitrarily increase upfront costs and inflate the APR. Both of those components only make it harder for the borrower to repay the loan while adding significant costs upfront, easily trapping the borrower in a cycle of debt.

High-Interest Rates

All lenders depend on risk-based pricing, like basing interest rates on your credit history. However, even if you have bad credit, the interest rate on your loan should still be manageable given the repayment period. Predatory lenders will abuse this, charging interest rates in the triple digits to borrowers who are already at a high risk and more likely to default.

Add-on Loan Services

Predatory lenders are also more likely to add unnecessary services and products onto your loan as a means of making more money upfront. For example, it is not uncommon for predatory lenders to add on insurance to your loan amount. They can then add the insurance premiums to the loan amount, which then increases how much you pay in interest. The predatory lender earns commissions on these premiums or may ask for several years of premiums paid in advance.

Rushed Approval

Approval periods can take anywhere from a few days to a few weeks depending on the type of loan that you are applying for. Predatory lenders will try to rush you through the approval process, forcing you to sign paperwork before reading any of the loan term agreements. This allows them to get money more quickly into their pockets while preventing you from thinking too hard about the loan term agreements.

Loan Flipping

Loan flipping refers to a process wherein a lender coerces a borrower to refinance their loan again and again without ever benefitting from that refinancing. While that refinancing might initially appear to put money back into your bank account, the high interest rates, increased fees, and prepayment penalties of a refinanced loan render that extra money irrelevant. That puts more money in the lender’s pocket while trapping the borrower in constant debt burdens.

They’re Lying to You or Asking You to Lie

Predatory lenders will frequently misrepresent the terms of the loan or completely lie about those terms. That can be difficult to truly determine without reading every bit of your agreement, but be aware of language like:

Easy payment terms

Easy credit

No payments for 90 days

Alternately, a lender should not ask you to lie in order to push an approval. This is another way for lenders to rush the process and partake in unfair lending practices, but it can lead to severe legal problems later on. Do not lie about your income, credit, or any other aspect of your finances, even if your lender says that you can.

Do not lie about your income, credit, or any other aspect of your finances

A Possible loan doesn’t use your credit score.

Get up to $500* and build credit.
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Chapter 4

How to Spot a Good Lender

A good lender from a reputable financial institution will not pose any of the above warning signs, but simply put, a good lender will essentially be fair and transparent. A good lender:

Checks your credit

Checks your ability to repay the personal loan

Only lends you the amount that matches your financial need without trying to upsell you on unnecessary products or services

Clearly disclose the total cost and APR of your loan

WILL NOT ENCOURAGE ANY REPEAT BORROWING OR REFINANCING

Chapter 5

Alternatives to High-Cost Predatory Loans

The good news is that there are plenty of alternatives to predatory, high-cost loans that will not hurt you or force you into a cycle of debt.

Payday Alternative Loans

Traditional or instant payday loans have a high potential to be predatory because they often come with unnecessarily high interest rates and short repayment periods, but payday alternative loans (PALs) offer fairer terms with the same short turnaround time. Payday alternative loans from federal credit unions usually come with lower interest rates and longer repayment periods. Furthermore, while credit unions will not base your loan on your credit history, they will report repayments to the major credit bureaus, which can help borrowers improve their credit scores.


Related: How Can I Raise My Credit Score in 30 Days


Payday loans from Possible Finance are a similar alternative. Possible Finance’s payday loans offer quick approval with repayment installments over several months with rescheduling when necessary. Furthermore, Possible does not require good credit, but we do report repayments to the three credit bureaus, allowing you to build your credit.

Installment Loans for Bad Credit

Installment loans allow you to borrow all your loan money at once while repaying the loan in fixed monthly payments (installments). For borrowers with bad credit, lenders will look at your existing debt, your regular income, and your monthly transactions to determine your financial behavior and your qualifications.

Short-Term Bank Loans

Short-term bank loans refer to a wide range of loans. Payday loans are technically within the “short-term loan” umbrella, but short-term bank loans provide you with a loan that is designed to be repaid within one year. Short-term bank lenders will perform credit checks, look at your paystubs, and otherwise determine your financial history to determine your ability to repay. You may still have to deal with high interest rates, but short-term bank loans will generally be fairer and much more transparent about their terms.

Predatory lending is unfortunately an inherent part of the industry that likely is not going anywhere soon. However, being careful, knowing the right red flags, and being aware of other financing options can ensure that you don’t become a victim to predatory lenders. Possible Finance offers a great option for those looking for quick cash without the high risks, high costs, and potential abuse of predatory lending. To learn more about our alternative payday loans, contact Possible Finance today.

Chapter 1

What is a Payday Loan?

Short-term loans  designed to cover your immediate financial needs until your next payday

The specifics of payday loans can vary, but they generally describe short-term loans designed to cover your immediate financial needs until your next payday (hence the name). Unlike most other loans, payday loans have immensely shortened terms. Payments for them are usually due within two weeks or close to your next paycheck date.

Payday loans  tend to come with high annual interest rates

Payday loans, also referred to as cash advance loans or check advance loans, tend to come with high annual interest rates. It’s not uncommon for the annual percentage rate to be in the triple digits. These loans generally do not require any collateral, making them an unsecured type of personal loan, though some lenders may take your future wages as collateral. You could apply

for an online payday loan or go in-person through a payday lender at a physical branch, depending on where you live. Upon approval, you receive the payment in the form of cash, check, or through a direct deposit into your bank account.

To complete a payday loan application, you are required to provide paystubs from your employer showing your current income. Your loan principal is typically based on a percentage of your predicted income. At the time of application, the direct lender of the guaranteed payday loan will also do a hard credit pull to check your credit score and credit history, affecting the terms of the loan.

Chapter 2

How Much Can You Get from a Payday Loan?

Most lenders will offer amounts from $50 to $1,500

The exact amount that you can get will vary based on where you live. Different states have laws that regulate how much you can borrow and the amount that lenders can charge in interest and fees. Payday loans are a small-dollar loan designed for immediate needs so that most lenders will offer amounts from $50 to $1,500. The average payday loan is about $350 on a two-week term.

Currently, 32 states have capped maximum loan amounts on payday loans.

Delaware, Idaho, and Illinois have maximum caps at $1,000, giving them the country’s highest max caps.

California and Montana have the lowest payday loans set at $300.

Maine, Utah, Wisconsin, and Wyoming have no maximums on their payday loans. Other states, including New Mexico and Nevada, will limit payday loans to 25 percent of your monthly income.

Possible Finance offers up to $500 within minutes

Possible Finance’s payday loan alternative offers up to $500. Upon approval, you can usually receive this within minutes on a debit card or in one to two business days in your bank account.

How Do You Pay Back a Payday Loan?

These loans must be paid back in a single payment due on the payday borrower’s next payday. A borrower can also pay back the loan once they have received income from a pension, Social Security, or another source. Specific due dates are set in original loan agreements, but they are typically set two to four weeks from the initial loan date.

The repayment itself can come in various forms. Payback usually comes in the form of a post-dated check for the full loan amount, including all fees. You can also pay off the loan with:

 

A check on your next payday

Electronic payment through the lender’s website

Direct debit from your checking or savings account

Another form of credit

With Possible Financerepay your loan with four equal payments in installments over eight weeks

If you do not submit a payment by the due date, your lender may cash the check or electronically withdraw money from your bank account.

With Possible Finance’s payday loan, you can repay four equal payments in installments over eight weeks. This includes a 30-day grace period with alternative payment methods and no charges for late fees.

Chapter 3

Do Payday Loans Affect Your Credit Score?

Generally, payday loans do not have any initial effect on your credit score. Payday loans are not reported to the three major credit reporting agencies in the country, so they will not show up on credit reports. Some lenders may check your credit when they set the loan terms. Hard credit pulls can harm your credit score, but any individual credit check is generally negligible. They otherwise will not show up on your credit report even after accepting the loan.

Payday loans are not reported to the three major credit reporting agencies

However, that all changes if you become delinquent on your payday loan. Falling behind or consistently being late on payments result in your lender selling your account to a third-party collection agency. These third-party agencies usually report delinquent accounts as “collection accounts” to the credit reporting agencies. Payment history is one of the most significant factors that influence your credit score, so an account that goes into collections will undoubtedly harm your credit score. This information can stay in your credit file for years and have a lasting effect on your credit.


However, unlike traditional payday loans, Possible Finance reports to credit bureaus with the intent of building up your credit. While this does mean that your credit score may potentially dip if you miss payments, Possible’s terms are designed to help you gradually improve your credit, even if you don’t have credit or have poor credit when you start.

A Possible loan doesn’t use your credit score.

Get up to $500* and build credit.
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Chapter 4

Pros & Cons of Payday Loans

Knowing if a payday loan is right for you and your financial situation often comes down to weighing out the pros and cons.

Pro: They are easy to access.

Probably the most notable advantage to payday loans is that they are relatively easy to access. Going through cash lenders, you can apply for a payday loan and receive the respective funds within just 24 hours. The application process itself can take mere minutes, where traditional loans can take a few days to go through approval. At Possible Finance, you can even apply for a payday loan alternative through an app on your phone.

Pro: They have fewer requirements than other loan types.

Traditional loans usually require a lot more in the application process, including a Social Security number, photo ID, proof of income, a credit check, and verification to repay the loan at the end of the term.

Requirements for a payday loan are generally more lenient. To apply for a payday loan, you must be at least 18 years of age and have:

A Social Security number or other government-issued identification

A job or other regular source of income

An active bank account

Note that the exact requirements can vary from state to state. Some state laws will have more intense requirements as a means of protecting you. Along with the above, Possible Finance has a few additional requirements for its payday loan alternative. We require that your linked checking account has:

About three months of history

Income deposits of about $750 per month

A positive bank balance

Pro: They (usually) do not require a credit check.

Most payday loans do not require the payday lending party to make a credit check, depending on the state. Other loan types will usually require a hard credit check. As mentioned, too many hard credit checks can affect your credit score. No credit check also means that you do not necessarily need good credit to get approval for a payday loan.

Pro: They do not require collateral.

Unlike mortgages, auto loans, and car title loans, payday loans are unsecured, meaning they do not take collateral. This means that, if you do not pay your loan, the lenders cannot seize an agreed-upon piece of personal property as repayment.

That said, most payday lenders still have access to your bank account as an agreed condition of your loan. These lenders also have other means of collecting payment if you default, like enacting lawsuits or selling your account to collection agencies.

Con: They have high interest.

One of the most significant drawbacks to payday loans is their extremely high interest, making them drastically more expensive than other types of loans. The typical personal loan will charge interest ranging from 4 to 36 percent, while a credit card typically charges 12 to 30 percent interest. Payday loans charge about 400 percent interest on average, although some states and lenders may charge upwards of 700 percent interest. Possible Finance maintains a lower APR of about 150 percent on most loans.

Possible Finance maintains a lower APR of about 150 percent on most loans

For example, a two-week payday loan with a fee of $15 per $100 equates to an APR of about 400 percent. For a $500 payday loan, you would be paying an extra $75, for total loan repayment of $575.

Con: They are difficult to pay back.

Unsurprisingly, it is common for a payday borrower to have trouble paying back their loans because of the information mentioned above. According to the Consumer Financial Protection Bureau, about 20 percent of borrowers default on their payday loans, either on their first loan or after reborrowing. Over 80 percent of payday loans get rolled over or reborrowed within 30 days.

Part of this problem also comes from the application process. Traditional loans involve the lender confirming that you can repay the loan while still meeting necessary, everyday living expenses before loan approval. Payday lenders do not go through this process, which can result in an endless cycle of debt. 

According to the Consumer Financial Protection Bureau, about 20 percent of borrowers default on their payday loans, either on their first loan or after reborrowing. 

Unlike these predatory lenders, Possible Finance checks to make sure that you can safely borrow money without harming your current finances. Our team makes sure that you can repay the loan while still meeting all your necessities and everyday expenses.

Con: They do not help you build credit.

Payday loans are suitable for those with low credit because their approval does not depend on your credit score. At the same time, they don’t improve your credit at all. Payday lenders do not report to the major credit bureaus unless you default or go to collections, in which case they will only drive your credit score down.

Con: Payday lenders can access your bank account.

The terms of most payday loans allow lenders to access your bank account if you do not pay on the due date. Alternately, lenders can have you write a postdated check that they can cash. However, they can cash the check or withdraw money regardless of if you have enough money in your account, leading to an added overdraft fees or insufficient fund fees from your bank. The lender can also charge returned or failed payment fees resulting in even more repayment issues.

Chapter 5

Is A Payday Loan Worth It?

This is ultimately your decision to make. Payday loans are useful if you need cash immediately, especially if you have low credit or otherwise have trouble getting approved for other loans. Ostensibly, the risk is low if you can pay them back on time, whether that means already having enough money in your account or knowing you can get enough money in time. However, given the high expenses and the potential for predatory lenders, you need to be extra careful about your decision. It’s important to work with a trusted lender or seek alternatives.

Chapter 6

Payday Loan Alternatives

The good news is that you do have a wide range of alternatives to payday loans. Start with a typical personal loan or small consumer loan. If you have less-than-adequate credit, you might be looking at a high-interest rate, but the rate will be significantly lower than 400 percent. Some lenders specifically work with potential borrowers who have bad credit. Personal loans can take more time for approval, and the requirements can vary based on the lender.

If you are a member of a federal credit union, you may be able to apply for a payday alternative loan (PAL). These are nearly identical to payday loans. However, the interest rate is considerably lower, with a maximum APR of 28 percent. The repayment period also occurs over a much longer period of one to 12 months. However, these are not offered by every credit union.

Possible Finance also offers a unique payday loan alternative that offers fairer terms designed to help you build credit over a more extended repayment period. To learn more about payday loans along with Payday Loan Debt Assistance, visit Possible Finance.

Chapter 1

What Is a Credit Score?

A credit score is a three-digit number ranging from 300 to 850, which signifies your “creditworthiness,” or your general ability to repay borrowed money. The higher the number, the better your credit, though some creditors will grade this credit based on a certain range. The exact ranges and standards can vary based on the creditor and the type of credit score.

Chapter 2

How is Credit Score Used?

A credit score can have a significant role in your finances. Essentially, lenders and financial institutions can use your credit score as a means of predicting your ability to pay back loans on time. A lender could be a bank, credit card company, and even a car dealership. A non-lender, most notably a landlord or property manager, can also perform a credit inquiry and make decisions based on it. For example, a property manager may require you to have a good credit score to sign a lease.


Higher credit scores give you more options and flexibility and greater access to credit products. A borrower with a score of 750 or above may qualify for 0 percent financing on cars, or they can apply for credit cards with a 0 percent introductory credit card interest rate.

That said, a low credit score does not immediately disqualify you from making purchases. However, you may have to put down a deposit or pay higher interest rates on an auto loan, for example. Continuing with the car example, your insurance payments might be higher as well. For a mortgage, a lending institution may require a co-signer or have a shorter repayment term.

Chapter 3

How Are Credit Scores Created?

Your credit starts almost as soon as you borrow money in any form. Whether you apply for a credit card, take out a student loan or business loan, the information and data go directly to the three major credit bureaus in the United States (Equifax, Experian, and Transunion). These three credit bureaus store and report all of this information to calculate your credit score. As you apply for more loans, open credit accounts, and borrow money throughout your life, the credit bureau will update your credit score.

What Impacts Score?

This section will cover which of the following factors most impact your credit score. Five main factors impact your credit score.

Payment History

Accounting for up to 35 percent of your credit score

This the most significant factor, accounting for up to 35 percent of your credit score. This is what shows your ability to pay loans on time and includes:

The number of accounts that you have paid on time

The accounts that you are at least 30 days behind on with payments

Any instances of bankruptcy, past-due account collections or falling behind on a personal loan or line of credit at least 30 days

The number of days you are past due on a deliquent account

The amount past due for deliquent accounts and accounts sent to collections

Total Amount Owed

Your total amount owed to lenders accounts for up to 30 percent of your credit score. This amount shows the sustainability of your spending and can predict potential financial problems later on.

The factor includes:

HOW MUCH YOU OWE ON ALL YOUR CREDIT CARDS AND LOANS

THE NUMBER OF ACCOUNTS YOU CARRY ANY BALANCE ON

YOUR CREDIT UTILIZATION RATIO

Credit utilization ratio refers to the amount of credit you use to the total amount of credit you have. Generally, the lower the number on these factors, the better your score.

Length of Your Credit History

Essentially, having a long history of good credit makes for more accurate and predictable borrowing compared to a few months of fair to middling credit. Keep in mind that creditors usually use your open accounts’ average age or the age of your oldest open account, not the age of your first-ever account.

Types of Credit Accounts

This shows that you have a diverse mix of accounts and how recently you used them. Having credit cards, personal loans, mortgages, car loans, and student loans shows a more well-rounded borrowing history than having just a handful of credit card accounts.

New Credit

New credit factors into about 10 percent of your score, which refers to the number of new accounts you have applied for or opened recently. While there’s nothing inherently wrong with opening a new line of credit, opening or applying for too many accounts at once can show that you are desperate for more credit, which is usually a red flag.

A Possible loan doesn’t use your credit score.

Get up to $500* and build credit.
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Chapter 4

Types of Credit Scores

Now that there is an understanding of what a credit score is and how it is created and used, financially responsible individuals need to know the different types of credit scores being evaluated today. There are currently two main types of credit scores:

The Fair Isaac Corporation, also known as FICO, introduced the credit score model over 25 years ago and is presently the industry leader for credit scoring within the United States. The score was the first of its kind that financial institutions and other lenders could utilize to gain insight regarding the people they would potentially lend and distribute their funds to.

FICO is the most recognizable credit scoring brand

Today, FICO is the most recognizable credit scoring brand, enough that the average financial institution uses “FICO score” and “credit score” interchangeably. 

In reality, your FICO score is just one type of credit. The company uses its own proprietary formula to calculate your credit. General FICO guidelines show:

Scores of 800 or above are considered exceptional credit.

Scores from 740 to 799 are considered very good credit.

scores between 670 and 739 are considered good  credit.

score between 580 and 669 are considered fair credit.

anything lower than 580 is considered poor credit.

FICO scores are reportedly used for at least 90 percent of lending decisions. They are favored exclusively for home mortgages through Fannie Mae, Freddie Mac, and other government-sponsored home lending entities. If you are having trouble with your score, here are some tips on how to increase your FICO score.

Although FICO scores are the predominant favorite in the world of credit scores, VantageScore, another credit reporting agency, is gradually gaining traction among lenders and consumers. It is seen as favorable because the three national credit bureaus created it: Equifax, Experian, and TransUnion.

A goal of VantageScore is to expand the number of people who can receive credit scores

A goal of VantageScore is to expand the number of people who can receive credit scores, for example, college students and immigrants, and other individuals who might not use credit frequently. 

While both still use the same factors listed above, they use different analytics and unique algorithms to determine your credit score. While previous versions had ranges of 501 to 990, the current VantageScore model uses the same 300 to 850 range as FICO with some small differences.

A VantageScore of 781 to 850 is considered excellent.

A score of 661 to 780 is a good score.

Credit ranging from 661 to 660 is considered fair.

A score from 500 to 600 is poor.

A score of 300 to 499 is considered very poor.

New Credit Scoring Versions

It is also important to note that both FICO and VantageScore have released new credit scoring versions due to evolving lender credit-granting requirements, overall demand for credit, and consumer credit use. Currently, the most used FICO version is FICO® Score 8. There are several unique features included in FICO® Score 8 such as high credit card usage, isolated late payments, authorized user credit, and more.


Vantage’s newest version is VantageScore 4.0, which uses machine learning and incorporates trended credit data newly available from all three credit bureaus. Ultimately, both FICO and VantageScore’s versions help lenders make more informed and fair decisions.

Chapter 5

How is Credit Reported?

A credit report displays a summary of your credit accounts, including your payment history and other information reported to credit bureaus from lenders and financial institutions. Credit reports come from the three credit bureaus in the country, and your reports from each may not be the same.


Potential creditors and lenders can request a credit report to decide whether to provide you with a loan or extend your credit line. Utility companies can also check your credit report for insurance reasons.

Credit Scores vs. Credit Reports

While credit scores and credit reports are intrinsically linked, they are not the same or interchangeable. Your credit score is a single number denoting your creditworthiness.


Credit reports are much more comprehensive, showing:

 

your personal information

Details on each of your accounts

Any inquiry information, including both soft and hard inquiries

Unfavorable information (bankruptcies, repossessions, past-due collections)

Think of your credit report as an in-depth look at your credit, while your score is a simple summation of all your credit.

Think of your credit report as an in-depth look at your credit, while your score is a simple summation of all your credit. Lenders will often look at both to make their decisions.

Chapter 6

How to Improve Your Credit Score

New to Credit

If you are new to credit, you may be wondering how to build your credit score. You may be surprised to find that improving your credit score is relatively easy. Start with a simple credit card. Use the card normally, but make sure not to exceed 30 percent of the total to ensure a good credit utilization ratio. Above all, make sure that you pay your credit card on time.


Another approach to increasing your credit score is by applying for and successfully paying off a credit building loan. These particular types of loans are designed entirely to build your credit score, allowing you to be a more financially stable and reliable individual in the eyes of a banking institution or lender.

How does this all work? Just follow these simple steps:

1) Apply for a Possible credit building loan

2) Repay your Possible loan on-time

3) Possible reports your payments to Experian and TransUnion

4) Watch your credit score increase!

Borrow a quick loan and when you repay the loan, you build your credit history.

On traditional credit-building loans, the money you pay your lender goes into a savings account. At the end of the loan term, you receive the money you put in, and the lender reports your previous payments to the credit bureaus. Other credit building loans, like here at Possible, allow you to borrow a quick loan and when you repay the loan, you build your credit history. These loans have very competitive APRs, and if you are struggling to pay off one of our loans, you can extend your payment up to 29 days with no fees.

Starting from Bad Credit

Start by paying off your bills, existing loans, and credit card debit.

A bad credit score can be discouraging, but it’s not impossible to raise that score. Start by paying off your bills, existing loans, and credit card debit. This tactic gives you a clean slate while also gradually helping to improve your credit.

From there, you can consider a credit building loan mentioned above or start a secured credit card. Possible considers all individuals’ financial situations, offering credit building loans to people who may appear to have poor credit or a shorter credit history. A secured credit card requires a refundable security deposit. The issuing entity holds the security deposit as collateral until you close the account, which reduces the risk for banks and credit unions.

Starting from Good Credit

Consider applying for a credit limit increase.

If you already have good credit, keep it up. Consider applying for a credit limit increase, which can help to lower your credit utilization ratio and improve your credit score. Avoid closing any credit cards.

Even if you don’t use it, closing a credit card essentially removes that credit amount, lowering your overall credit card utilization and may contribute to a lower score.

Avoid closing any credit cards

Understanding how credit scores work can be tricky initially, but much of it comes down to common sense. Pay your bills on time, don’t max out credit cards, and maintain healthy credit habits.

Chapter 1

What is a No Credit Check Loan?

A no credit check loan is a loan in which the online lender does not do any type of credit check or pull any type of credit report on you as the borrower before lending you the money.

Traditionally, direct lenders base their decision on giving you a payday loan on a variety of factors, but one of the most important is your “creditworthiness”. Creditworthiness, or how suitable you are to receive credit, is often based on your reliability in paying money back in the past among other factors. Since most of the time, a lender doesn’t know anything about you, they turn to outside sources to get a better idea about your creditworthiness through a credit check. This is where credit bureaus such as Expedia, TransUnion, and Equifax come into the picture. Credit bureaus each have their own formulas they use to calculate your “credit score” turning your credit worthiness into an easy number. The mostly widely used credit score number is the FICO score, which can range from 300 on the low end to 850 on the high end. When a lender inquires about your creditworthiness, there are a couple of types of credit checks that are typically pulled, each with different implications.

What is a credit check?

If you’ve ever heard of a “Soft check” or a “Hard pull” these refer to the two types of credit checks. When reviewing your credit score or applying for a new loan it’s crucial to know the difference between the two credit checks and how these checks can impact your score. Whether soft or hard, each is also considered a credit inquiry and they are ways to get a “credit rating” on you specifically.

Soft Checks or Soft Pulls

A soft credit check or soft pull occurs anytime you or a creditor “looks” at your credit. Soft checks are important as they are the only type of credit check that does not impact your credit score. While a soft check won’t change your credit score, they are still listed on your credit report when performed by a lender.

Since soft checks don’t affect your credit score, many lending companies will pull this information to pre-approve customers that match their products. Employers also tend to use soft checks if they are pulling your credit for a job application. Interestingly, any time you check your score through a credit bureau or other service, you’re performing a soft check on yourself.

Hard Checks or Hard Pulls

Unlike soft checks, hard checks can impact your credit score. Hard checks are used by lenders to pull more in-depth information while making a final loan decision and are usually one of the last steps when applying and accepting a loan.

Each hard credit check can shave off 5 to 10 points from your credit score.

Each hard credit check can shave off 5 to 10 points from your credit score. When it comes to credit reporting, all hard checks within 45-days from each other are reported as the same credit check. Since hard checks are bundled in this way, you don’t need to worry about hurting your credit score when shopping around for better rates.

Since these types of credit checks have such an impact on your score, any hard pull requires your consent in order to be processed. It’s generally a good idea to review your credit report for new inquiries. If you see hard checks you don’t recognize, it’s a good idea to follow up with your bank and lender in order to prevent fraud.

Other types of credit checks

When people refer to credit scores, they’re almost always talking about your FICO credit score. The FICO credit score was introduced over 25 years ago in an effort to quantify risk based on a few variables. The exact formula for calculating this credit score is a closely guarded secret, however, repaying loans on time, payment history, and keeping debt small are some proven ways to increase your credit score.

As with most industries the credit reporting industry has seen rapid change in the past decade as new business and established companies seek to innovate on older techniques. Some of these alternative credit reporting companies, such as Clarity, are smaller branches of the three major bureaus. Others, like Innovis, have grown almost as large as the other bureaus. These alternative credit reporting companies use a collection of similar data as well as other less common data to compile a view on your creditworthiness.

Chapter 2

How Do No Credit Check Loans Work?

No credit check loans are loans where your lender completely skips the credit check entirely. Instead of looking at your credit score and your credit report, lenders will look at alternative data to help determine your creditworthiness.

ALTERNATIVE DATA MAY INCLUDE YOUR:

BANK BALANCE

EMPLOYMENT HISTORY

INCOME

EDUCATIONAL BACKGROUND

Through this, lenders are able to get a more holistic look at the customer, excluding credit history, before making a decision on lending you money. Payday lenders tend to look at your income and employment to make a lending decision. Instead of pulling your FICO score, Possible looks at alternative data such as your bank account history to determine whether to give you a loan.

Many people withcredit scores of 550 and below can still get a loan with Possible, get the cash they need and build credit.

Chapter 3

Why Do Lenders Skip the Credit Check?

Credit scores are calculated based on your credit history. Basically, the longer your history of balancing debit and repaying loans, the higher your credit score will climb over time.

According to research by Experian in 2017, about 25% of American adults have a “thin” credit file. A “thin” file usually lists between 1-4 credit accounts and can make it difficult to find qualifying loans. Another 16% of adults have little or no credit history, making them essentially invisible in credit checks. Less-than-perfect credit is absolutely quite common.

25 %

of American adults have a “thin” credit file. According to research by Experian in 2017.

16 %

of adults have little or no credit history, making them essentially invisible in credit checks.

Because of this, people with thin files or a lack of credit history can find themselves in a catch-22. They don’t have enough credit history to qualify for loans, credit cards, and other debt, and they can’t build credit because they don’t have any outstanding loans, credit cards, and other debt. Unfortunately, by relying on credit scores alone, lenders lock out those who have no to little credit history or are trying to rebuild after accumulating bad credit.

For those with thin files, there are a few options for building credit history. Secured credit cards and credit builder loans can offer a foot in the door but require a larger up-front cash commitment. Short-term loans, payday loans, installment loans, and payday alternative direct lenders can offer options for building credit. Lender rates and fees tend to be higher and provide a shorter period to repay due to the higher risk lenders take on by extending this type of credit to borrowers.

Learn more about payday loans and payday loan alternatives to determine if that’s the right option for you. Personal loans can also help build credit history but personal loans can be harder to qualify for due to minimum credit scores even if the fees are lower.

Lender rates and fees tend to be higher and provide a shorter period to repay due to the higher risk lenders take on by extending this type of credit to borrowers.

For those with thin files, there are a few options for building credit history. Secured credit cards and credit builder loans can offer a foot in the door but require a larger up-front cash commitment. Short-term loans, payday loans, installment loans, and payday alternative direct lenders can offer options for building credit. Lender rates and fees tend to be higher and provide a shorter period to repay due to the higher risk lenders take on by extending this type of credit to borrowers.

A Possible loan doesn’t use your credit score.

Get up to $500* and build credit.
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Chapter 4

Who Can Apply for a No Credit Check Loan?

If you’re considering a no credit check loan, there are simple factors considered to qualify as a loan applicant. An individual will qualify for a no credit check loan if they…

Are 18 years or older

Are a U.S. resident and can provide a U.S. address of residency

Maintain regular income or are employed

Have a bank account (needed for deposit of the loan

Can share credible contact details

Chapter 5

Types of No Credit Check Loans

The only thing no credit check loans have in common, is the absence of a credit pull or credit inquiry on the borrower. Many types of loans have a no credit check alternative. However, few of these are no credit check long term loans. These loans tend to be most common with short-term and payday loans.

Personal and Payday Loans

Personal and payday loans are the most common types of no-credit check loans. The Loan amount may vary from a few hundred dollars to thousands. These loans can serve as instant loans due to their oftentimes quick approvals. Since payday loans are inherently more risky for lenders and are considered unsecured loans, they tend to have higher interest rates and fees and shorter repayment periods. While almost all personal loans, student loans, car loans, mortgages, etc. are reported to the credit bureaus, traditional payday loans tend to be unreported. If you’re looking to build credit, make sure your lender regularly reports to the credit bureaus. Here at Possible, we directly report to the credit bureaus so your credit can be built over time. Without consistent reporting, your credit score will never improve, no matter how often payments are made on time.

Installment Loans

Installment loans are loans that are approved for a set amount and cannot be increased until the current loan is completely paid off. These limitations help lenders limit their risk while helping customers gain access to larger loans as they demonstrate reliability. A long term Installment loan is paid back over time in specific amounts and because there are multiple repayments, as long as the lender reports payments to the credit bureaus, you build credit history. Like payday loans, short term installment loans can tend to have higher interest rates, especially if you start missing payments. A Possible loan is also considered an installment loan that builds credit history.

Credit Builder Loans

The primary purpose of a credit builder loan is to build credit history. Those with no credit history or bad credit can use credit builder loans to try to improve their credit score. Credit builder loans usually involve borrowing money which is immediately deposited into a bank account controlled by the lender.

As you repay the money borrowed, you build credit history.

Loan amounts usually range from $300 to $1,000. Rates and fees are low on a credit builder loan although there can sometimes be an origination fee. Once the loan is fully repaid, you can access the loan and control of the bank account is given to you. Credit builder loans are available at many banks and credit unions.

P2P Lending

While traditional lenders overlook a growing portion of the public, new types of lending have appeared to fill in the gap. One of the more radical shifts has been the appearance of “peer to peer” lending markets. Peer to peer lending matches borrowers with individual lenders to finance loans without the backing of any major banks or financial institutions. These loans tend to have decent interest rates due to the competitive nature of the market and some lenders may be more willing to approve lenders with lower credit scores than traditional banks. While P2P lending can be a great alternative to payday loans, most lenders will not report to the credit bureaus, making it difficult to build credit. Since lenders will be working directly with an individual rather than a company, P2P lending offers less services and support than lending with a bank or other established money lender.

Title Loans

A title loan requires an asset from the borrower as collateral for use by the lender. Because these are secured loans and there is less overall risk of loss for the lender, no credit checks are common. One of the most popular types of title loans is one that uses a car as collateral called car title loans. Loan terms and interest rates can vary significantly depending on your lender.

Chapter 6

Pros and Cons of No Credit Check Loans

While no credit check loans can be a helpful tool in building credit, it’s important to understand the strengths and weaknesses of the process before making a decision.

Pros of No Credit Check Loans

Your current credit score isn’t taken into account. If you have bad credit history or a lack of credit history, no-credit check loans can be a great entry point to building credit.

Your credit score isn’t impacted by applying. With poor credit, it can be difficult to be approved for new loans. And with every hard credit check, your score can go down, a short-term financial issue.

Better chances for approval. No credit check lenders usually have their own criteria for lending money. Payday lenders and other companies may take a look at a few high-impact factors such as your income and employment history, while still others will create a complex system to better understand your creditworthiness.

 

Cons of No Credit Check Loans

No credit check loans, such as short-term loans and payday loans, tend to have much higher rates and fees than traditional loans. This is usually caused by the higher risk of lending. Depending on the company you work with, payday and short term loan rates can vary between 100% to over 700% APR (annual percentage rate).

The APR or annual percentage rate of a loan from Possible usually ranges from 150-200%.

Your options are limited when it comes to getting a no-credit-check long term loan. Long term loans are rarely available for those with little to no credit. If they are, they tend to be secured loans in which important things like your car or house are used as collateral. 

These loans tend to be smaller in dollar amounts and last a shorter time frame. Since no credit check loans tend to be riskier, lenders usually extend smaller loans to be repaid within a few months with at most monthly payments. Balancing your debt and keeping track of your repayment schedule is important to stay out of a debt cycle. Since the payback periods tend to be shorter, individual payments tend to be larger. Some lenders will increase the amount of money available for use as you build repayment history.

Chapter 7

Alternatives to No Credit Check Loans

If you have decent credit, a plethora of options for loans are available for you instead of no credit check loans. However, if you have little to no credit, your options become much fewer. A few of the best alternatives to no credit check loans include:

SECURED LOANS

These are likely your best option if you are in need of some serious money.

CASH ADVANCE

If you just need a small amount of money to pay some expenses, an instant loan like a cash advance might work for you.

PAYDAY LOAN ALTERNATIVES

Similar to payday loans, a payday loan alternative offers you instant cash but at more reasonable interest rates and with a longer repayment term. With Possible Finance, you can get a cash loan in minutes and build your credit history as you repay the loan over time. It’s a win-win, making it the best option for a no credit check loan.

CREDIT UNIONS

In some cases, a local credit union may be a good alternative because they can provide a small personal loan and are often flexible with the repayment term.

ONLINE LENDERS

For those that have a low credit score, online lenders may be a viable option. However, be cautious of the trade off— high interest rates and fees.

LOANS FROM FRIENDS/FAMILY

Lending from a friend or family can also serve as a personal loan with more forgivable terms and likely less interest.

Keep in mind that all of these alternatives have their benefits and risks so it’s important you take these into account before you take action.

Chapter 8

How to Get a Credit Check With No Loan Required

While the decision process for no credit check loans may differ between companies, most follow a similar roadmap. Lenders will generally need to: verify your identity, collect information on your financial health, assess the risk in lending money to you, and finally, make a lending decision based on their assessment. Let’s take a look at how this process works with an application with Possible.

1) Verify

In order to prevent fraud and identity theft, a lender will need to verify your identity before extending a new loan. This process usually involves a lender needing a driver’s license, social-security number, or other documents that can prove your identity.

At Possible, we require a state issued ID and a valid social security number in order to verify your identity with government records. We also ask for a selfie at the time of the loan application to make sure nobody else uses your information to apply.

2) Collect

After a lender knows who you are, they’ll need to collect information in order to make a lending decision. This is where the credit checks can happen. Your lender will leverage your credit score as a measure of your ability and willingness to repay the loan.

When applying for a Possible loan, you’ll link your bank accounts. Since we don’t look at your FICO score or a credit report, we rely on the information you give us. Our system is able to look at information such as your bank balance, income, and history of returned payments in order to give us a better idea of your financial health and creditworthiness.

3) Assess

Now that a lender has collected the information they need, they can begin the process of assessing the risk of your loan. Each lender has a different process for underwriting loans, each using and interpreting your information differently.

With a Possible loan, we look at your overall financial health to make sure our loans are able to help without adding financial burden. Factors such as your income and the number of other loans you have open help us avoid over-lending and doing more harm than good.

4) Decide

Once a lender has evaluated the risk of extending a new loan to a borrower, they decide on the amount of funds available to you. With a line of credit, this will be the total amount you can borrow while more structured loans will give you access to a set amount of funds. Short-term cash advances or payday loans will have a smaller amount of money available to you.

Possible loans are repaid through multiple installments. Once we have a better picture of your financial health, our algorithms help us determine the amount we can safely lend to you. We look at a variety of things like recent income and current bank balance before making a financing decision.

Chapter 9

Get a Flexible No Credit Check Loan Today

At the end of the day, there’s only one thing shared between types of no-credit check loans and that’s the lack of a credit check. It’s crucial to fully understand the terms of any loan you are applying for as well as researching the company you’ll be working with. While many companies offer no-credit and low-credit loans to help customers with bad credit to build credit history, predatory lenders also operate in this space, hoping to capture customers without much prior knowledge about lending. We started Possible to provide an alternative to traditional predatory payday lenders and give our customers access to cheaper, more flexible, and kinder loans that build long-term financial health.

Sources

A Possible loan doesn’t use your credit score.

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