A paycheck or salary advance allows your employer to give you part or all of a future paycheck before your typical payday. Paycheck advances are considered a private loan agreement between you and your employer, and how your employer handles salary advances depends on the company’s policies. Some employers offer advances through a third-party lender as part of a benefits package.
Paycheck advances are low-cost and may help you build credit, but they come with their own risks and limitations. These loans do come with interest, but the rates tend to be lower than other forms of borrowing, making it much more accessible to people. Paycheck advances that come through a third-party portal often also come with financial education tools, which can help you understand your situation and identify better methods of dealing with your finances in the future.
However, getting too used to early access to your own money can lead to some bad habits down the line. Most employers grant paycheck advances in emergency situations like:
These advances are also only considered as a last resort option. Most importantly, you should only request a paycheck advance once. Obviously, you can’t always plan for emergencies and unexpected financial setbacks, but do not make a habit of asking for paycheck advances. Generous employers may grant more than one salary advance, but they are by no means required to.
Another drawback to paycheck advances: you are essentially paying interest to borrow your own money. Keep in mind that your future paycheck will also be lower because of the advance. Depending on your work situation, it may actually be more worthwhile to ask for a raise.
If a paycheck advance is truly your last and only option, be careful with your request.
Schedule a private meeting with your employer or write out the full details of your request in a letter. Include general reasons for why you need the advance, how much you need, and how you plan to pay the advance back. You may get denied, or you may have to negotiate your terms.
Payday loans are short-term, high-cost emergency loans that are meant to be repaid by your next payday. These loans usually only provide small amounts of money, typically $500 or less, but that amount can come extremely quickly. Some lenders can advance cash within minutes of submitting a loan application.
The loan is meant to be repaid by your next paycheck, which usually means two weeks.
However, some lenders will allow for debt settlement to be completed within one month. During the loan application process, the lender will typically ask for a signed check or access to your bank account to withdraw money.
The problem with an instant payday loan is that it tends to come with massive interest rates. On average, a payday lender will ask for $15 for every $100 borrowed, which is an APR of 391 percent for a two-week loan. If you don’t repay the cash advance loan in full within the first payment period, the lender will add an extra fee, and the cycle continues. The interest and fees can quickly rack up, leading to huge costs that far exceed the original loan amount.
The reason that the approval process is so quick is that the requirements are close to nonexistent. An instant payday loan generally only requires an income and a bank account. Payday lenders won’t ask for collateral, nor will they consider our ability to repay the loan. Many experts consider payday loans a type of predatory lending for this specific reason, and you should generally pursue other lending options.
While you should mostly avoid payday loans, payday loan alternatives are actually a viable and relatively safe means of getting money pretty quickly with little hassle. Payday alternative loans (PALs) are generally offered by credit unions to their members. Amounts offered usually range from $200 to $1,000 and are repaid after upwards of six months of installment payments.
Similar to traditional payday loans, payday alternative loans do not require a good credit score, but they do look at your income and your ability to repay the loan. Interest rates are also significantly lower with a maximum APR set to 28 percent.
Possible Finance offers even more flexible terms on payday loan alternatives. You can get up to $500 within minutes, even with bad credit, and Possible Finance allows you to easily reschedule your payments without any attached fees. Possible Finance also reports to credit bureaus. This means that, unlike traditional payday loans, payday loan alternatives with Possible Finance actually help to build a more attractive credit history. Along with the usual requirements (regular income, an active checking account, valid identification), Possible Finance also requires:
This all ensures that you are able to repay the cash advance loan while still having enough money to pay for your everyday expenses.
Most people use a credit card on its own, swiping it into a card reader or entering the numbers into an online form. However, some people don’t realize that you can actually withdraw money from a bank or ATM using your credit card. This is a type of short-term loan known as a credit card cash advance.
Unlike withdrawing cash from your checking account, you have to pay back a credit card cash advance, much like you would pay back any purchase made on your credit card. Cash advances are usually capped at a few hundred dollars, meaning you can’t take out your entire credit line in cash.
Although the process is convenient, cash advances can get costly. Cash advances come with fees. These are some of the downsides that come with a credit card cash advance:
Just about every modern credit card comes with a reward system that allows you to accrue points for every purchase. Some of these are a percentage of the purchase or a certain number of points for every dollar spent. Banks and credit card companies often allow you to use these points to purchase airline points and gift cards, pay off statement balances, or “pay with points” systems at checkout for certain merchants.
Along with those options, you may be able to turn your points into cash. The conversion rate can vary, but if you have been saving up those points, it may be worth cashing them out. Read the terms and rules for your credit card rewards program. The amount may get transferred to a linked checking account, or the credit card company may send you a check.
Personal loans from online lenders can be used for anything, making them an excellent option if you need money quickly for a large, unexpected expense. Online personal loans are basically the exact same as loans from a bank or credit union. However, online personal lenders tend to have much faster approval than banks and credit unions. Some online lenders can actually provide you with a secured loan on the day that you apply or on the following business day.
The process is also as safe as any bank or credit union loan. A reputable online lender will still check your credit and income and disclose the costs and terms of the loan to make sure that you don’t take a massive financial hit.
However, as with any personal loan, make sure that the terms and rates work for you. Defaulting on a personal loan of any kind can hurt your credit and may lead to legal proceedings with debt collectors.
If you are in dire straits and truly need money, it may be a good idea to turn to family and friends. This does away with the paperwork and processing, and most friends and family members probably won’t charge interest or require collateral.
However, money matters can get sticky, and if you aren’t careful, you could end up with personal conflicts, hurt feelings, and damaged relationships. If you do agree to take money from a loved one, make sure that you have a plan in place to repay the money. Drawing up a contract can potentially keep people accountable.
There is a wide range of options for borrowing money instantly, and some are better than others. If you need money quickly, consider contacting Possible Finance for a payday loan alternative.
The famous talk show host Dr. Phil often says, “You can’t fix what you don’t acknowledge.” While Dr. Phil isn’t exactly who you should turn to for financial advice—the wisdom here rings true.
It’s tempting to turn a blind eye toward your debt, especially when it feels overwhelming. But this strategy won’t serve you well. Instead, you should face your debt and find out exactly how much you owe.
If you have several credit accounts, you can calculate your total debt balance by:
Once you’ve calculated your total debt balance, you’ll know how much money you need to repay to become debt-free.
Another important metric you should familiarize yourself with is debt-to-income ratio (DTI). This ratio compares how much money you owe to the amount of money you earn.
To calculate your DTI, simply divide your monthly debt payments by your gross monthly income. After that, multiply the resulting number by 100% to transform it into a percentage.
The higher your DTI is, the longer it may take to pay off your debt. If you know this ahead of time, you can manage your timeline expectations. If your DTI is extremely high (over 50%), you may also want to consider credit counseling, a debt settlement program, or filing for bankruptcy (more on these strategies later on).
Juggling multiple debt accounts can become chaotic if you don’t have an organizational system in place. Luckily, there are many tools you can use to streamline your bill-paying process and create a debt management plan.
For example, you can create a customized digital spreadsheet on Excel or GoogleSheets. When you create this spreadsheet, make sure to include the following columns:
|Credit card #1||$4,400.00||13.00%||50.00||2|
|Auto loan #1||$3,200.00||9.81%||30.00||1|
|Auto loan #2||$5,000.00||12.00%||55.00||3|
|Student loan #1||$21,200.00||4.75%||262.12||5|
|Student loan #2||$9,500.00||6.80%||143.85||4|
As you make your debt payments throughout the month, indicate so on the spreadsheet. This will help you ensure that you make all of your debt payments each month on time.
Budgeting may sound like a drag, but it’s actually the stepping stone between you and financial freedom. After all, a budget is simply a plan for how you decide to spend your money each month. If you follow your budget, you’ll be much less likely to come out short when it’s time to pay the bills.
Here’s how you can make a realistic budget:
Make sure to include all of your income, including any odd jobs, alimony, child support, interest, or rental income. If your income varies month-to-month, simply use an average.
Next, list out all of your monthly expenses. Separate them into “essential” and “non-essential” categories. After that, add them both up to arrive at the total amount.
Finally, it’s time to face the moment of truth. If you’re in debt, chances are you spend more than you earn each month. If so, you’ll need to cut some costs going forward. The costs you decide to cut are up to you. Just make sure you create enough room in your budget for your debt payments. As you spend throughout the month, track your expenses with a bill tracking app to ensure you stay on budget.
Living in alignment with your values is important in all areas of your life, finances included.
For example, let’s say your greatest values are family and health. While leasing a fancy car, shopping every weekend, and going out for indulgent dinners gives you some joy, you may have to work overtime to afford these luxury items. In turn, you may have fewer opportunities to bond as a family and the stress of working so hard may take a toll on your health. As you can see, these spending habits aren’t actually aligned with your values.
Once you discover that your spending is out of alignment with your values, it becomes a lot easier to say no to unnecessary purchases and help your financial situation.
It’s also important to reflect on what got you into debt in the first place. As you examine your past financial habits, ask yourself if you:
Once you pinpoint what got you into debt, you can prevent yourself from making the same mistakes going forward.
If you want to stay in good standing with your creditors and avoid late fees, you must make your minimum debt payments each month. But you might want to do more than that.
To pay off your debt as quickly as possible, put as much extra income toward your debt payments each month as you can afford.
While you may have to live a little more frugally to accomplish this goal, it will be well worth it—you’ll get out of debt faster and pay less interest overall.
While spending less and sticking to your budget can help you get out of debt, increasing your income can also make a big difference. These days, there are many flexible side hustle ideas that can bring in extra cash.
Here are a few possibilities:
In addition to these side hustles, you can ask your boss for a raise, look for a higher-paying position, or work overtime to enhance your earnings. With more money flowing in, you’ll be able to make larger debt payments each month with ease.
Many financial experts recommend using the snowball method to repay your debt. With this method, you approach your debt like you’re building a snowball—you start slow and gradually build momentum over time.
The magic of the snowball method has to do with the psychology behind it. Sticking to a debt repayment plan is a lot easier when you’re motivated and optimistic about the process. With the snowball method, you get to enjoy quick wins at the start of your debt repayment journey.
Due to this rewarding sense of accomplishment, you’ll be more likely to continue with the process, even when the larger debt balances take longer to pay off.
When it comes to paying off debt, working smart is just as important as working hard. In addition to making larger debt payments, you can also find ways to reduce your interest rate or lower your remaining debt balance through negotiation.
Here are a few valuable strategies you might want to explore:
A balance transfer is a type of credit card transaction where you transfer debt from one credit card to another. Usually, balance transfer credit cards come with a 0% APR introductory period. During this time (usually 6 to 24 months), you can pay off your debt interest-free. If you can pay off all of your debt within this time frame, you can save a ton of money on interest.
It’s important to note that your credit card’s APR will return to its standard rate once the introductory period is over. You may also have to pay a balance transfer fee of 3% to 5% of your total transfer amount. Thus, you should do the math to find out if a balance transfer is worthwhile.
If you’re unhappy with your current interest rates or minimum payment amounts, you can refinance your loan to adjust the terms. Refinancing is the process of paying off an existing loan with a new loan.
Your new loan will come with a brand new set of terms. Ideally, you’ll want to find a new loan that offers a lower interest rate, fewer fees, or a better monthly payment amount (depending on your reason for refinancing).
Just keep in mind that refinancing isn’t always the right decision. If you can’t qualify for better terms, you’re better off sticking with your existing loan. This may be the case if interest rates have increased or if your credit score has gone down since you took out the original loan.
If you need help getting a handle on your debt, a non-profit credit counseling agency can help. Credit counselors can give you guidance on how to best repay your debt. They also offer educational workshops and budgeting assistance.
In some instances, your credit counselor may even negotiate with your creditors to reduce your interest rates or monthly payment amounts. If they do, you’ll start paying your credit counselor directly and they’ll pay your creditors each month on your behalf.
If you’re drowning in debt, a debt settlement program can help you reduce your overall debt balance. Once you enroll in this type of program, a third-party company will negotiate with your lenders to reduce your remaining balance.
However, it’s important to know that debt settlement programs can harm your credit score, since they indicate that you couldn’t repay your debts in full. Some programs also come with costly fees. Your creditors may refuse to negotiate, making this option a risky choice. For these reasons, debt settlement programs should only be used as a last resort.
Have you ever had a bill due, but you couldn’t pay it on time because your paycheck hadn’t come in yet? In these situations, you can borrow money against your upcoming paycheck with a cash advance. This money will enable you to pay your debts on time. After that, you can repay the cash advance once you get paid yourself.
While you usually don’t have to pay interest on the money you borrow, you may have to pay a fee. Thus, cash advances should only be used when necessary.
As with all new undertakings, your motivation may peak at the beginning of your debt repayment journey and wane as time goes on. As you lose that initial jolt of motivation, you may stray from your budget or give up on your debt-free goals altogether.
To prevent this from happening, schedule a time to review your finances and debt balances on a regular basis. You can check in once a day, once a week, or bi-weekly—the frequency is totally up to you.
By monitoring your progress consistently, you’ll be more likely to stick to your plan and make any necessary adjustments along the way.
As you can see, a debt-free life can be yours if you take the right steps. Once you’ve paid off your debt, you’ll be able to save, invest, and enjoy greater financial freedom.
Now that you know it’s possible, why not start your journey today? With Possible Finance’s payday loan alternative, you can borrow up to $500 to start paying down your most immediate debt.
Get cash in minutes. Build your credit score. And see that a better financial future is possible—with Possible Finance.
Consumer Financial Protection Bureau. What is a debt-to-income ratio? Why is the 43% debt-to-income ratio important?
Consumer Financial Protection Bureau. Credit cards key terms.
Credit Card Insider. How Credit Card Balance Transfers Work.
Consumer Financial Protection Bureau. What is credit counseling?
Consumer Financial Protection Bureau. What are debt settlement/debt relief services and should I use them?
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.
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 Fund||Emergency Fund|
|Smaller unpredictable expenses that don’t cause finances to spiral out of control||Larger 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 day||Most 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.
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?
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.
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.
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.
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.
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.
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.
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 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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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!
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!
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:
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.
Having a high FICO Score reassures lenders that you are likely 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 lower auto insurance rates and help you snag that apartment you’re hoping to rent. If homeownership is something you’re planning on, a good FICO score can also help get you there.
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.
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.
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.
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.
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.
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 suggest to lenders that you’re at risk of defaulting on your payments.
Something to consider when you’re learning how to build a credit score is that your credit profile is unique, and managing it requires some patience. Fortunately, lenders also look at other factors when making their lending decision, like your income and how long you’ve been with your current employer.
Now that you know how it’s calculated, you’re probably wondering how to raise your FICO score. We’ve got you covered. Here are some of the most reliable strategies:
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 may not be exactly right.
There are a few different ways to get your actual FICO Score. You can request a free credit report at AnnualCreditReport.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 your overall credit health so you can set goals and catch any errors that need to be corrected.
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. Making your letter as detailed as possible will help expedite the process.
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.
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.
A large part of your FICO Score hinges 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 to pay 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.
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.
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.
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.
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.
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.
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. Today, 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.
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 - and you’ll build a positive credit history with on-time payments.
Predatory lending generally refers to unfair lending practices that benefit the lender at the borrower’s overwhelming expense. This is accomplished through exploitative and abusive loan terms, which typically include:
All of these unfair lending practices are designed to benefit the lender, who often employs over-aggressive sales tactics to force you into deals. This lending practice is designed to take advantage of the average borrower’s lack of understanding of loans and financial transactions. Many predatory lenders resort to outright lying and deception. And in the worst cases, they will threaten violence or litigation against borrowers in order to collect debts.
While predatory lenders can target anyone, they most often go for more vulnerable populations, like:
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.
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 these red flags can prevent you from falling victim to this kind of abusive lending practice. Here are some common warning signs for a predatory loan.
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.
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, housing, and other everyday bills.
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.
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.
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.
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.
All lenders make risk-based pricing decisions, 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.
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 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.
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 refers to a process wherein a lender coerces a borrower to refinance their loan again and again without ever benefiting 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. It simply puts more money in the lender’s pocket while trapping the borrower in constant debt burdens.
Predatory lenders will frequently misrepresent the terms of the loan or blatantly lie about those terms. That can be difficult to determine without reading every bit of your agreement, but be aware of language like:
Similarly, 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. Do not lie about your income, credit, or any other aspect of your finances, even if your lender says that you can. Doing so can lead to severe legal problems later on.
A good lender from a reputable financial institution will not raise any of the above red flags. Instead, they will be fair and transparent in your interactions with them, and make sure you understand what you’re agreeing to. A good lender:
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.
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.
Payday loans from Possible Finance are a similar alternative. Possible Finance’s payday loans offer quick approval with repayment installments over several months, and rescheduling options when necessary. Furthermore, Possible does not require good credit, but we do help you build your credit by reporting repayments to the three credit bureaus.
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.
A wide range of loans are considered short-term bank 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 consider 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 an unfortunate practice that is likely not going anywhere soon. But learning the red flags and staying aware of other financing options can ensure that you don’t fall 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.
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 may also do a hard credit pull to check your credit score and credit history, affecting the terms of the loan. Note that this depends on the lender.
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.
These loans must be repaid in a single, lump-sum payment due on the 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 usually be made in several ways. Most common is a post-dated check the borrower writes for the full loan amount, including all fees. You can also pay off the loan with:
Generally, payday loans do not have any initial effect on your credit score. Traditional payday loans are not reported to the three major credit reporting agencies, 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.
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 rating. This information can stay in your credit file for years and have a lasting effect on your credit.
Unlike traditional payday loans, Possible Finance does reports to credit bureaus to help you build 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.
Knowing if a payday loan is right for you and your financial situation often comes down to weighing out the pros and cons.
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.
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:
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:
Most payday lenders are not required by state law to make a credit check, and they generally don't do so. This is a benefit because, as we mentioned above, too many hard credit checks can bring down your credit score. No credit check also means that you do not necessarily need good credit to get approval for a payday loan.
Unlike mortgages, auto loans, and car title loans, payday loans are unsecured, meaning they do not require collateral. This means that the lenders cannot seize an agreed-upon piece of personal property as repayment if you fail to repay your loan.
That said, most payday lenders still have access to your bank account as an agreed condition of the loan. These lenders also have other means of collecting payment if you default, like enacting lawsuits or selling your account to collection agencies.
One of the most significant drawbacks to payday loans is their extremely high interest rate, 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.
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.
Unsurprisingly, it is common for a payday borrower to have trouble paying back their loans because of the steep costs involved. 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 is due to the application process. Traditional lenders first confirm that you can repay the loan while still meeting necessary, everyday living expenses before loan approval. Payday lenders, on the other hand, do not go through this process, which can result in an endless cycle of debt.
Unlike these predatory lenders, Possible Finance ensures that you can safely borrow money without harming your current finances. We want to be certain that you can still meet all your necessities and everyday expenses while repaying the loan.
Payday loans are a good option for those with low credit because their approval does not depend on your credit score. At the same time, traditional payday loans don’t improve your credit at all, because most lenders do not report to the major credit bureaus unless something bad happens (e.g. you default or go to collections). If you’re trying to build your credit score with a payday loan, choose a lender like Possible that reports to all three major credit bureaus.
The terms of most payday loans allow lenders to access your bank account if you do not pay on the due date. Alternatively, lenders can have you write a postdated check that they can cash. However, they can cash the check or withdraw money regardless of whether you have enough money in your account, leading to 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.
This is ultimately your decision to make. Payday loans are useful if you need cash immediately, especially if you have low credit or have trouble getting approved for other loans. And in theory, the costs may be manageable if you can repay the loan on 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.
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 the 400 percent you'd pay for a conventional payday loan. 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 with fairer terms designed to help you build credit over an extended repayment period. To learn more about payday loans along with Payday Loan Debt Assistance, visit Possible Finance.
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. Note that these numbers will vary a bit between creditors and the credit score formula they’re using. Occasionally, creditors will assign you a letter grade rather than a number.
Lenders and financial institutions use your credit score to predict how well you’ll be able to repay your loans. 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. Naturally, this means your credit score can have a significant impact on your finances and quality of life.
Higher credit scores give you more options and flexibility, and greater access to credit products. For instance, a borrower with a score of 750 or above may qualify for zero percent financing on cars, as well as credit cards with a zero percent introductory interest rate.
That said, a low credit score does not disqualify you from buying a car, getting a credit card, or enjoying other lifestyle amenities. You may, however, have to pay more to do so. For instance, you might need to put down a deposit or pay higher interest rates on an auto loan. Continuing with the car example, your insurance payments might be higher as well. And if you’re taking out a mortgage, your lending institution may require a co-signer or have a shorter repayment term.
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 secure a 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, each credit bureau will update your credit score accordingly.
The total amount you owe to lenders makes up roughly 30 percent of your credit score. This amount shows the sustainability of your spending and can predict potential financial problems later on.
Your total debt includes:
Credit utilization ratio compares 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.
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.
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 factors into about 10 percent of your score, which refers to the number of new accounts you've 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.
Now that we’ve explored credit scores and how they're used, let's dig a little deeper into the different types of credit scores you might come across. There are currently two major types of credit score:
The Fair Isaac Corporation, also known as FICO, introduced their credit score model over 25 years ago. It 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 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 model, is gradually gaining traction among lenders and consumers. It is seen as favorable because the three national credit bureaus (Equifax, Experian, and TransUnion) created it collaboratively.
It is also important to note that both FICO and VantageScore have released new versions of their credit score formulas 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.
The latest version of VantageScore is VantageScore 4.0. It uses machine learning and incorporates trended credit data newly available from all three credit bureaus. Ultimately, both FICO and VantageScore updates help lenders make more informed and fair decisions.
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 major credit bureaus, and your reports from each may not be the same.
Potential creditors and lenders can request a credit report (with your consent) 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, as can potential employers and other interested parties.
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:
If you are new to credit and trying to build your credit score, you may be surprised to find that improving your rating 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 way to boost your credit score is to apply for and successfully pay off a credit building loan. This particular type of loan is 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:
From there, you can consider a credit building loan of the sort mentioned above or get a secured credit card. 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. Possible considers every individual’s financial situation, offering credit building loans to many people with poor credit or a shorter credit history.
Even if you don’t use it, closing a credit card essentially removes that credit amount, increasing your overall credit card utilization and possibly contributing to a lower score.
Need a loan and want to build credit at the same time? Learn more about your loan options with Possible.
A no credit check loan is just what it sounds like: a loan in which the lender does not run a credit check on you, the borrower, before lending you money.
For people with bad credit or no credit, this is incredibly important. It allows you to clear one of the major hurdles people face when trying to secure a loan - the credit check.
When a lender checks your credit, they contact one or more of the three credit bureaus (Expedia, TransUnion, and Equifax) and request information about you. This is called a credit check. The credit bureau responds with your “credit score”, which is simply a number ranging from 300 on the low end to 850 on the high end. These numbers are based on your history of borrowing and repaying loans, plus a range of other factors. A low score means you have poor credit, and a high score means you have good credit.
Note that there are several different popular formulas used by the bureaus, including the FICO score and VantageScore. And because each credit bureau has its own unique way of calculating these scores, your credit rating may vary slightly from agency to agency.
The last thing to understand about credit scores is the difference between a “soft check” and a “hard check.” Both are considered a type of credit inquiry, and both give the lender information about you - but there are some key differences as well. Here’s what you should know about soft vs. hard credit checks:
A soft credit check or "soft pull" occurs anytime you or a creditor “looks” at your credit score. But as the name suggests, soft checks (unlike hard checks) do not impact your credit score. They are, however, 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 who 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.
Unlike soft checks, a “hard credit check” 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 for and accepting a loan.
Because these credit checks do impact 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, follow up with your bank and lender in order to prevent fraud.
As we mentioned above, there are many different ways for credit bureaus to calculate your score. The most common of these is 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. But repaying loans on time (i.e. "payment history"), keeping debt small ("credit utilization"), and building a long-term credit profile are some proven ways to increase your FICO score.
But what about credit checks beyond the traditional FICO score? As with most industries, the credit reporting industry has seen rapid change in the past decade as new businesses 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 rate your creditworthiness.
So how exactly do lenders evaluate you for a no credit check loan? Instead of pulling your credit score and credit report, they review a slew of other financial data.
With this information, lenders are able to get a more holistic look at your financial background, excluding credit history, before making a decision on lending you money. Payday lenders, for instance, tend to look at your income and employment to make a lending decision. Possible, on the other hand, looks at data such as your bank account history to determine whether to give you a loan.
When lenders rely on credit scores alone, they lock out those who have little or no credit history, or are trying to rebuild after accumulating bad credit. This leaves many prospective borrowers in a catch-22. They don’t have enough credit history to qualify for loans, credit cards, and other debt - and without outstanding loans, credit cards, and debt, they can’t build their credit.
This situation is more common than you might think. According to research by Experian in 2017, about 25% of American adults have a thin credit file. A thin file usually lists 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.
Fortunately, as we’ve discussed, some lenders are willing to skip the credit check if you’re able to provide other financial information. This opens up real options for those with thin files and others trying to build credit history.
For instance, secured credit cards and credit builder loans require a larger up-front cash commitment, but offer a foot in the door. Short-term loans, installment loans, and payday alternative direct lenders can also be a pathway to better credit. Lender rates and fees for these loans tend to be higher, while repayment periods are typically shorter, due to the higher risk lenders take on by extending this type of credit to borrowers.
The good news is that your credit will improve over time as you build your history of balancing debt and repaying loans. Note that personal loans offer lower fees and can also help build credit history, but the minimum credit score requirement may make them difficult to qualify for. Learn more about payday loans and payday loan alternatives to see if they’re the right option for you.
If you’re considering a no credit check loan, there are 5 basic criteria you need to meet as a loan applicant. You will likely qualify for a no credit check loan if you…
As we’ve seen, many different types of lending are technically considered no credit check loans - from credit builder loans to secured credit cards and payday loans. In fact, just about the only thing they have in common is the absence of a credit pull or credit inquiry on the borrower. Additionally, some conventional loans have a no credit check alternative. Let’s review some of the options:
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. And thanks to their quick approval process, these so-called “instant loans” can often put money in your wallet within minutes.
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 diligent you are about making payments.
A secured credit card requires an upfront money deposit - usually a few hundred dollars in cash from the borrower. This cash deposit helps lenders minimize their risk while lending to you. As you use your card and make payments on its balance, your lender reports to the bureaus, helping to build your credit score. After you have established enough lending history, your card can be “upgraded” to a standard credit card and your cash deposit is returned by your lender. If you cannot qualify for an unsecured (standard) credit card, you can consider a cosigner on the credit card.
Credit builder loans are a unique way to build your credit history, and they work very differently from normal personal loans. If you’re approved for a credit builder loan, your lender will set aside the amount (typically $300 to $1000) in a bank account that they control.
When you’ve fully paid off the loan (plus interest), you’re given access to the bank account and can begin using the funds.
Credit builder loans are available at many banks and credit unions. Rates and fees are typically low on these loans, though there can sometimes be an origination fee. It may be surprising that you have to pay off a credit builder loan before you get the money, but remember - the primary purpose is to help those with no credit history or bad credit improve their credit score.
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. And because borrowers will be working directly with an individual rather than a company, P2P lending generally offers less in the way of services and support than a bank or other established money lender.
A title loan requires an asset from you, the borrower, which the lender keeps as collateral. For instance, one popular type of title loan allows you to put up your car title as collateral. As long as you’re repaying the loan on time, you can keep driving your car and will ultimately keep the title. But if you fail to repay the car title loan, the lender will get legal rights to your vehicle.
Loan terms and interest rates can vary significantly depending on your lender. Because these are secured loans and there is less overall risk of loss for the lender, no credit check title loans are relatively common.
In the world of personal lending, the term “installment loan” can be a little confusing. An installment loan is simply a loan that you pay off over time in small, predetermined payments. Each of these payments is considered an “installment.”
So a personal loan, for example, is typically a long term installment loan. You might repay it in 24 monthly installments over the course of two years. A payday loan, on the other hand, is not typically an installment loan because you’re expected to pay it back in one lump sum. A car title loan may be an installment loan, or it may require lump-sum repayment - it depends on the lender and your individual circumstances.
If you’re trying to build your credit history, an installment loan is a very useful tool. It shows your diligence and reliability in making regular payments over a significant period of time. And a good lender will report these positive signs directly to the credit bureaus, which builds your credit score. Bear in mind that the fees and interest rates on installment loans may still be high if you begin missing payments or have taken out a short term installment loan. For an installment loan that builds credit history, check out the loan options from Possible.
While no credit check loans can be a helpful tool in building credit, it’s important to understand the advantages and drawbacks before you proceed.
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.
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 from 100% to over 700% APR (annual percentage rate).
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 require faster repayment. Since no credit check loans tend to be riskier for lenders, the total loan amount is generally smaller. You may also need to repay the loan within a few months, and make payments frequently (i.e. weekly, biweekly, or monthly at most). 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.
If you have decent credit, a plethora of lending options are available to you - and these will often be preferable to no credit check loans. However, if you have little to no credit, your options are fairly limited. A few of the best alternatives to no credit check loans include:
Keep in mind that all of these alternatives have their benefits and risks so it’s important to do thorough research before you take action.
While different companies have different procedures, most follow a similar roadmap when you apply for a no credit check loan. 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. To see how this process works, let’s review what happens when you apply for a loan from Possible.
In order to prevent fraud and identity theft, a lender will need to verify your identity before extending a new loan. Most will request your driver’s license, social security number, and/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 check your identity against 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.
After a lender knows who you are, they’ll need to review your financial background to make a lending decision. During a conventional loan application, the lender will typically run a credit check at this point.
For the no credit check loans offered by Possible, you’ll link your bank accounts instead. Since we don’t look at your FICO score or a credit report, we rely on this information to make a decision. We'll consider your bank balance, income, and history of returned payments when gauging your financial health and creditworthiness.
Now that the lender has collected the information they need, they can begin to assess the risk of your loan.
This process is unique for each lender. At Possible, we look at your overall financial health to ensure our loans will truly help you - rather than become an added 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.
Once a lender has evaluated the risk of extending a new loan to a borrower, they decide on the size of the loan - i.e. how many dollars they can lend you. With a line of credit, this will be the total amount you can borrow. With structured loans, it will be the amount they move to your bank account (and which you’ll ultimately repay). Short-term cash advances and payday loans will generally be for smaller sums than long term personal loans and other installment loans.
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 factors like recent income and current bank balance before making a financing decision.
Whatever kind of loan you get, and whichever lender you work with, it’s absolutely crucial to do your due diligence. That means reading the fine print and making sure you fully understand the terms and conditions of your loan!
While many reputable companies offer no-credit and low-credit loans to help customers with bad credit, predatory lenders also operate in this space, hoping to capture unprepared customers. 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.