What’s a Good Credit Score?

Whats a good credit score?

Your credit score is incredibly important. In fact, this number is so influential on various financial aspects of life that it can determine your eligibility to be approved for credit cards, car loans, home mortgages, apartment rentals, and even certain jobs. Knowing what your credit score is, and what range it falls under, is important so you can decide what loans you can to apply for, and if necessary, if steps need to be taken to improve your score.

So what constitutes a good credit score?

The Credit Score Range Scale

The most common credit score used by lenders and other business entities is the FICO score, which ranges from 300 to 850. The bigger the number, the better. To create credit scores, FICO uses information from one of the three major credit bureau agencies – Equifax, Experian or TransUnion. Knowing this range is important because it will help you understand where your specific number fits in.

Know what factors influence a good credit score to help improve your own credit health.

As far as lenders are concerned, the lower a consumer’s number on this scale, the higher the risk. Lenders will often deny a loan application for those with a lower credit score because of this risk. If they do approve a loan application, they’ll make consumers pay for such risk by means of a much higher interest rate.

Understand Your Credit Score

Within the credit score range are different categories, ranging from bad to excellent. Here is how credit score ranges are broken down:

Bad credit: 630 or Lower

Lenders generally consider a credit score of 630 or lower as bad credit. A number of past activities could have landed you in this category, including a string of late or missed credit card payments, maxed out credit cards, or even bankruptcy. Younger people who have no credit history will probably find themselves in this category until they have had time to develop their credit. If you’re in this bracket, you’ll be faced with higher interest rates and fees, and your selection of credit cards will be restricted.

Whats a good credit score?

Fair Credit: 630-689

This is considered an average score. Lingering within this range is most likely the result of having too much “bad” debt, such as high credit card debt that’s grazing the limit. Within this bracket, lenders will have a harder time trusting you with their loan.

Good Credit: 690-719

Having a credit score within this range will afford you more choices when it comes to credit cards, an easier time getting approved for various loans, and being charged much lower interest rates on such loans.

Excellent Credit: 720-850

Consider your credit score excellent if your number falls within this bracket. You’ll be able to take advantage of all the fringe benefits that come with credit cards, and will almost certainly be approved for loans at the lowest interest rates possible.

Understand the factors that make up a good credit score.

Whats a good credit score?

What’s Your Credit Score?

Federal law allows consumers to check their credit score for free once every 12 months. But if you want to check more often than this, a fee is typically charged. Luckily, there are other avenues to take to check your credit score.

Mint has recently launched an online tool that allows you to check your credit score for free without the need for a credit card. Here you’ll be able to learn the different components that affect your score, and how you can improve it.

You’ll be able to see your score with your other accounts to give you a complete picture of your finances. Knowing what your credit score is can help determine if you need to improve it to help you get the things you need or want. Visit Mint.com to find out more about how you can access your credit score – for free.

Lisa Simonelli Rennie is a freelance web content creator who enjoys writing on all sorts of topics, including personal finance, investing in stocks, mortgages, real estate investments, and anything else to do with the world of economics.

The post What’s a Good Credit Score? appeared first on MintLife Blog.

Source: mint.intuit.com

How Much Should I Spend on a Car?

How Much Should I Spend on a Car?

The sad thing about cars is that like boats and diamond rings, they’re depreciating assets. As soon as you drive yours off the lot, it immediately begins losing value. Some people are lucky enough to live somewhere with a reliable public transportation system. And others can bike to work. If you don’t fall into either of those categories, however, a car isn’t something you can put off buying.

Check out our investment calculator. 

If you’re preparing to purchase a new or used vehicle, you might be wondering, how much should I spend on a car? We’ll answer that question and reveal ways to make sure you’re not overpaying when you buy your vehicle.

The True Cost of Buying a Car

Next to buying a house, buying a car is likely one of the biggest purchases you’ll make in your lifetime. And if you want a quality vehicle that isn’t going to break down, you’re probably going to have to pay a pretty penny for a new ride. The average cost of a brand new car was about $33,543 in 2015, compared to $18,800 for a used one.

When you buy a car, of course, you’re paying for more than just the vehicle itself. Besides the fee you’ll pay for completing a car sales contract (known as a documentation fee), you might have to pay sales tax. Then there are license and registration fees, which vary by state. In Georgia, for example, you’ll pay a $20 registration fee every year versus the $101 that drivers pay annually in Illinois.

The amount you pay up front for a car can rise by 10% or more when you add taxes and fees into the equation. And if you need a car loan, you might have to put 10% down to get a used car and 20% down to get a new vehicle. If you decide to roll the sales tax and fees into the loan, you’ll cough up even more money over time because interest will accrue.

Once the car is in your possession, you’ll have to pay for insurance, car payments, parking fees, gasoline and whatever other costs come up. In a 2015 study, AAA found that a standard sedan cost Americans $8,698 annually, on average. As convenient as having your own car might be, it’ll be a huge investment.

Related Article: The True Cost of Cheaper Gas

How Much Should I Pay?

How Much Should I Spend on a Car?

The exact amount that you should spend on a car might change depending on who you ask. Some experts recommend that car-buyers follow the 36% rule associated with the debt-to-income ratio (DTI). Your DTI represents the percentage of your monthly gross income that’s used to pay off debts. According to the 36% rule, it isn’t wise to spend more than 36% of your income on loan payments, including car payments.

Another rule of thumb says that drivers should spend no more than 15% of their monthly take-home pay on car expenses. So under that guideline, if your net pay is $3,500 a month, it’s best to avoid spending more than $525 on car costs.

That 15% cap, however, only applies to consumers who aren’t paying off any loans besides a mortgage. Since most Americans have some other form of debt – whether it’s credit card debt or student loans that they need to pay off – that rule isn’t so useful. As a result, other financial advisors suggest that car buyers refrain from purchasing vehicles that cost more than half of their annual salaries. That means that if you’re making $50,000 a year, it isn’t a good idea to buy a car that costs more than $25,000.

How to Buy a Car Without Busting Your Budget

If you’re trying to figure out how to make your first car purchase happen, know that you can do it even if your finances are currently in disarray. If you look at a website like Kelley Blue Book before visiting a dealership, you’ll have a better idea of what different makes and models cost. From there, you can set a goal and work towards reaching it by saving more and keeping your excess spending to a minimum.

Once you find a car you like (and that you can afford), you can save money by challenging or cutting out certain fees. For example, you can lower or bypass dealer fees for shipping and anti-theft systems. If you’re planning on getting an extended warranty, you can shop around and see if there’s another company offering a better deal on it than your car manufacturer.

Meeting with more than one dealer and comparing offers can also improve your chances of being able to find a vehicle within your price range. So can timing your purchase so that you’re buying a car when a salesperson is more open to negotiating, like near the end of a sales quarter.

Try out our budget calculator.

If you need financing, it’s important to make sure you’re not getting saddled with a car loan that’ll take a decade to pay off. Long-term car loans are becoming more common. In 2015, the average new car loan had a term of 67 months versus the 62 months needed to cover the average used car loan.

The longer your loan term, however, the more interest you’ll pay. And the harder it’ll be to trade in your car in the future, especially if the amount of the loan surpasses the car’s value. That’s why some experts suggest that buyers get loans that they can pay off in four years or less.

The Takeaway

How Much Should I Spend on a Car?

How much should you spend on a car? Only you can decide that after reviewing your budget and figuring out if you can pay for the various expenses that go along with owning a car.

Keep in mind that getting a new or used car will likely involve taking on more debt. If you can’t make at least minimum payments on the debt you already have, it might be a good idea to get a part-time job or concentrate on saving so you won’t have to take out a huge loan.

Update: Have more financial questions? SmartAsset can help. So many people reached out to us looking for tax and long-term financial planning help, we started our own matching service to help you find a financial advisor. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

Photo credit: Â©iStock.com/Eva Katalin Kondoros, ©iStock.com/michaeljung, ©iStock.com/Antonio_Diaz

The post How Much Should I Spend on a Car? appeared first on SmartAsset Blog.

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Buying A Second Home? 8 Things To Consider

Buying a second home is a major expense. You might have several reasons for wanting to buy a second house. Perhaps, you’re buying a second home for vacations or weekend getaways. Or, it might be that you want to use it as a rental property for rental income. However, there are things to consider before buying a second home.

The benefits of buying a second home

If you’re buying a second home for rental income, you’ll benefit from many perks, especially tax advantages.

For example, you will be able to deduct interest, property taxes, homeowners insurance and other expenses against the property’s income.

Even if the value of the property declines, you will still be able to deduct depreciation from your taxes.

While these benefits are great, the mortgage requirements for a second home are much stricter than for a mortgage on your primary residence. So, make sure you can afford it.

8 Things To Consider When Buying A Second Home

1. Financing options: When you bought your first home, you had available to you what’s called an FHA loan – a government loan program.

FHA loans are an appealing and favorite choice among first time home buyers due to their relatively low down payment requirement.

FHA loans require a 3.5% down payment and a relatively low credit score of 580. However, FHA loans are not available to second home buyers.

That is because FHA requires the home to be the borrower’s primary residence. So, if you’re thinking of buying a second home, you will need to either use a conventional loan or financing it with your own cash.

2. A larger down payment: If you’re using a conventional loan for your second home, you will need to come up with a larger down payment.

Lenders for a conventional loan usually requires a 20% down payment of the home purchase price.

But for a second home which will be used as a rental property or vacation home, expect lenders to ask for 30% or even 35%.

3. A higher credit score. For an FHA loan, you only need a credit score of 580 to qualify. But for a conventional loan on a second home, you will need much higher credit score — usually 750 or higher.

4. Expect a Higher Interest Rate: Lenders will likely charge you a higher interest rate on your second home than your primary residence.

The reason is because they see a second home — be it a vacation home or a rental property — as riskier. They feel that you are more likely to default on a mortgage on your second home than on your primary residence.

5. Do your research: Just as you did your homework when you bought your place to live in, buying a second home is no different.

In fact, you’ll need to spend more time researching rental property. That means researching the neighborhood you will want to invest in, knowing the zoning laws for a particular area, the sales price for the homes in the area.

You will need to know if the area has adequate public transportation, schools, grocery shopping, etc,– things that potential tenants will need.

6. Be prepared to be a landlord: if you’re buying a second home to rent, be prepared to be a landlord.

And be prepared to deal with all of the headaches that come with being a landlord. Do you have sufficient time? Can you deal with problems?

Owning a rental property and being a landlord is time consuming. It is also hard hard work and you have to do your due diligence.

You can hire a property manager to run the property for you. But if that is not feasible, you’ll have to do it yourself.

That means, screening new tenants, collecting rent, dealing with delinquent tenants, fixing problems in the property, such as a broken pipe.

So before buying a second home, make sure you have sufficient time and make sure you can deal with the day-to-day headaches that come with being a landlord.

7. Do you have a stable income? Dealing with a second mortgage on your second home is doable.

While you may be able to afford upfront costs, if you don’t have a stable income, you may have to think twice about whether it is a good idea.

Plus, you still have to consider the additional expenses of owning a second home such as insurance, property taxes, maintenance, repairs, property management fees, etc.

8. Are you out of credit card debt? If you have paid off outstanding and high interest credit card debts, then purchasing a second home may make sense.

But if you’re still struggling to pay your debt, you may need to put buying a second home on hold. 

The bottom line

If you’re thinking about buying a second home, whether it is for investment or vacation, be prepared to save some money, budget for expenses, and come up with a bigger down payment.

More importantly, spend as much time, if not more, researching for the home just as you did when your purchased your primary home.

Speak with the Right Financial Advisor

  • If you have questions about your finances, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
  • Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post Buying A Second Home? 8 Things To Consider appeared first on GrowthRapidly.

Source: growthrapidly.com

How Much Credit Card Debt is too Much?

Most Americans have credit card debt and will die with credit card debt. It’s one of the most accessible types of credit there is, becoming available as soon as you’re financially independent. It’s also one of the most damaging, as too much credit card debt could hurt your credit report, reduce your credit score, and cost you thousands of dollars in interest payments.

But how much debt is too much? What is the average total debt for American consumers and households and when do you know if you have crossed a line?

How Much Credit Card Debt is too Much?

The average credit card debt in the United States is around $5,000 to $6,000 per consumer. However, this doesn’t paint a complete picture as these figures don’t differentiate rolling balances. In other words, even if you repay your balance in full every month, that balance will still be recorded as debt until it is repaid.

For many consumers, $6,000 is not “too much”. It’s a manageable sum that they can afford to clear. However, if you’re out of work, relying on government handouts and have no money to your name, that $6,000 can seem like an unscalable mountain. And that’s an important point to note, because everything is relative.

To the average American, unsecured debt of $50,000 is catastrophic. It’s the sort of debt that will cause you to lose sleep, stress every minute of the day, and panic every time your lender sends you a letter. To a multi-millionaire homeowner who runs several successful businesses, it’s nothing, an insignificant debt they could repay in full without a second thought.

One man’s pocket change is another man’s fortune, so we can’t place an actual figure on what constitutes “too much debt”. However, this is something that credit reporting agencies, creditors, and lenders already take into consideration and to get around this issue, they use something known as a debt-to-income ratio.

Your Debt-to-Income Ratio (DTI)

Your DTI can tell you whether you have too much debt, and this is true for credit card debt and all other forms of debt (student loans, car loans, personal loans, and even mortgages). 

DTI is not used to calculate your credit score and won’t appear on your credit report, but it is used by mortgage lenders and other big lenders to determine your creditworthiness and if you don’t past the test then you won’t get the money.

To calculate your DTI, simply calculate the amount of debt payments that you have and compare this to your gross monthly income. For instance, let’s imagine that you make $400 in credit card payments and $600 in auto loan payments, creating a total debt payment of $1,000. Your gross monthly income is $4,000 and you don’t have any investments.

In this scenario, your DTI would be 25%. as your monthly debt payments ($1,000) are 25% of your monthly income. If you have a $1,000 mortgage payment to make every month, your obligations increase and your DTI hits 50%, which is when you should start being concerned.

Many lenders will not accept you if you have a DTI greater than 50%, because they are not convinced you will make your payments. $2,000 may seem like a lot of money to have leftover at the end of the month, but not when you factor tax, insurance, food, bills, and everyday expenses into the equation.

If your DTI is below 50%, you may be safe, but it all depends on those additional expenses.

How to Tell If You’ve Borrowed Too Much

Your debt-to-income ratio is a good starting point to determine if you have borrowed too much, and if it’s higher than 50%, there’s a good chance you have borrowed more than you should or, at the very least, you are teetering on the edge. However, even if your DTI is above 30%, which many consider the ideal limit, you may have too much credit card debt.

In such cases, you need to look for the following warning signs:

You Can’t Pay More Than the Minimum

Minimum payments cover a substantial amount of interest and only a small amount of the actual principal. If you’re only paying the minimum, you’re barely scratching the surface and it could take years to repay the debt. If you genuinely don’t have the extra funds to pay more money, then you definitely have a debt problem.

Your Credit Card Balance Keeps Growing

The only thing worse than not being able to pay more than the balance is being forced to keep using that card, in which case the balance will keep growing and the interest charges will keep accumulating. This is a dire situation to be in and means you have far too much credit card debt.

Your Debt is Increasing as Your Take-Home Pay is Reducing

If your credit card bill seems to be going in the opposite direction as your paycheck, you could have a serious problem on your hands. You may be forced to take payday loans; in which case you’ll be stuck repaying these on top of your mounting credit card interest, reaching a point when your debt eventually exceeds your disposable income.

You Don’t Have Savings or an Emergency Fund

A savings account or emergency fund is your safety net. If you reach a point where you feel like you can no longer meet the monthly payments, you can tap into these accounts and use the funds to bail you out. If you don’t have that option, things are looking decidedly bleaker for you.

Dangers of Having Too Much Credit Card Debt

The biggest issue with excessive credit card debt is that it has a habit of sticking around for years. Many debtors only make the minimum monthly payment, either because they can’t look at the bigger picture or simply can’t afford to pay more. 

When this happens, a $1,000 debt could cost them over $2,000 to repay, which means they’ll have less money to their name. What’s more, that credit card debt could impact their credit score, thus reducing their chances of getting low-interest credit and of acquiring mortgages and auto loans.

It’s a cycle. You use a credit card to make big purchases and are hit with a high-interest rate. That interest takes your disposable income away, thus making it more likely you will need to use the card again for other big purchases. 

All the while, your credit utilization ratio (calculated by comparing available credit to total debt and used to calculate 30% of your credit score) is plummeting and your hopes of getting a lower interest rate diminish.

What to do if you Have too Much Credit Card Debt?

If you find yourself ticking off the boxes above and you have a sinking feeling as you realize that everything we’re describing perfectly represents your situation, then fear not, as there are a multitude of ways you can dig yourself out of this hole:

Seek Counseling

Credit counselors can help to find flaws in your budget and your planning and provide some much-needed insight into your situation. They are personal finance experts and have dealt with countless consumer debt issues over the years, so don’t assume they can only tell you what you already know and always look to credit counseling as a first step.

Avoid Fees

Credit card companies charge a higher annual percentage rate to consumers with poor credit scores as they are more likely to default, which means they need those extra funds to balance their accounts. Another way they do this is to charge penalty fees, penalty rates, and cash advance fees, the latter of which can be very damaging to an individual struggling with credit card debt.

Cash advance fees are charged every time you withdraw money from an ATM, and the rate is often fixed at 3% with a minimum charge of $10. This means that if you withdraw as little as $20, it’ll cost you $10 in charges, as well as additional interest fees.

If the cash flow isn’t there, this can seem like a good option, but it will only make your situation worse and should be avoided at all costs.

Use Debt Relief

Debt management, debt settlement, and debt consolidation can all help you to escape debt, creating a repayment plan and clearing everything from credit card debt to student loan debt in one fell swoop. You don’t even need an excellent credit score to do this, as many debt management and debt consolidation companies are aimed towards bad credit borrowers.

Balance Transfers

A balance transfer credit card moves all of your current credit card balances onto a new card, one with a large credit limit and a 0% introductory APR that allows you to swerve interest charges for the first 6, 12, 15 or 18 months. It’s one of the best options available, assuming you have a credit score high enough to get the limit you need.

Monitor Your Situation

Whatever method you choose, it’s important to keep a close eye on your finances to ensure this never happens again. You should never be hit with an unexpected car payment or mortgage payment, because you know those payments arrive every single month; you should never be surprised that you have interest to pay or that your credit score has taken a hit because of a new account or application. 

If you paid attention to your financial situation, you wouldn’t be surprised, you would understand where every penny goes, and as a result, you will be better equipped to deal with issues in the future.

How Much Credit Card Debt is too Much? is a post from Pocket Your Dollars.

Source: pocketyourdollars.com