Experian Credit Score vs. FICO Score

A young women reclines on a couch and smiles at the phone in her hand.

When you think “credit score,” you probably think “FICO.” The Fair Isaac Corporation introduced its FICO scoring system in 1989, and it has since become one of the best-known and most-used credit scoring models in the United States. But it isn’t the only model on the market.

Another popular option is called VantageScore, the product of a collaboration between the three major credit reporting agencies: Experian, Equifax, and TransUnion. It uses similar scoring methods to FICO but yields slightly different results.

Each scoring model has multiple versions and multiple applications—you don’t have just one FICO score or one VantageScore. Depending on which bureau creates the score and what type of agency is asking for the score, your credit score will vary, sometimes siginifcantly. One credit score isn’t more “accurate” than another, they just have different applications. Learn more about the different types of credit scores below.

When you sign up for ExtraCredit, you can see 28 of your FICO scores from all three credit bureaus. Your free Credit Report Card, on the other hand, will show you your Experian VantageScore 3.0.

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What Is a VantageScore?

VantageScore was created by the three major credit reporting agencies—Experian, Equifax, and TransUnion. It uses similar scoring methods to FICO but yields slightly different results.

One of the primary goals of VantageScore is to provide a model that is used the same way by all three credit bureaus. That would limit some of the disparity between your three major credit scores. In contrast, FICO models provide a slightly different calculation for each credit bureau, which can create more differences in your scores.

FICO vs. VantageScore

So, what are the differences between an Experian credit score calculated using VantageScore and one calculated via the FICO model? More importantly, does the score used matter to you, the consumer? The answer is usually no. But you might want to look at different scores for different needs or goals.

Is Experian Accurate?

Credit scores from the credit bureaus are only as accurate as the information provided to the bureau. Check your credit report to ensure all the information is correct. If it is, your Experian credit scores are accurate. If your credit report is not accurate, you’ll want to look into your credit repair options.

Our free Credit Report Card offers the Experian VantageScore 3.0 so you can check it regularly. If you want to dig in deeper, you can sign up for ExtraCredit. For $24.99 per month, you can see 28 of your FICO scores from all three credit bureaus. ExtraCredit also offers rent and utility reporting, identity monitoring and theft insurance, and more.

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Understanding the Scoring Models

FICO and VantageScore aren’t the only scoring models on the market. Lenders use a multitude of scoring methods to determine your creditworthiness and make decisions about whether or not to give you credit. Despite the numerous options, FICO scores and VantageScores are likely the only scores you’ll ever see yourself.

Here’s what FICO uses to determine your credit score:

  • Payment history. Whether or not you pay your bills in a timely manner is critical, as this factor makes up around 35% of your score.
  • Credit usage. How much of your open credit you have used—which is called credit utilization—accounts for 30% of your score. Keeping your utilization below 30% can help you keep your credits core healthy.
  • Length of credit. The average age of your credit—and how long you’ve had your oldest account—is a factor. Credit age accounts for around 15% of your score.
  • Types of credit. Your credit mix, which refers to having multiple types of accounts, makes up around 10% of your score.
  • Recent inquiries. How many entities have hit your credit history with a hard inquiry for the purpose of evaluating you for credit is a factor for your score. It accounts for about 10% of your credit score.

VantageScore uses the same factors, but weighs them a little differently. Your VantageScore 4.0 will be most influenced by your credit usage, followed by your credit mix. Payment history is only “moderately influential,” while credit age and recent inquiries are less influential.

Each company also gathers its data differently. FICO bases its scoring model on credit data from millions of consumers analyzed at the same time. It gathers credit reports from the three major credit bureaus and analyzes anonymous consumer data to generate a scoring model specific to each bureau. VantageScore, on the other hand, uses a combined set of consumer credit files, also obtained from the three major credit bureaus, to come up with a single formula.

Both FICO and VantageScore issue scores ranging from 300 to 850. In the past, VantageScore used a score range of 501 to 990, but the score range was adjusted with VantageScore 3.0. Having numerical ranges that are somewhat consistent helps make the credit score process less confusing for consumers and lenders.

Your score may also differ across the credit bureaus because your creditors aren’t required to report to all three. They may report to only one or two of them, meaning each bureau likely has slightly different information about you.

Variations in Scoring Requirements

If you don’t have a long credit history, VantageScore is the score you want to monitor. To establish your credit score, FICO requires at least six months of credit history and at least one account reported to a credit bureau within the last six months. VantageScore only requires one month of history and one account reported within the past two years.

Because VantageScore uses a shorter credit history and a longer period for reported accounts, it’s able to issue credit ratings to millions of consumers who wouldn’t yet have a FICO Score. So, if you’re new to credit or haven’t been using it recently, VantageScore can help prove your trustworthiness before FICO has enough data to issue you a score.

The Significance of Late Payments

A history of late payments impacts both your FICO score and your VantageScore. Both models consider the following.

  • How recently the last late payment occurred
  • How many of your accounts have had late payments
  • How many payments you’ve missed on an account

FICO treats all late payments the same. VantageScore judges them differently. VantageScore applies a larger penalty for late mortgage payments than for other types of credit payments.

Because FICO has indicated that it factors late payments more heavily than VantageScore, late payments on any of your accounts might cause you to have lower FICO scores than your VantageScores.

Impact of Credit Inquiries

VantageScore and FICO both penalize consumers who have multiple hard inquiries in a short period of time. They both also conduct a process called deduplication.

Deduplication is the practice of allowing multiple pulls on your credit for the same loan type in a given time frame without penalizing your credit. Deduplication is important for situations such as seeking auto loans, where you may submit applications to multiple lenders as you seek the best deal. FICO and VantageScore don’t count each of these inquiries separately—they deduplicate them or consider them as one inquiry.

FICO uses a 45-day deduplication time period. That means credit inquiries of a certain type—such as auto loans or mortgages—that hit within that period are counted as one hard inquiry for the purpose of impact to your credit.

In contrast, VantageScore only has a 14-day range for deduplication. However, it deduplicates multiple hard inquiries for all types of credit, including credit cards. FICO only deduplicates inquiries related to mortgages, auto loans, and student loans.

Influence of Low-Balance Collections

VantageScore and FICO both penalize credit scores for accounts sent to collection agencies. However, FICO sometimes offers more leniency for collection accounts with low balances or limits.

FICO 8.0 also ignores all collections where the original balance was less than $100 and FICO 9.0 weighs medical collections less. It also doesn’t count collection accounts that have been paid off. VantageScore 4.0, on the other hand, ignores collection accounts that are paid off, regardless of the original balance.

What Are FAKO Scores?

FAKO is a derogatory term for scores that aren’t FICO Scores or VantageScores. Companies that provide FAKO scores don’t call them this. Instead, they refer to their scores as “educational scores” or just “credit scores.” FAKO scores can vary significantly from FICO scores and VantageScores.

These scores aren’t completely valueless, though. They can help you understand where your credit score stands or whether it’s going up or down. You probably don’t want to shell out money for such scores, though, and you do want to ensure the credit score provider is drawing on accurate information from the credit bureaus.

The post Experian Credit Score vs. FICO Score appeared first on Credit.com.

Source: credit.com

10 Ways to Build Credit Without a Credit Card

A woman in a bright red shirt smiles and looks at her cellphone while making notes in her notebook about building credit without a credit card

Credit cards are a great tool for building credit. They’re easy to use, offer flexibility, and sometimes even reward you for using them. Most also directly impact your credit score and are used by many people to begin building their credit profile.

But what if you don’t want a credit card or are having trouble qualifying one? Don’t worry. There are other plenty of other ways to build a strong credit history. Here are ten options for building credit without a credit card.

1. ExtraCredit

The easiest way to start building your credit without getting a credit card is to sign up for ExtraCredit and add your rent and utility payments to your credit profile. With ExtraCredit, you can use the service to add bills not typically reported to the bureaus and get credit for bills you’re already paying. We help strengthen your credit profile by adding your rent and utility payments as tradelines to your credit reports with all three credit bureaus. Continue paying those bills on time, and rent reporting can help you add more to your credit history and help you work your way up to a good credit profile.

Build Credit with ExtraCredit

2. Authorized User Status

Authorized user status is a great way to begin building credit—as long as you and the primary cardholder are on the same page. As an authorized user, you can use the primary cardholder’s credit card and piggyback off their credit card activity. Even if you never use the card, card activity can still be used to positively impact your credit. You’ll want to verify with the credit card company that they report card activity for authorized users. Otherwise, you’ll be wasting your time.

This method comes with some risks, though. Your credit report will reflect how the card is used, even if you’re not the one using it. If you or the primary cardholder racks up an excessive balance or misses payments, that activity could end up damaging your credit instead of helping it. Only become an authorized user if you are both committed to practicing smart credit-building habits.

3. Credit Builder Loans

Credit builder loans aren’t widely publicized, but they are a great way to build credit without a credit card. Smaller institutions like credit unions are generally more likely to offer credit builder loans specifically to help borrowers build credit.

Typically, you borrow a small amount, which is put into a CD or savings account and held until the loan is paid off. You make payments for a set amount of time until the loan is paid. At that time, you can access the funds, including any interest earned from the savings account. And if you’ve made all your payments on time, you’ve been successfully building your credit all along.

These loans often have low interest rates and are accessible to those with poor or nonexistent credit. That’s because you provide all of the collateral for the loan in cash, so it’s not a risk for the lender. Credit builder loans aren’t great if you need the money now—since you need to pay off the loan before you can actually access the funds—but if you have time to build up your credit, they’re a great place to start.

4. Passbook or CD Loans

Similar to credit-builder loans, passbook or CD loans are offered by some banks to existing customers using the balance you already have in a CD or savings account. You build credit as you pay down the loan, and you can access your balance once the loan is paid off. These are very similar to credit building loans, but they use funds you already had in savings as collateral. Interest rates are typically much lower than credit cards or unsecured personal loans as well. Make sure your bank will report payments to the three major credit bureaus before opening this type of loan.

5. Peer-to-Peer Loans

Peer-to-peer loans are made by an individual investor or groups of investors instead of traditional financial institutions, with the accrued interest going back to the investors. While they may sound sketchy, P2P loans are completely legitimate and can be set up through a reputable P2P service like LendingClub—unlike borrowing money from your cousin.

P2P loans will typically accept borrowers with lower credit scores than traditional lenders, but their credit requirements and interest rates will vary depending on the lender—and their rates and fees may be higher than other personal loans. Before you take out this type of loan, ask whether the service reports your timely payments to the credit bureaus so you can get a positive impact on your score.

6. Federal Student Loans

If you’re a student looking to build credit, you may consider a federal student loan. Most federal student loans don’t require any credit history. Private options, on the other hand, often require good credit scores or a cosigner. Don’t take on student debt just to build your credit, but if you’re already considering a student loan, they could be a good way to get started. Federal student loans show up on your credit report, and if they’re paid on time, they can help you build a positive payment history.

7. Personal Loans

Some lenders offer unsecured personal loans to individuals with no or bad credit. These involve borrowing a fixed amount of money and making fixed payments every month. If you don’t have an established credit history, you will likely be charged a higher interest rate. You may be able to get a co-signer to help your odds of approval for lower rates.

Don’t bother with payday loans. These will not help you establish credit history and will just end up costing you money in the long run. Alternatives like OppLoans do report payment history to the credit bureaus, but their rates are typically higher than traditional personal loans.

Apply for a Personal Loan

8. Auto Loans

Most traditional auto loan dealers report all your payments to the credit bureaus. And since auto loans are secured by the vehicle, they’re less risk for the lender than unsecured loans. That means you might be able to qualify for them even if your credit isn’t stellar—though that might come with the expense of higher interest. If you make your loan payments on time, you might be able to positively impact your score and refinance later, though.

9. Mortgages

Getting a mortgage with no credit history is difficult but not impossible. If your goal is just to start building credit, a mortgage may not be the best place to start. But if you’re ready for home ownership and the possibility of building your credit with a mortgage, you have options. First-time homebuyers may consider FHA mortgage, for example, which is available to individuals with a thin credit file. Smaller lenders like credit unions tend to be more flexible and may help you qualify for a mortgage as well.

Your credit score might take a hit when you first assume a huge debt, but it will rise over time with regular monthly payments. Concentrate on making those payments on time to continue building your credit.

10. Rent

Most credit reports do not contain entries regarding your rent payments simply because landlords don’t bother reporting that activity. But credit bureaus will incorporate timely rent payments into your credit report if that information is submitted to them. If you’re evaluating a rental or you currently rent, ask the landlord if they will report your rent payments. You might also be able to use online rent payment applications to ensure this information is reported.

Want to get credit for your on-time rent payments? Sign up for ExtraCredit. Our unique Build It feature will submit rent and utility payments to the three credit bureaus on your behalf, so you can get credit for paying those bills on time. In fact, we’ll look for your past payments to make sure they are submitted so you get credit for previous rent and utility payments as well.

Keys to Building Credit

Whatever option you choose to build credit without a credit card, you must make payments on time consistently. Late payments deal severe damage to your credit score. Avoid financial obligations that put you at risk of making late payments or defaulting.

You also need to keep in mind your account mix. If you only have installment loans and no revolving credit such as credit cards, you won’t have an ideal account mix. Account mix makes up about 10% of your credit score.

Your credit utilization ratio—or the amount of credit you have tied up in debt—might also suffer if you have no credit card or other form of revolving credit. However, in most cases, no credit utilization is better than high credit utilization.

Ready for a Credit Card?

If you’re ready to try building your credit with a credit card, try a secured credit card. These cards are often available to people with bad or no credit, and they typically start with smaller credit limits that can help you learn responsible money management habits.

OpenSky® Secured Visa® Credit Card

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on Capital Bank’s secure website

Card Details
Intro Apr:
N/A


Ongoing Apr:
17.39% (variable)


Balance Transfer:
N/A


Annual Fee:
$35


Credit Needed:
Fair-Poor-Bad-No Credit

Snapshot of Card Features
  • No credit check necessary to apply. OpenSky believes in giving an opportunity to everyone.
  • The refundable* deposit you provide becomes your credit line limit on your Visa card. Choose it yourself, from as low as $200.
  • Build credit quickly. OpenSky reports to all 3 major credit bureaus.
  • 99% of our customers who started without a credit score earned a credit score record with the credit bureaus in as little as 6 months.
  • We have a Facebook community of people just like you; there is a forum for shared experiences, and insights from others on our Facebook Fan page. (Search “OpenSky Card” in Facebook.)
  • OpenSky provides credit tips and a dedicated credit education page on our website to support you along the way.
  • *View our Cardholder Agreement located at the bottom of the application page for details of the card

Card Details +


The post 10 Ways to Build Credit Without a Credit Card appeared first on Credit.com.

Source: credit.com

What’s the Difference Between 401(k) and 403(b) Retirement Plans?

Investing in your retirement early is the best way to ensure financial stability as you age, especially when it comes to understanding various retirement options. Getting started may feel overwhelming — luckily we’re here to help. We help break down the difference between 401(k) and 403(b) accounts, and how they can impact your financial life.

You may already know the value in adjusting your budget to make saving for a rainy day a priority. But are you also prioritizing your retirement savings? If you’re just getting started in the workforce and looking for ways to invest in yourself, 401(k) and 403(b) plans are great options to know about. And, the main difference between a 401(k) and a 403(b) is the company who’s offering them.

401(k) accounts are offered by for-profit companies and 403(b) accounts are offered by nonprofit, scientific, religious, research, or university companies. To understand the similarities and differences between plans in depth, skip to the sections below or keep reading for an in-depth explanation.

How a 401(k) Works
How a 403(b) Works
The Difference Between 401(k) and 403(b)
The Similarities Between 401(k) and 403(b)
5 Ways to Grow Your Retirement Savings
What is a 401(k) and 403(b)
$19,500 with your employer matches. Plus, most retirement funds have required minimum distributions (RMDs) by the time you turn 70. This essentially means you have to take a minimum amount of money out each month whether you want to or not.

In most cases, employers will offer 401(k) matching to encourage consistent contributions. For example, your employer match may be 50 cents of every dollar you contribute up to six percent of your salary. For example, with this employer match on a $40,000 salary, you would contribute $200 and your employer would contribute an additional $100 each month. This pattern would continue until your annual contributions hit $2,400 and your employer contributes $1,200.

Employee matching is essentially free money. You’re monetarily rewarded for your retirement payments. Be sure to pay attention to vesting periods when setting up your employer match. Vesting periods are an agreed amount of time you need to work at a company before you receive your 401(k) benefits. For example, some companies may require you to work for their team for a year before earning retirement benefits. Other employers may offer retirement benefits starting the day you start working with them.
403(b) accounts include school boards, public schools, churches, hospitals, and more. This type of account is also known as a tax-sheltered annuity plan — they allow pre-tax income to be invested until taken out.

Employers that offer 403(b) retirement plans may offer a pool of provider options that undergo nondiscrimination testing. This allows employers that qualify for this account to shop around for plans that offer the best benefits and don’t discriminate in favor of highly compensated employees (HCEs). For instance, some 403(b) accounts may charge more administrative fees than others.

Employers are able to offer employee matching on 403(b) accounts if they decide to. To cut costs for nonprofit companies, 403(b) retirement plans generally cost less than 401(k) accounts. Costs associated with starting up these accounts may not affect you, but it may affect your employer.

Account Type 401(k) 403(b)
Yearly Contribution Limit $19,500 $19,500
Employer-Issued Packages For-profit employers:
Corporations, private establishments, etc. and sole proprietors
Non-profit, scientific, religious, research, or university employers:
School boards, public schools, hospitals, etc.
Minimum Withdrawal Age 59.5 years old 59.5 years old
Early Withdrawal Fees 10% penalty, tax, and additional fees may vary 10% penalty, tax, and additional fees may vary
Source: IRS.org

 

The Differences Between 401(k) and 403(b)

Both a 401(k) and 403(b) are similar in the way they operate, but they do have a few differences. Here are the biggest contrasts to be aware of:

  • Eligibility: 401(k) retirement plans are issued by for-profit employers and the self employed, 403(b) retirement plans are for tax-exempt, non-profit, scientific, religious, research, or university employees. As well as Hospitals and Charities.
  • Investment options: 401(k)s offer more investment opportunities than 403(b)s. 401(k) accounts may include mutual funds, annuities, stocks, and bonds, while 403(b) accounts only offer annuities and mutual funds. Each employer varies in retirement benefits — reach out to a trusted financial advisor if you have questions about your account.
  • Employer expenses: 401(k) accounts are generally more expensive than 403(b) accounts. For-profit 401(k) accounts may pay sales charges, management fees, recordkeeping, and other additional expenses. 403(b) plans may have lower administrative costs to avoid adding a burden for non-profit establishments. These costs vary depending on the employer.
  • Nondiscrimination testing: This form of testing ensures that 403(b) retirement plans are not offered in favor of highly compensated employees (HCEs). However, 401(k) plans do not require this test.

 

The Similarities Between 401(k) and 403(b)

Aside from their differences, both accounts are set up to aid employees in retirement savings. Here’s how:

  • Contribution limits: Both accounts cap your annual contributions at $19,500. In the event you contribute over this limit, your earnings will be distributed back to you by April 15th. If you’re under your retirement contributions by the time you’re 50 years old, you’re allowed to make catch-up contributions. This means that, if you’re eligible, you can contribute $6,500 more than the yearly contribution limit.
  • Withdrawal eligibility: You must be at least 59.5 years old before withdrawing your retirement savings. In the case of an emergency, you may be eligible for early withdrawal. However, you may be charged penalties, taxes, and fees for doing so.
  • Employer matching: Both retirement account options allow employers to match your contributions, but are not required to. When starting your retirement fund, ask your HR representative about potential benefits and employer matching.
  • Early withdrawal penalties: If you choose to withdraw your retirement savings early, you may be penalized. In most cases, you need a valid reason to withdraw your funds early. Eligible reasons may include outstanding debt, bankruptcy, foreclosure, or medical bills. In addition, you may be charged a 10 percent penalty fee, taxes, and other fees. During a downturned economy, as we’ve seen with the COVID-19 pandemic, fees may be waived.

5 Ways to Grow Your Retirement Savings
retirement plan options and their benefits. When employers offer retirement matches, consider contributing as much as you can to meet their match.

2. Set up Monthly Automatic Contributions

Save time and energy by setting up automatic contributions. You may feel less interested in contributing to your retirement as your payday approaches. Taking time to set up a retirement fund and budgeting for this change may be holding you back. To meet your retirement goals, consider setting up automatic payments through your employer. After a while, you may not even notice the slight budget adjustment.

3. Leverage Employer Matching

Employer matching is essentially free money. Employers may put money towards your future for nothing but your own contribution. This encourages employees to consistently put money towards their retirement savings. Not only are you able to earn extra money each month, but this “free money” will grow with interest over time. If you can, match your employer’s contribution percentage, if not more.

4. Avoid Early Withdrawal

Credit card balances, student loans, and mortgages can be stressful. Instead of withdrawing early from your retirement fund to pay for these, consider other debt payoff methods. If you’re eligible to withdraw from your retirement early, you may face penalty fees, taxes, and administrative expenses. This may hinder your savings potential or push back your desired retirement date.

5. Contribute Your Future Raises and Bonuses

If you’re saving less than $19,500 to your retirement fund this year, consider contributing more. If you earn a bonus or a raise, stick to your current budget and consider increasing your contributions. Ask your employer to increase your retirement payments right before you receive a bonus or raise. The more you contribute, the more interest you’ll accrue over time.

Whether your retirement funds are established through a 401(k) or a 403(b), these accounts offer you the chance to build your financial portfolio. Consistently funding your retirement account may better your financial plan and set you at ease. As your contributions age, so do your interest earnings. You’ll be able to make money on your pre-taxed income and set your future self up for success. Get started by checking in on your budget and carving out a specific amount to put towards your retirement each month.

The post What’s the Difference Between 401(k) and 403(b) Retirement Plans? appeared first on MintLife Blog.

Source: mint.intuit.com

Mint Money Audit: Making the Most of a Side Hustle

This week’s Mint audit introduces us to Selena, 48, a mom of two living in San Antonio, Texas. She is a community college director and her husband, 51, is a full-time graphic designer who also manages a booming side hustle in the same industry.

Selena and her husband have already achieved some impressive financial accomplishments, thanks to tracking their finances on Mint, leveraging coupons and shopping at thrift stores. They’ve paid off $52,000 in student loans and invested in a piece of land next door for $26,000, which they believe has appreciated by nearly 40% since purchasing it a few years ago.

But with retirement looming and two children (currently ages 9 and 12) to possibly put through college, Selena wants to learn about additional money moves that could better prepare them for future expenses. She would also love to pay off the family’s 30-year mortgage before she retires in the next 10 to 12 years. Currently they’re on track to pay it down by 2030.

First, a breakdown of their finances:

NET INCOME

  • Hers: $56,000
  • His: $40,000 plus an additional $40,000 in freelance work
  • Total: $136,000 per year

DEBT

  • Just paid off student loans and a property loan (for the lot next door)
  • Credit Card Debt: $0
  • Mortgage: $163,000 (Monthly payment, including real estate tax, is $1,985)
  • Car note: $5,300 (should be paid off within the year)

RETIREMENT SAVINGS

  • Selena’s teacher pension: Roughly $5,000 per month at retirement if she retires in 12 years ($3,800 if she retires in 6 years).
  • Various IRAs between the two of them: $65,000
  • Estimated social security payments: $2,500 to $3,000 (combined)
  • Husband does not have a 401(k)

RAINY DAY SAVINGS

In an emergency, the family has at least six months of expenses saved up or roughly $35,000.

COLLEGE SAVINGS

Selena and her husband haven’t specifically saved for their children’s college education. They’re concerned that a 529-college savings plan might limit their children’s options, if they didn’t choose to attend a traditional college program.

Recommendations

Leverage the Side Hustle

All in all, I think the family’s finances are in solid shape. But if they’re interested in further securing their future, I would suggest investing the annual side hustle income (which currently sits in a bank account earning no interest) to advance retirement savings and carve out an account for their two children.

Starting that side hustle was a very smart money move because it effectively boosted the family’s net income by 40%. And according to Selena, the business, which they operate out of their living room, is only growing, with profits expected to grow another 30% in the future.

Income from side hustles is how I managed to pay off debt in my 20’s and boost savings. Today, it’s more prevalent among working Americans. More than 44 million Americans have a side revenue stream, according to a recent survey by Bankrate. “Having a side hustle is fiscally responsible,” says Susie Moore, founder of the program Side Hustle Made Simple and the new book, “What If It Does Work Out: How a Side Hustle Can Change Your Life.” “It’s an economic hedge that mitigates disruption to wealth building and future planning. There is no such thing as a fixed income,” she says.

So, let’s do some math and see how far this $40,000 per year side revenue stream can go using a compound interest calculator.

Retirement

The couple’s retirement nest egg is not too shabby. Not including their existing IRAs, the couple has about $8,000 a month coming to them in retirement between social security and Selena’s pension. That amount, alone, basically replaces their current full-time income. (And I do recommend Selena wait 12 years before retiring so that she can take advantage of the maximum pension payment.)

But with all the uncertainty around social security and future health care costs, it can’t hurt to save a little more, right? By placing $6,500 in a Roth IRA each year for the next, say, 15 years (Selena’s husband can qualify for the catch-up contribution since he is 5- years old), they’ll have an additional $142,000 for retirement that won’t be subject to taxes. This assumes an average annual return of 4%. They can open a Roth IRA at any bank.

Future Savings for Children

While a 529 plan may not be the best fit for this family, Selena still would like to carve out savings for her kids’ future endeavors, be it to start a business or attend an alternative school. For this, I’d recommend opening a 5-year certificate of deposit or CD and placing $25,000 in it this year. The going yield right now for a 5-year CD at that deposit level is averaging a little more than 2%.

Then, every year, as income rolls in from the side hustle, create a new 5-year CD and deposit $25,000 in it. Do this for the next four or five years. All CDs will have matured by the time her youngest is starting college (or pursuing something else). And they’ll have at least $100,000 plus interest reserved for their kids. If they do choose to go to college, the family’s prepared to help pay for in-state tuition at one of the fine Texas universities.

Mortgage Payoff

After funding the Roth IRA each year ($6,500) and the annual CD contribution ($25,000), the family’s left with $8,500. They could choose to put this toward the mortgage principal to knock a few years off their payoff schedule. Or, they may want to just hold onto it for that annual family vacation. And if I’m being honest, I’d say, go for the vacation! They deserve it!

The post Mint Money Audit: Making the Most of a Side Hustle appeared first on MintLife Blog.

Source: mint.intuit.com

Is Being Debt Free Worth it?

I had a great talk with Millennial Money Man yesterday and my favorite piece of advice he gave me was to “write what you’re passionate about.” It took me literally five seconds to think of the one thing I’m really passionate…

The post Is Being Debt Free Worth it? appeared first on Modern Frugality.

Source: modernfrugality.com

3 Ways to Change Your Relationship with Money

Most people have a love-hate relationship with money. When you’ve got cash to spend, you feel fantastic. You can do whatever you want, go wherever you like, and there’s no worries in your mind. However, when your cash flow starts to dwindle, your entire outlook suddenly goes sour. The high of having cash can mean that you even end up spending it too quickly, so you end up putting yourself in a more difficult situation long-term. Changing your relationship with cash can be one of the first steps to ensuring that you have more of it in your future. If you can take a more positive approach to the way you handle your finances, you’ll be less likely to end up in debt. So, how can you change your relationship with money?

Do Your Research

Most people struggle with their financial freedom because they don’t actively pay attention to the way that they’re spending money. You sign up for essential things like gas and electric and continue paying the same bill for months without checking whether you could be getting a better deal elsewhere. Actually doing your research and making sure that you’re not missing out on opportunities to save will ensure that you can discover some quick wins for your cash flow. You could even find that you can get out of debt a lot faster and make a huge difference to your savings account by refinancing your existing student loans and similar debts into a loan with a private lender. One small change can make a big difference. 

Automate Your Savings

Do you find it hard to stop yourself from spending every penny you earn each month? You’re not alone. A lot of people who have a difficult relationship with money discover that it’s difficult for them to just have cash sitting in their bank accounts. That’s why it’s so important to find an easier way to convince yourself to save. One good option is to open a separate savings account where you can transfer a portion of your earnings every month. You can automate this process by setting up a direct debit to ensure that the cash leaves your account at the same time that you get your wages each month. This means that the next time you check your bank balance, you won’t be tempted to save the cash that should be going to savings. 

Educate Yourself

Finally, stop avoiding the opportunity to learn more about money and how it works. Most of us feel so uncomfortable talking about cash that we barely even look at our bank statements. However, only by examining your spending habits can you determine where the best options are for you to make some significant changes. Be willing to develop a better knowledge of how money works, and how you’re using it. It’s also helpful to learn everything you can about things that can make you more money long-term, like investing in stocks and shares, or setting up savings accounts with extra interest.

3 Ways to Change Your Relationship with Money is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Here Are The Best Student Loans of 2020

The best student loans can help you earn a college degree that will lead to higher earnings later in life. They also come with low interest rates and reasonable fees (or no fees), which will make it easier to keep costs down while you’re in school and once you’re in repayment mode.

For most people, federal student loans are the best deal. With federal student loans, you can qualify for low fixed interest rates and federal protections like deferment, forbearance, and income-driven repayment plans. To find out how much you can borrow with federal student loans, you should fill out a FAFSA form. Doing so can also help you determine if you qualify for any additional student aid, and if so, how much.

While federal student loans are usually the best deal for borrowers, many students need to turn to private student loans at some point during their college careers. This is often the case when federal student loan limits have been exhausted, or when federal student loans are no longer an option due to other circumstances. We’re providing the top 8 options, at least according to us, as well as a guide to help you get the best rate.

Most Important Factors When Applying for Student Loans

  • Start with a federal loan. Fill out a FAFSA form prior to applying for a private loan to make sure you’re getting all the benefits you can.
  • Compare loans across multiple lenders. Consider using a comparison company like Credible to do so.
  • Always read the fine print. Fees aren’t always boasted on the front of a lender’s website, so take time to learn about what you’re getting into.
  • Start paying as soon as you can to avoid getting crushed by compound interest.

Best Private Student Loans of 2020

Fortunately, there are many private student loan options that come with low interest rates and fair terms. The best student loans of 2020 come from the following private lenders and loan comparison companies:

  • Best for Flexibility
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  • Best Loan Comparison
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  • Best for Low Rates and Fees
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  • Best for No Fees
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  • Best Student Loans from a Major Bank
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  • Best Student Loans with No Cosigner Required
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  • Best for Fair Credit
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  • Best for Comprehensive Comparisons
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#1: College Ave — Best for Flexibility

College Ave offers private student loans for undergraduate and graduate students as well as parents who want to take out loans to help their kids get through college. Variable APRs as low as 3.70% are available for undergraduate students, but you can also opt for a fixed rate as low as 4.72% if you have excellent credit. College Ave offers some of the most flexible repayment options available today, letting you choose from interest-only payments, flat payments, and deferred payments depending on your needs. College Ave even lets you fill out your entire student loan application online, and they offer an array of helpful tools that can help you figure out how much you can afford to borrow, what your monthly payment will be, and more.

Qualify in Just 3 Minutes with College Ave

#2: Credible — Best Loan Comparison

Credible doesn’t offer its own student loans; instead, it serves as a loan aggregator and comparison site. This means that, when you check out student loans on Credible, you have the benefit of comparing multiple loan options in one place. Not only is this convenient, but comparing rates and terms is the best way to ensure you get a good deal. Credible even lets you get prequalified without a hard inquiry on your credit report, and you can see loan offers from up to nine student lenders at a time. Fixed interest rates start as low as 4.40% for borrowers with excellent credit, and variable rates start at 3.17% APR with autopay.

Compare Dozens of Rates at Once with Credible

#3: Sallie Mae — Best for Low Rates and Fees

Sallie Mae offers its own selection of private student loans for undergraduate students, graduate students, and parents. Interest rates offered can be surprisingly low, starting at 2.87% APR for variable rate loans and 4.74% for fixed-rate loans. Sallie Mae student loans also come without an origination fee or prepayment fees, as well as rate reductions for students who set up autopay. You can choose to start repaying your student loans while you’re in school or wait until you graduate as well. Overall, Sallie Mae offers some of the best “deals” for private student loans, and you can even complete the entire loan process online.

Get Access to Chegg Study FREE with Sallie Mae

#4: Discover — Best for No Fees

While Discover is well known for their excellent rewards credit cards and personal loan offerings, they also offer high-quality student loans with low rates and fees. Not only do Discover student loans come with low variable rates that start at 3.75%, but you won’t pay an application fee, an origination fee, or late fees. Discover student loans are available for undergraduate students, graduate students, professional students, and other lifelong learners. You can even earn rewards for having a 3.0 GPA or better when you apply for your loan, and Discover offers access to U.S. based student loan specialists who can answer all your questions before you apply.

Apply for a Loan with Discover

#5: Citizens Bank — Best Student Loans from a Major Bank

Citizens Bank offers their own flexible student loans for undergraduate students, graduate students, and parent borrowers. Students can borrow with or without a cosigner and multi-year approval is available. With multi-year approval you can apply for student funding one time and secure several years of college funding at once. This saves you from additional paperwork and subsequent hard inquiries on your credit report. Citizens Bank student loans come with variable rates as low as 2.83% APR for students with excellent credit, and you can make full payments or interest-only payments while you’re in school or wait until you graduate to begin repaying your loan. Also keep in mind that, like others on this list, Citizens Bank lets you apply for their student loans online and from the comfort of your home.

#6: Ascent — Best Student Loans with No Cosigner Required

Ascent is another popular lender that offers private student loans to undergraduate and graduate students. Variable interest rates start at 3.31% whether you have a cosigner or not, and there are no application fees required to apply for a student loan either way. Terms are available for 5 to 15 years, and Ascent even offers cash rewards for student borrowers who graduate and meet certain terms. Also note that Ascent lets you earn money for each friend you refer who takes out a new student loan or refinances an existing loan.

Get a Loan in Minutes with Ascent

#7: Earnest — Best for Fair Credit

Earnest is another online lender that offers reasonable student loans for undergraduate and graduate students who need to borrow money for school. They also offer a free application process, a 9-month grace period after graduation, no origination fees or prepayment fees, and a .25% rate discount when you set up autopay. Earnest even lets you skip a payment once per year without a penalty, and there are no late payment fees. Variable rates start as low as 3.35%, and you may be able to qualify for a loan from Earnest with only “fair” credit. For their student loan refinancing products, for example, you need a minimum credit score of 650 to apply.

Learn Your Rate in Minutes with Earnest

#8: LendKey — Best for Comprehensive Comparisons

LendKey is an online lending marketplace that lets you compare student loan options across a broad range of loan providers, including credit unions. LendKey loans come with no application fees and variable APRs as low as 4.05%. They also have excellent reviews on Trustpilot and an easy application process that makes applying for a student loan online a breeze. You can apply for a loan from LendKey as an individual, but it’s possible you’ll get better rates with a cosigner on board. Either way, LendKey lets you see and compare a wide range of loan offers in one place and with only one application submitted.

Pay Zero Application Fees with LendKey!

How to Get the Best Student Loans

The lenders above offer some of the best student loans available today, but there’s more to getting a good loan than just choosing the right student loan company. The following tips can ensure you save money on your education and escape college with the smallest student loan burden possible.

Consider Federal Student Loans First

Like we mentioned already, federal student loans are almost always the best deal for borrowers who can qualify. Not only do federal loans come with low fixed interest rates, but they come with borrower protections like deferment and forbearance. Federal student loans also let you qualify for income-driven repayment plans like Pay As You Earn (PAYE) and Income Based Repayment (IBR) as well as Public Service Loan Forgiveness (PSLF).

Compare Multiple Lenders

If you have exhausted federal student loans and need to take out a private student loan, the best step you can take is comparing loans across multiple lenders. Some may be able to offer you a lower interest rate based on your credit score or available cosigner, and some lenders may offer payment plans that meet your needs better. If you only want to fill out a loan application once, it can make sense to compare multiple loan offers with a service like Credible.

Improve Your Credit Score

Private student loans are notoriously difficult to qualify for when your credit score is less than stellar or you don’t have a cosigner. With that in mind, you may want to spend some time improving your credit score before you apply. Since your payment history and the amounts you owe in relation to your credit limits are the two most important factors that make up your FICO score, make sure you’re paying all your bills early or on time and try to pay down debt to improve your credit utilization. Most experts say a utilization rate of 30% or less will help you achieve the highest credit score possible with other factors considered.

Check Your Credit Score for Free with Experian

Get a Quality Cosigner

If your credit score isn’t at least “very good,” or 740 or higher, you may want to see about getting a cosigner for your private student loan. A parent, family member, or close family friend who has excellent credit can help you qualify for a student loan with the best rates and terms available today. Just remember that your cosigner will be liable for your loan just as you are, meaning they will have to repay your loan if you default. With that in mind, you should only lean on a cosigner’s help if you plan to repay your loan amount in full.

Consider Variable and Fixed Interest Rates

While private student loans offer insanely low rates for borrowers with good credit, their variable rates tend to be lower. This is why you should always take the time to compare variable and fixed rates across multiple lenders to find the best deal. If you believe you can pay your student loans off in a few short years, a variable interest rate may help you save money. If you need a decade or longer to pay your student loans off, on the other hand, a low fixed interest rate may provide you with more peace of mind.

Check for Discounts

As you compare student loan providers, make sure to check for discounts that might apply to your situation. Many private student loan companies offer discounts if you set your loan up on automatic payments, for example. Some also offer discounts or rewards for good grades or for referring friends. It’s possible you could qualify for other discounts as well depending on the provider, but you’ll never know unless you check.

Beware of Fees

While the interest rate on your student loan plays a huge role in your long-term loan costs, don’t forget to check for additional fees. Some student loan companies charge application fees or prepayment penalties if you pay your loan off early, for example. Others charge origination fees that tack on a few additional percentage points to your loan amount right off the bat. If you can find a student loan with a low interest rate and no additional fees, you’ll be much better off. Since loan fees may not be prominently advertised on student loan provider websites, however, keep in mind that you may need to dig into their fine print to find them.

Make Payments While You’re in School

Finally, no matter which loan you end up with, it makes a lot of sense to make payments while you’re still in school if you’re earning any kind of income. Even if you make interest-only payments while you attend college part-time or full-time, you can save yourself from paying thousands of dollars in additional interest payments later in life. Remember that compound interest can be a blessing or a curse. If you can keep interest at bay by making payments while you’re in school, you can squash compound interest and keep your loan balances from growing. If you let compound interest run its course, on the other hand, you may wind up owing more than you borrowed in the first place by the time you graduate school and start repayment.

What to Watch Out For

A private student loan may be exactly what you need in order to finish your degree and move up to the working world, but there are plenty of “gotchas” to be aware of. Consider all these factors as you apply for a new private student loan or refinance existing loans you have with a private lender.

  • Interest that accrues while you’re in school: Remember that subsidized loans may not accrue interest until you graduate from college and enter repayment mode, but that unsubsidized loans typically start accruing interest right away. Since private student loans are unsubsidized, you’ll need to be especially careful about ballooning interest and long-term loan costs.
  • Getting a cosigner: Make sure you only apply for a private student loan with a cosigner if you’re entirely sure you can repay your loan over the long haul. If you fail to keep up with your end of the bargain, you could destroy trust with that person and their credit score in one fell swoop.
  • You’ll lose out on some protections: Also remember that private student loans come with fewer protections than federal student loans. You won’t have the option for income-driven repayment plans with private loans, nor will you be able to qualify for federal deferment or forbearance. For this reason, private student loans are best for students who are confident in their ability to repay their loans on their chosen timeline.

In Summary: The Best Student Loans

Company Best Of…
College Ave Best for Flexibility
Credible Best for Loan Comparison
Sallie Mae Best for Low Rates and Fees
Discover Best for No Fees
Citizens Bank Best Student Loans from a Major Bank
Ascent Best Student Loans with No Cosigner Required
Earnest Best for Fair Credit
LendKey Best for Comprehensive Comparisons

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Source: goodfinancialcents.com