Venmo Charges Explained—How They Work and What You’re Really Paying For

Two woman looking at phones, not thinking of venmo charges

Venmo is a financial platform acquired by PayPal when it bought Braintree for $800 million in 2013. Venmo has competitors, but its reach is huge and its rise meteoric—especially with millennials and younger. In the fourth quarter of 2018, it processed 19 billion U.S. dollars—that’s 80% growth year-on-year.1 Today, it has as many as 10 million users by some estimates.

The Venmo app is representative of the willingness to embrace a new kind of money system. It represents a willingness to trust gadgets on a whole new level, and a lack of concern for financial privacy.

But users—and you whether you’re a user or not—may not thoroughly understand the platform. And while Venmo might look free at first glance, there are many little Venmo charges you could be paying without even realizing it.

Anytime you use a financial platform, it’s important to know what the possible charges and risks involved are. This lets you protect yourself and can save you money.

If you’re a Venmo user, here’s what you need to know about Venmo and Venmo charges.

What Is Venmo?

Even if you’re not familiar with this platform, you’re likely familiar with platforms like it including Square Cash, Zelle and Google Wallet.

Venmo is a type of peer-to-peer payment platform. It’s a mobile app that enables sending money easily among friends. No credit card, no wallet, no fees and no nagging for unpaid drinks required. Just link the app to a debit card and spend away.

You can use Venmo to send and accept payments to or from other people online. Instead of finding the exact change to pay your friend back for dinner or stiffing him/her, for example, you can simply Venmo him/her the exact amount.

You can also use Venmo to pay for goods and services from some online retailers as well as to make in-app purchases in some online apps.

Some businesses even choose to use Venmo to make payments to freelance employees.

Venmo is somewhat unique in that it’s also a social platform. Unless you change the settings, your transactions are visible to the public, as well as your friends on the platform. You can see who’s sending or receiving money from who, and the notes they include about what the payments are for.

Creating a Venmo account is as easy as entering your email and selecting a username and password or using your Facebook account to create your Venmo account.

Easy of account setup aside, Venmo users can probably learn a thing or two by reading the fine print and chatting with more suspicious types.

A Guide to Venmo Charges

When you sign up for Venmo, you aren’t asked to make any payments to use the app. This makes it seem like Venmo doesn’t cost anything.

For most users, that’s true. Venmo doesn’t cost anything to download and use, which is part of why it’s become so popular. However, the platform still has to make money for its owners. The owners do that by charging transaction fees—just like most financial institutions and credit card issuers.

So you’re in the know, here are some Venmo fees you might encounter for certain transactions.

Instant Transfer Fees

You can transfer money from your Venmo account to your online bank account for free. But if you want that money in a hurry, you’ll pay for it.

You can do an instant transfer from Venmo to your linked debit card in a matter of minutes if you’re willing to pay 25 cents or 1% of the total transfer, whichever number is higher.

However, you can still do a free transfer if you can wait a day or two for the money to go through. You can also use a Venmo debit card if you want to access the money right away without paying a fee.

Credit Card Processing Fees

Many people do Venmo transfers using a linked bank account, debit card or their own Venmo account.

However, if you send money from a credit card, you’ll need to pay a 3% processing fee. It’s not actually a Venmo fee—it comes from the credit card company. And Venmo makes users pay it rather than covering the cost as part of the service.

Merchant Fees

Merchants who accept payment using Venmo pay fees for those transactions.

They’ll pay a transaction fee of 30 cents, added to a 2.9% fee on the transaction total. This applies to both merchants who accept Venmo debit cards and merchants who accept Venmo payments through a smart payment button.

Overall Costs Rundown

The fees for using Venmo are fairly small. And they’re easy to avoid, unless you’re a merchant. As long as you don’t pay using a credit card for your Venmo transactions, and avoid instant transfers, you can use Venmo free.

Venmo and Your Financial Safety

Venmo can come with costs if you aren’t attentive to your financial safety. Any time you conduct financial transactions over the Internet, you’re taking on a certain amount of risk. But there are ways to protect yourself.

Venmo Risks

The primary risk of using Venmo is the possibility that someone will hack into your account and use it to steal money from you. There are different ways hackers can do this. It’s also possible for a scammer to get your Venmo information by posing as a legitimate source to get your login information.

Once a scammer or hacker has your account information, they’ll change your password so they have more time to steal from you before you can fix the problem. They can link your Venmo account to their bank and funnel money away from you long before you realize it. They can also prevent you from getting the notifications that might alert you to the situation faster.

Built-In Safety Features and Steps You Can Take

First, you should know the precautions Venmo takes to protect your money.

Some of those features are built in, while others require you to opt-in. Data encryption is the basic level of built-in protection. This makes it harder for anyone to steal your information while it’s in transit.

However, data encryption offers low-level protection that’s fairly easy to circumvent. To protect your money, consider following these safety tips:

  • Add a PIN to your app. It’s optional, but there’s no reason not A PIN will stop, or at least slow down, anyone who gains access to your phone from initiating a transaction.
  • Don’t pile up “Venmo bucks.”When you’re paid, you can leave the money “on the app” or move it back into your bank account. Move it back. Your money on Venmo is not insured by the FDIC or protected by many banking regulations. Leave a few dollars in there if you like, but there’s no reason to let it pile up to triple digits. Also, Venmo’s terms of service mention you forfeit any right to interest payments by leaving money there, so regularly sweep it into your savings account.
  • Deactivate transaction sharing from both sides. Don’t broadcast when you make payments. And disable sharing of “transactions involving you” in the privacy settings. Set your Venmo account to private, rather than the default public setting.
  • Pay a very, very limited group of people using the app. Sure, you’ll probably do that at first, but as you get used to it, you’ll probably expand your Venmo friends’ Ask yourself: Will your roommates’ little brother’s cousin really come through with the concert tickets?
  • Refrain from using Venmo to buy things from online classified sites at all costs.

Remember, if you’ve overshared and/or have reason to believe your personal or payment information was compromised, keep a close eye on your financial accounts. You may want to also want to monitor your credit scores. A sudden drop in credit scores is a sign your identity has been stolen.

Is Venmo Right for You?

Venmo is popular, but it’s worthwhile to give it—and any other app—some consideration before jumping in.

Venmo charges are low for most users, making it an appealing platform. However, you want to weigh the risks of using any platform. This financial service works well for many people, but it’s not recommended for someone who won’t be vigilant about protecting his/her information.

Looking for more financial safety information? Check out what you need to know about chipped credit cards here.


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7 Ways to Get Credit When You Don’t Have Any

ways to get credit

Credit is one of those things you don’t want to be without. But, as we all know, the credit game is definitely a Catch-22. You need a good credit history to snag the best deals on loans, yet it’s very difficult to get credit without a borrowing history.

1. Become an Authorized User

If a friend or family member has exceptional credit and faithfully pays their bills on time each month, request to be added as an authorized user to that person’s credit card.

Afraid that your prospect will say no out of fear that you will rack up an excessive amount of debt and bail out? Inform them that you are only requesting to be added to the account; the magic plastic does not need to be in your possession.

While this is a simple way to start building your credit as long as the original cardholder maintains stellar credit habits, the weight given to accounts in which you are an authorized user varies by lender and it might not be as effective as you hope.

2. Get a Co-Signer

You can also request that a close friend or family member with good credit co-sign a loan with you.

Keep in mind that’s asking a lot, because the co-signer becomes responsible for making the payments if you don’t pay. It’s generally advised that people avoid co-signing loans for other people because of the risk involved.

3. Apply for a Secured Credit Card or One that Doesn’t Require Credit History

Lots of lenders offer secured credit cards to those who are new to credit. They mandate a deposit be used as collateral and typically have a credit limit of that amount.

Some lenders refund your deposit and convert the card to an unsecured card after you show your ability to handle debt responsibly for a time.

Before you apply though, ask about the creditor’s reporting practices. If they don’t report to all three major credit bureaus, account activity won’t have any effect on your credit profile. Also, avoid secured cards that have a lot of fees, keep your outstanding balance under 20% of your credit limit, and always pay the bill on time.

Another alternative is a card, like the newer Petal Visa credit card. It’s an unsecured card. And there’s no credit history needed get approved. Instead, Petal looks at your income and financial habits to determine eligibility. And there’s no security deposit.

Petal Visa Credit Card

Apply Now

on Petal’s secure website

Card Details
Intro Apr:

Ongoing Apr:
15.24% - 26.24% Variable

Balance Transfer:

Annual Fee:

Credit Needed:
Good-Fair-No Credit

Snapshot of Card Features
  • No fees whatsoever. No late fee, international fee, annual fee, or any-other-kind-of-fee, fee.
  • $500 - $10,000 credit limits
  • No credit history necessary for approval
  • Build credit by using responsibly.
  • Petal reports to all 3 major credit bureaus
  • Petal’s mobile app makes it effortless to manage your money, track your spending, and build credit without thinking much about it.
  • See if you’re pre-approved within minutes without impacting your credit score.
  • No deposits required.
  • Card issued by WebBank, member FDIC.

Card Details +

4. Diversify Your Debt

Although the types of debt you have accounts for only 10% of your FICO score, it can have a significant impact if there isn’t a lot of other information present in your profile.

In lieu of revolving debt products, such as credit cards, you may want to apply for some sort of installment loan — a car loan, perhaps, or a personal loan — because it can demonstrate your ability to handle credit responsibly over time. Potential creditors will also be interested in your experience with different types of debt.

5. Check With Your Financial Institution

You may have read the last point and thought, “How in the heck am I supposed to go about obtaining an installment loan when I don’t have any credit?”

The first step is to contact your bank or credit union, explain your situation, and see what options you have. Many offer both secured and unsecured personal loans to existing customers in good standing.

6. Apply for a Store Credit Card

This option definitely requires self-discipline.

Store cards aren’t as difficult to qualify for as standard credit cards, but they may be accompanied by higher interest rates and excessive fees. Also, store cards may be exclusive to the retailer and can’t be used elsewhere.

If you take this route and quickly max out the card, you will do more harm than good to your credit profile. So before you sign on the dotted line to apply for a department store credit card, take all those factors into consideration and don’t get sucked in by the enticing introductory offer.

7. Ask Companies to Report on Your Behalf

I’m almost certain you’ve constantly been reminded about the importance of making timely payments because this factor accounts for 35% of your FICO credit score. Assuming you have recurring expenses each month, such as rent, utilities and a cellphone bill, request that the service provider report your account activity to the three major credit bureaus. But do so only if the accounts are current and you have a stellar payment history.

Before you actually move forward and seek credit, you have to ask yourself if it’s something you really need. It doesn’t make sense to purchase an item on credit that will end up costing you an astronomical amount of cash in the long term because of interest and fees. The smart credit card user pays off the entire balance each month.

And by no means am I an advocate of obtaining new credit accounts and making purchases just for the sake of establishing credit — unless you were going to buy those items anyway.

This post originally appeared on Money Talks News.

More from Money Talks News

This article was previously published, and has since been updated by another author.

Image: moodboard

At publishing time, the Petal Visa credit card is offered through product pages, and is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).

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What to Look for in Loan Companies

man finds a loan company he likes

Sometimes you’re in a tight spot and need to borrow money. Personal loans are a great way to borrow money when you need it. But when it comes to finding a loan company, how do you know who to trust? is going to help you know what to look for in a loan company.

What Is a Personal Loan?

A personal loan is when you borrow money and pay it back at a later time with interest. In order to determine your eligibility for a loan, lenders use:

  • Your credit score and credit history
  • Your income
  • Your employment status
  • Your other debts and expenses

Once you’re approved for a loan, you’re told how much you pay each month, as well as how long the payments last. Failure to do can lead to your account being sent to collections and possible legal action against you.

Reasons to Get a Personal Loan

Getting a personal loan isn’t always hard. But that doesn’t mean that you should apply for every loan you see. Apart from the fact that you can find yourself under a mountain of debt, there is one other huge reason why you should proceed with caution when applying for personal loans-they show up as hard inquiries on your credit reports. Too many hard inquiries can lower your credit score.

That, however, doesn’t mean that there aren’t some excellent reasons to get a personal loan. Some reasons to get a personal loan include:

Medical Expenses

Medical emergencies are never convenient. In many cases, you find that when the worst happens, your medical insurance doesn’t fully cover you. You have to pay for the rest yourself. If you don’t have an emergency fund or your savings account is running low, then you might have to take out a personal loan. A personal loan can help you pay off these medical expenses and make them more managable.

Home Improvement

Home improvement projects are a popular way to increase your home’s value. Some of these projects, like roof replacements, cost thousands of dollars. Taking out a loan for home improvement projects may actually end up paying off.

Debt Consolidation

If you’re carrying debt on different credit cards, then a debt consolidation loan may be your answer for paying these accounts off. Sometimes, you may miss a few of these payments-not because you can’t pay but because you simply forget to pay it. These late payments lead to additional late payment charges and increased interest on credit card debt. To avoid late fees and high interest rates, you can pay off all your credit card debt with a loan.

Big Purchases

Whether you want to buy a car or replace some of your home appliances, you probably don’t have enough cash to pay for it upfront. Taking out a personal loan can help you pay for these purchases.

As long as you have a plan on how you’re going to pay back your loan without missing a payment, taking out a personal loan can be very beneficial. However, you need to use the right lender.

What to Look for in a Loan Company

If you’re thinking about taking out a personal loan, here are some things consider before choosing a personal loan company:

  • Interest rates: Variable interest rates are often cheaper at the beginning but riskier in general.
  • Reputation: Do these loan companies stick to the contract you signed? Will they share your private information with advertisers or other companies?
  • Terms of the loan: You need to find a company with flexible repayment terms. One that not only offers the best rates but one also willing to work with you and allows you to set your payment date.
  • Upfront fees: A loan company that has a lot of upfront fees may not be worth it.

Finally, you need to find a loans company that cares about you as a customer - one that offers you 24/7 customer service and one always ready to talk to you about your loan.

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What to Do with a New Credit Card

If you’ve just gotten a new credit card, or you’re thinking about getting one, you’re probably excited about the prospect. A new credit card opens up a lot of possibilities, but it also involves a great deal of responsibility. It’s easy to fall into the habit of using your card carelessly. This can wreck your credit and sink you deep enough into debt that it takes years to get back out again. When used correctly, a new credit card can be a solid foundation for building credit.

Understanding Credit Card Terms

Choosing the right credit card for you means understanding the terms that apply. The credit company bills you on a monthly basis for any charges that you make on your card. If you carry a balance on your card from one month to another, you will pay a certain percentage of the principal in interest. The term for this is the annual percentage rate. The lower the APR, the less interest you have to pay on any balance that you carry on your card.

The APR can be either fixed or variable. A fixed APR never changes, meaning that you pay the same amount in interest from month to month. It’s rare to find a credit card with a fixed APR. Most cards only offer variable APRs, meaning that your interest rate can go up or down.

There are credit cards that offer an introductory APR for the first year or so that you have your card. The introductory APR may be as low as 0%. This rate goes up when the promotional period expires. You need to be aware of when the introductory rate ends and what the APR will be when it does. Understanding the APR will help you to decide on the right credit card for you in the event that you do have to carry a balance on your card. If you pay off your credit card bill in full every month, the APR doesn’t apply

Certain cards also include an annual fee. An annual fee is an automatic charge assessed during a calendar year for the privilege of owning a card. Not all credit cards charge an annual fee. Those that do will charge it regardless of whether you use your card during the year. A credit card company charges an annual fee as compensation for the benefits you receive as a cardholder. The annual fee may apply once a year or in monthly increments. It can range from $25 to $500 per year. The more benefits you get from your card, the higher your annual fee is likely to be.

Choosing the Right Credit Card for You

Now that you understand interest payments, APR, and annual fees, it is time to apply. Credit card companies have eligibility requirements that you have to meet before they approve you for a card. These requirements typically pertain to your income, debt level, and credit rating.

You should ensure that you meet the eligibility requirements before applying for a card for two reasons. First, if you meet the requirements, you’re likely to get approval more quickly and receive your card sooner. Second, more than one denied application means many hard credit inquiries. These could hurt your credit score and make it more difficult to get a card.

Some credit cards offer features that are especially good for people who have never had a credit card before. Some cards that are good for new credit card holders waive late fees for the first late payment, have a lower APR, or don’t come with annual fees. Below are some of our favorite credit cards for new cardholders.

1. Capital One® Quicksilver® Cash Rewards Credit Card

Introductory APR of 0%for the first 15 months on purchases. Ongoing variable APR of 16.24% - 26.24% (Variable). The card comes with unlimited 1.5% cash back on all purchases and has a sign-up bonus of $150 after spending $500 within the first three months.

2. Chase Freedom Unlimited® Card

Chase Freedom Unlimited®

Apply Now

on Chase’s secure website

Card Details
Intro Apr:
0% for 15 months on purchases

Ongoing Apr:
17.24% - 25.99% Variable

Balance Transfer:
Intro: 0% for 15 months

Annual Fee:

Credit Needed:

Snapshot of Card Features
  • 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 17.24-25.99%. Balance transfer fee is 3% of the amount transferred, $5 minimum
  • Unlimited 1.5% cash back on every purchase - it’s automatic
  • Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening
  • No minimum to redeem for cash back
  • Cash Back rewards do not expire as long as your account is open
  • Free credit score, updated weekly with Credit Journey℠
  • No annual fee

Card Details +

Ongoing variable APR of 17.24% - 25.99% Variable. Introductory APR of 0% on purchases for the first 15 months. Similar to the Capital One Quicksilver card, Chase Freedom Unlimited comes with unlimited 1.5% cash back on all purchases. New cardholders can also earn a $150 bonus after spending $500 within the first three months of the account opening.

3. HSBC Cash Rewards MasterCard® Credit Card

HSBC Cash Rewards Mastercard® credit card

Apply Now

on HSBC’s secure website

Card Details
Intro Apr:

Ongoing Apr:
15.24%, 19.24% or 25.24% Variable

Balance Transfer:
0% Intro APR for 15 months on balance transfers, then a 15.24%, 19.24% or 25.24% variable APR.

Annual Fee:

Credit Needed:

Snapshot of Card Features
  • Earn unlimited 1.5% cash rewards on all purchases.
  • Earn a $150 cash rewards intro bonus after spending $2,500 in the first 3 months.
  • 10% Anniversary Bonus on all Cash Rewards earned once a year.
  • No Annual Fee.
  • 0% Intro APR for 15 months on balance transfers, then a 15.24%, 19.24% or 25.24% variable APR.
  • No Foreign Transaction Fees.
  • $0 liability for unauthorized purchases.
  • Terms Apply.

Card Details +

Ongoing variable APR of 15.24%, 19.24% or 25.24% Variable. 0% introductory APR for 15 months on balance transfers. The card also comes with 1.5% cash back on purchases and a $150 sign up bonus after spending $2,500 within the first three months. Plus, cardholders also earn a 10% Anniversary Bonus on all cash rewards each year.Learning What to Do When Your Card Arrives

Learning What to Do When Your Card Arrives

Once your credit card application is approved, it takes about 7–10 business days for your card to arrive in the mail. Once it arrives, there are steps you need to take before you can use it.

1. Read the Terms

The terms go over information about pricing features of your card, including interest rates and fees. The law requires issuers to include the most important of these details on a single sheet of paper with your card. Be sure you read these. The terms and conditions are lengthy, and you may not want to read them in a single sitting, but file them in a safe place for future reference.

2. Activate Your Credit Card

Once you understand the terms and pricing features, you can activate your card. Then it will be available when you’re ready to use it. This is a relatively simple matter. There is usually a sticker on the front of your card that gives you a phone number to call and/or a website to visit. Follow the automated prompts or on-screen directions to activate your card. It should take only a few minutes.

3. Register Your Account Online

Activating your card online and creating an online account are not the same thing. Creating and registering your online account allows you to access it through the internet. Then you can track your account activity and make payments from a website. There are other tasks you can accomplish online as well. Major issuers let you register your account online. Being able to access it from the internet makes your life much easier.

Making Payments to Your Account

Once you start using your credit card to make purchases, you’ll receive a bill from your issuer once a month. The bill contains the following important information:

  • The total balance on your card
  • The minimum payment due
  • The payment due date

The minimum payment is the smallest amount you can pay without penalty. If you make less than the required minimum payment, your interest rate may go up. Each card issuer has its own formula for calculating the minimum payment. It’s usually about 1%t of your balance plus new interest charges. The exact formula appears on your bill.

There is also a penalty for making your payment after the due date. It usually takes the form of a late fee that shows up on your next bill. If you mail your payment, be sure that you budget enough time so that it will get there before the due date to avoid late fees. Online payments usually apply automatically.

Whenever possible, it’s best to pay off the balance on your credit card every month. That will save you from paying interest. Three things happen when you only make the minimum payment on your credit card balance:

  • You will pay more in interest
  • The balance takes longer to pay off
  • Carrying a balance can negatively affect your credit score

Even if you can’t pay off the entire balance, you should try to make more than the minimum payment. This adds less interest and helps pay off your balance more quickly.

With so many options available, picking a credit card can be difficult. makes it easier with tools to help you find a card and tips to choose the right one.


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Set These 5 Q1 Goals to Grow Your Business This Year

business woman has set goals to grow her business

As the new year gets underway, your thoughts may be tuned in to how you can grow your business. According to a November 2018 survey, 83% of small and mid-size businesses think now is a good time to invest in expansion.

Leveling up your business begins with an actionable plan and clearly defined objectives. If you’re ready to grow this year (with minimal growing pains), consider tackling these 5 goals during the 1st quarter.

1. Improve Your Credit Score

A large part of your business’s financial health hinges on your business credit scores. These scores give lenders, vendors, insurance companies, and other entities that may use your credit history for borrowing or financial purposes an idea of how responsibly you use credit.

Strong credit scores matter if your growth plans require taking on a loan or line of credit. The better your score, the better your chances of qualifying for financing and landing the best rates. These tips can help raise your scores in the first quarter and beyond:

  • Pay your business and personal bills on time each month.
  • Reduce the balances owed on loans and credit cards.
  • Check your credit reports for errors and dispute any you find.

2. Downsize Business Spending

The 1st quarter is an excellent time to conduct a budget review for your business. Go over the prior year’s spending month-by-month and pinpoint those areas where you can reduce expenses. That process could involve small steps, such as switching to electronic bank statements each month to avoid a paper statement fee. Or it might entail something bigger, like trimming down your staff. The key is to make your business as lean as possible financially in Q1 so you have more cash flow to funnel toward growth the rest of the year.

3. Revamp Your Marketing Strategy

Marketing is an important growth driver in any business, and if your marketing tactics seem to come up short, it might be time to rethink your plan. Similar to how you approached your budget review, look back at the previous year to determine what worked and what didn’t with your marketing strategy. Then, use that to inform your marketing plans going forward.

Break this goal down further into mini-goals you want to achieve Q1. For example, that might include:

  • Increasing your social media following by 500 people
  • Adding 100 new subscribers to your email list
  • Placing print ads in two new locations
  • Updating your business cards

The trick is to choose specific goals you can realistically accomplish in the 1st quarter. Remember also to select goals that are measurable, so that once the quarter ends, you can decide whether to build on them or move in a different direction with marketing.

4. Streamline Processes to Increase Efficiency

Part of effectively growing your business means using your time wisely and being as productive as possible with the time you have. When time-wasters are clogging up the pipeline, it becomes harder to direct your focus toward growth activities.

Spend some time in Q1 identifying things that might be slowing you down. For example, are your accounting processes outdated? Do team projects take forever to complete because there’s no centralized line of communication?

Once you identify efficiency trouble spots, you can move on to implementing solutions. Switching to a cloud-based accounting system, for instance, could make handling the financial side of the business less of a hassle. Using a web-based project management app can make collaborations for team projects faster and easier. These types of changes may require an initial investment, but they could yield a sizable return if they help encourage growth.

5. Increase Your Online Presence

The internet is one of the most powerful tools you have at your disposal to grow your business. If you’re not leveraging it in the new year — through social media, an e-commerce site, a blog, app, or digital ads — you could be missing out on valuable growth opportunities.

Take stock of your digital footprint and assess your business’s online visibility. Ideally, your business should have a clear presence in those places where your target customers are spending their time.

If you’re not sure where that is, ask. If you have an email list for your business, ask your subscribers to complete a quick survey about their online habits. Or conduct a poll via social media. And check your traffic stats for your website to see where visitors come from online most often.

Those avenues can lead to an information goldmine. Use Q1 to carve out a more solid niche for your business through the online channels that hold the best potential for lead generation. That, along with the other 4 goals outlined here, can set the tone for positive growth in the year ahead.

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Yes, You Can Get a Business Loan with Less Than Perfect Credit

business woman qualifies for business loan

Positive cash flow is something every business relies on to succeed. Whether you’re paying day to day expenses for your business or planning a large-scale investment, working capital is what makes it happen.

A business loan can come in handy for financing those needs. If you don’t have a perfect credit score, however, you may be wondering whether getting approved for a loan is possible.

While lenders weigh your credit history in the balance for business loan decisions, a low credit score doesn’t automatically put you out of the running. It’s possible to get a business loan even when you don’t have stellar credit. Here’s what you need to know.

Which Credit Scores do Lenders Consider for Business Loans?

That’s a good question and the answer depends largely on the lender.

Some business lenders may look at your personal credit scores for loan approvals while others check out your business credit scores. Some lenders may take both personal and business credit scores into account.

That’s important to know if you have a strong personal credit score but a low business credit score, or vice versa. Having a higher credit score on one side could balance out a lower one on the other.

Business Loans for Less Than Perfect Credit

Business credit scores and personal credit scores operate on a range and understanding where you fall on that range can help you choose a business loan option.

For example, the PAYDEX score issued by Dun and Bradstreet ranges from 0 to 100. A score of 80 to 100 signals to lenders that you’re a low risk and likely to pay your bills on time. A score of 50 to 79 is medium risk while anything below 50 is high risk.

With personal credit scores, such as the FICO score, the ranges work a little differently. FICO scores run from 300 to 850, with 850 being a perfect score. Fair credit is a score between 650 and 699 while a score below 650 would generally put you in the poor to bad credit range.

That raises a good question: Is there a minimum credit score that’s required to get a business loan? It depends on the lender and the type of loan you’re looking for.

If you’re looking for a Small Business Administration loan, for example, you’ll generally need to have a personal credit score in the 700 to 850 range. But, there are some online lenders that offer business loans with no minimum credit score requirement.

Some of the loan types you may qualify for with less than perfect credit include:

  • Short term loans
  • Long term loans
  • Working capital loans
  • Business lines of credit
  • Inventory financing
  • Purchase order financing
  • Equipment financing
  • Invoice factoring
  • Merchant cash advances

Some of these business loans may be easier to qualify for with less than perfect credit than others.

Invoice factoring and inventory financing, for example, use your outstanding invoices or the inventory you plan to purchase as collateral for the loan. With merchant cash advances, your future debit and credit card sales act as collateral. In a purchase order financing arrangement, lenders are usually more interested in your customers’ credit scores than yours.

Essentially, a lender may be more willing to overlook a low credit score if they have some guarantee that you’ll be able to repay what you borrow. These types of financing can be good if you had a credit hiccup that caused your score to drop or you have a newer business and you’re still working on establishing credit history.

Applying for business loans with poor or bad credit

Before applying for any business loan, take time to check your personal and business credit reports and scores. This does two things.

First, it lets you see where you stand, credit-wise. That’s useful because you can compare your credit scores to the minimum credit scores required by different lenders to weed out the loans you’re least likely to qualify for.

Second, it gives you an opportunity to look for errors or inaccuracies on your credit report that could be dragging your score down. If you see an error, you have the right to dispute it and attempt to have it removed or corrected. Cleaning up credit report errors could give your score a boost.

Aside from reviewing your credit, remember to compare loan terms carefully. As a general rule, the lower your credit score, the higher the interest rate you’re likely to pay when you borrow so be sure to check out the rates. Also consider the loan fees and the repayment terms before you commit to a loan. You need to know beforehand how the true cost of borrowing adds up and what the payments are to make sure a business loan fits your budget.

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Smart Ways to Use Your Tax Return This Year

You prepped early and thoroughly for tax season and beat the rush to submit your paperwork to the IRS. Now it’s just a matter of waiting for that “free money” to show up in your account.

But taxpayers should be aware that the latest data from the IRS shows that tax refund totals are, on average, down 17% from refunds received in 2018. This is in part due to an increased standard deduction as a result of The Tax Cuts and Jobs Act. Only time will tell the numbers by the end of tax season, but this decreased refund average gives Americans an even bigger reason than usual to use those funds wisely.

If you’re inclined to buy a new toy or splurge on a vacation with your tax return, that might end up being a fantastic choice. But before you let the money burn a hole in your pocket, consider a range of ideas to make your money work smarter for you—and positively impact your overall financial health now and in the future.

Make a Dent in Your Debt

It might not be the most exciting use of your refund, but the relief that comes from freedom from debt is indescribable. So take the baby steps necessary to put yourself on the path to financial freedom!

Come up with a plan to pay off your debts by accurately identifying debts with a free credit report card from, determining your eligibility for a debt consolidation loan or lower interest rates based on your credit score, and creating a strategy based on your total payoff number.

The suggestion to make an extra mortgage payment is repeated often because it’s tried and true and makes financial sense in most situations. The long-term interest savings can benefit you even if you’re not sticking around for the full extent of the loan. But communicate with your lender first to ensure you’re not charged a prepayment penalty.

Keep in mind that order matters when it comes to making debt payments. Non-housing, high-interest debts should generally be paid off before making additional mortgage payments. And sufficient emergency savings should always be set aside for urgent and unexpected expenses.

Save for Rainy—and Sunny—Days

An alarming recent survey revealed that only 39% of Americans have enough savings to cover a $1,000 emergency. The other 61% of respondents say they would pay for an emergency by financing with a credit card, reducing spending on other things, borrowing from family or friends, or taking out a personal loan.

Considering 34% of Americans reported an unexpected emergency in the past year, it’s a no-brainer to make saving a priority, as difficult as it may sometimes feel. But receiving a tax refund is the perfect opportunity to save—if you file online you can have the money sent straight to your savings account so you won’t be tempted to spend it.

Perhaps you’ve been putting off setting up your investment portfolio or you’re waiting until you get a higher-paying job to contribute substantially to your retirement. Stop waiting and examine your options for growing your nest egg with your return.

If you’re not yet a homeowner, you can use your refund to prepare to become one by saving the money for a down payment, closing costs to bolster an offer or points to buy down the rate on your mortgage. Your FICO score influences your APR, so checking your credit score and taking action to bolster it will benefit you when it’s time to mortgage shop.

Invest in Your Home and Experiences

A new year is a perfect time to tackle a home improvement project like upgrading lighting, cabinetry or an inefficient appliance. These are things you can feel guilt-free about spending money on because your investment will return in both your enjoyment of the home and resale value.

Consider putting your refund towards education in the form of a certification that moves you closer to a career goal or even a small-scale entrepreneurial endeavor.

And if you do decide to spend your money on travel, after all, maximize every penny by taking advantage of credit cards with optimal traveling perks like airline miles, hotel discounts, cash-back rewards, and other bonuses not available with regular credit cards.

The top travel credit cards require an excellent or good credit score to qualify, so before you set your travel plans in stone:

  • Check your credit score for free on
  • Pay down high credit card balances, dispute errors on your credit reports, and address delinquent items
  • Apply for your travel credit card of choice and thoroughly read all terms and conditions

About the Author

Rebecca Graham is the home loans content manager at Best Company, an independent review site where companies don’t “pay to play” and consumers can access real customer reviews and educational materials. In her free time, Rebecca enjoys hiking with her family and sampling flavors of the week at the local cookie shop.

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Credit Tips and Trends with Experian’s Rod Griffin

man with arms folded bad credit to left good credit to right credit tips and trends recently had the opportunity to sit down with Experian Director of Consumer Education and Awareness Rod Griffin. Rod helps Experian help consumers better understand and manage their personal finances and protect themselves from fraud and identity theft. In April 2016, The Institute for Financial Literacy named Rod its “Educator of the Year.”

Our goal was to pick Rod’s brain about the current state of credit as he and Experian see it and to chat about Experian’s new Experian Boost solution.

This is a summary of our conversation. In your release for Experian Boost, Experian reports that 100 million plus Americans don’t have access to credit today. How is that possible with the average credit score on the rise in America?

Rod: Even though consumers with credit are trending to better scores, many people still don’t have access to credit. The two are not the same. What we see at Experian is that limited credit histories and low credit scores are two of the key barriers to credit access for many consumers today.

Lenders rely heavily on credit reports and credit scores. However, traditional reports and scores might not tell the whole financial story if a consumer has what’s considered a “thin file” of less than five tradelines included on their credit report. Having too little information upon which to base a lending decision can lead to a rejected credit application or approval only with high-interest rates and fees. Help readers understand what you mean by “five tradelines” on a credit report?

Rod: A tradeline is industry lingo for an account entry in a credit report. Account information includes the name of the lender, the type of account,  details about the account balance, credit limit or principal loan amount, and the dates it was opened and closed, and most important the payment history of the account. The entry will show both the current payment status and whether or not there were late payments in the past.

At least five accounts on a report show credit lenders that the consumer has a good mix of accounts and enough credit history to have some insight into their creditworthiness.

Fewer than five accounts result in what the credit industry calls a thin file. Someone with a thin file is probably new to credit and doesn’t have much of a credit history. Creditors see people with thin files as potential risks solely because the consumer doesn’t have much history to determine whether he or she is a good credit. At, we talk all the time about the five factors that go into a credit score—payment history, debt usage, credit age, account mix and credit inquiries? Those five accounts fall into account mix as you mentioned.

Are there “hidden” aspects to account mix or the other factors of payment history, debt usage, credit age and credit inquiries that consumers may not know about that they need to understand?

Rod: There is nothing “hidden” with credit scores or your credit report. There are a few things people may not think about, though. The five factors you mentioned are the most impactful to a credit score. While people are generally aware the missing payments is bad, they often don’t understand several of the other key elements that can hurt—or help—your credit scores. Utilization rate, having a short credit history or a history with very few accounts, and applying for too much credit in a short time are a few that are often not top of mind for consumers.

Credit utilization rate, or what you call debt usage, is simply your total credit card balances compared to the total available credit limits for your credit cards. In credit reporting language, a credit card is called a revolving account because you can carry your balance from one month to another—or “revolve” the balance.

Number and age of accounts—or tradelines—is how many credit accounts someone has and how long they have been open and active. As I mentioned, having at least five accounts on a report shows credit lenders that someone has a good mix of accounts and some credit history. The longer the accounts are open, the more history there is to show you are a good credit risk. Time is a critical factor in credit scores. However, you can still have strong credit scores with a relatively short credit history.

Credit mix goes hand-in-hand with number of accounts. Creditors want to see that someone has a variety of types of credit being used. Credit cards, or revolving accounts, are the first type. You may carry a balance from month to month. However, it’s best to pay the balance in full each month. Installment accounts are the next type. Those are loans, like a car loan, in which you pay a specific amount each month for a set term until the loan is paid in full. The last would be a mortgage, which is typically the largest loan a person will ever have. You don’t need to have all of them, and you can’t add them all overnight. Instead, that mix builds and grows over time.

Another often misunderstood element in credit scores is recent credit activity. This could be looked at as credit history’s “trending topic” cousin. With recent credit, you want to be mindful of paying down debt, having new information added, having old things fall off a report and of hard inquiries. Making on-time payments, reducing debt and applying for credit only when needed can help your credit scores over time. On the flip side, if you’re increasing your credit card balances, missing payments or applying for a lot of new accounts, that looks like you’re reckless and potentially a bad credit risk. Hard inquiries are a record that you’ve applied for new credit, so they can have a small negative impact on your credit scores. There is a lot of focus on inquiries, but they actually have the least impact on your credit scores. Still, it’s a good idea to be careful about applying for a lot of new credit all at once.

Negative information on your report is by far the most important factor in your credit scores. Late payments, collection accounts, charge-offs and settled accounts all look bad and can persist on your credit report for up to seven years. Bankruptcies can remain for a decade. Catch up on late payments and always pay the minimum due on time to help your restore your creditworthiness.

Credit.comWhat trends does Experian see trends where credit is concerned?

Rod: One trend that’s on the rise is the use of what’s called “alternative data” to help determine a consumer’s creditworthiness. Alternative data includes information that’s not traditionally included in a credit report, such as rent payments, telco payments and more.

When added to a credit report, this information helps creditors evaluate the potential creditworthiness of consumers who fall into that “thin file” category.

Experian is always exploring new types of data to help improve financial access for consumers. Experian Boost™ is the latest example of this. So, just what is Experian Boost?

Rod: Experian Boost is launching this year in the Spring. It’s a platform that consumers can use to add telco and utility payments to their Experian credit report. It actually connects your online bank account to your Experian credit report, so you can have Experian add your on-time payments on your credit report.

Boost helps those with thin files improve their FICO® Score almost instantly. Anyone with a lower score, say between 580 and 669, can really benefit from increasing their scores quickly. That can give them access to lower interest rates and broader financial inclusion.

The example we share is that someone with a FICO ® Score of 720 can pay $4,020 less for a $10,000, 5-year auto loan. That saves them $67 a month more than someone with a score of 500. So, other than not using Experian Boost, of course, what’s the biggest mistake people with low credit scores make?

Rod: The biggest mistakes consumers with low credit scores make are:

  1. Continually failing to make payments on time and
  2. Continually increasing their credit card balances

Late payments and high debt usage rates have serious negative consequences on a consumer’s credit score. Doing that is easier if you have a solid income and good credit usage habits, what do people who are struggling to keep up and/or are living paycheck to paycheck supposed to do? Are there specific tips and tricks that the hardest working Americans can use to help their credit scores in addition to getting their free score and report card on

Always make your payments on time no matter what. Making payments on time every time is the best way to maintain or improve credit scores. If you’re struggling to do that, try to create a budget and catch up on late payments and work to reduce your balances so you can make your payments on time.

Additionally, consumers with thin credit files or low credit scores can benefit from Experian Boost by creating a free account and ensuring they’re paying utility and telecom bills on time.

Experian Boost can also be a helpful tool for people who are living paycheck to paycheck but are still able to pay their telco and utility bills on time. Boost is the first and only opportunity consumers have had to proactively add positive payment histories to their credit file.

We expect two out of three consumers to see an improvement in their credit score and 10% of consumers without a credit score to become scoreable with Boost.

This is exciting because improved credit scores can help people break the cycle of high-cost, predatory lending. It can reduce their costs through lower security deposits, better credit terms, and access to better financial tools. In addition to the free credit report card, which includes a grade and recommendations for payment history, debt usage, credit age, account mix, and credit inquiries, and free Experian score that people can get on, what do you want consumers to know about their credit scores?

It’s important for people to understand the difference between credit scores and credit reports. Think of your credit report like a school paper.

The credit score is like a grade on the paper. You don’t get a grade until you turn in the paper, and similarly, a credit score is not calculated until a lender requests your credit report.

The lender is a bit like the teacher. Each teacher determines how your paper is reviewed, the grading scale used and what constitutes a passing grade. Lenders determine what scores to use to analyze the information in your report and what score you need to qualify for a loan.

If you take care of your credit report, you’ll have good credit scores. Thank you, Rod. We appreciate your expert insights.

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The Lenders Giving Borrowers Second Chance Loans

multicolored house made of money with path of penny to illustrate second chance loans

Brenda Woods didn’t want to move and leave the garden she had tended for 40 years. But the roof was falling in. And her bank wouldn’t give her and her husband Larry a loan to buy a replacement home.

Brenda’s still tending her garden, though, thanks to a second-chance loan from the New Hampshire Community Loan Fund-a Community Development Financial Institution (CDFI). It let the Woods replace their home with a new, safe, affordable, energy-efficient manufactured home.

Brenda and Larry WoodsNearly 700 families financed homes through the Community Loan Fund, which won a $5.5 million award from the Wells Fargo NEXT Awards for Opportunity Finance. The award was for expansion of an innovative financing program for manufactured housing mortgage loans. The NEXT Awards recognize innovative CDFIs that responsibly serve low-income and low-wealth people and communities.

Community Development Financial Institutions, which include banks, credit unions, loan and venture funds, are making second-chance loans where others may fear to tread. “We are looking for those loan opportunities that are most likely to play a transformational role in someone’s life, especially someone low income and low wealth,” says Mark Pinsky President and CEO of Opportunity Finance Network, a national network of CDFIs.

How CDFIs Help Borrowers

Flexible loan amounts. Ask your bank for a $2,000 loan and the teller may hand you a credit card application, but personal loans through CDFIs often range from $2,000 to $20,000, though the loan amount “can go as low as $500,” Pinsky says. Small loans like these are typically not attractive to larger financial institutions, who may not find them profitable enough.

Credit leniency. While borrowers should expect a credit check, a poor credit score shouldn’t stop a borrower from exploring this option. “Virtually all the folks we see have low credit scores. Sometimes it’s a foreclosure, increasingly often it’s due to large medical bills,” Pinsky notes. And unlike traditional loans, consumers with poor or slim credit histories may find that their creditworthiness gets judged in part by how they have handled utility bills or rent – transactions that usually don’t appear on credit reports.

Willingness to take a risk. All of the institutions that make these loans serve low-income consumers and communities, and as a result may be able to extend credit to those who don’t meet the minimum income requirements of other lenders or those who traditional financing institutions consider “risky.”

Support beyond the loan. Those who get these loans find they often also get a good deal of support and borrower education (called “technical assistance”) to make sure they understand the terms of their loans and can hopefully pay them back successfully. “We might pull their credit report and show them how they can improve their credit score,” Pinsky explains.

Better loan terms. The interest rates and terms for these loans may be better than what the same borrowers may receive if they were to use expensive payday lenders or traditional lenders that finance borrowers with bad credit. Loan repayment terms may be more flexible as well.

CDFIs are often also used to fund personal, auto, housing and/or small business loans. The Opportunity Finance Network (OFN) maintains a directory of CDFIs at The approach appears to be working for those who get the loans and those who make them.

OFN reports that members have extended more than $30 billion in financing, with cumulative net charge-off rates of less than 1.7%.

As for the Woods family, they are thrilled with their CDFI loan. “It was very easy; a smooth process,” says Larry. “These things do take time, but it was reasonable.” They even had an extra reason to celebrate. Their loan was approved on Brenda’s birthday.

Other Second Chance Loans for Bad Credit Borrowers

One of the biggest things a lender considers before approving a loan is the amount of credit risk that comes with the borrower. Second chance loans, on the other hand, are offering second chance financing to those with less-than-perfect credit so they can achieve the financial goals they are trying to reach.

Second Chance Installment Loans

When you are offered a second chance loan, it’s important to make sure that you make each payment on time over the course of the loan. Following the repayment plan can help build a positive credit history which accounts for 35% of your credit score. Making on-time payments can significantly improve your credit and give your credit score a nice boost.

You pay back installment loans through monthly payments. Many of these loans will range from terms of between a few months to up to several years. The following subprime lenders offer these second chance installment loans for up to $35,000 for qualified borrowers.

If you need a loan between $500 and $35,000, then may be able to help. It accepts all types of credit and loans are available nationwide. You can use the loan for any purpose, such as for a car loan, and you get a quick loan decision. The interest rates for this type of loan range between 5.9% and 35.99%, which isn’t surprising for a bad credit loan. The loan term is typically between three and 72 months.

Personal Loans from

You can apply for a variety of personal loans on also. Loans are avalbile for all credit scores and offer terms up to 36 months and APRs starting as low as 22.74%. offers loan amounts that don’t exceed $5,000. But it’s willing to help those with subprime and high-risk credit. It offers quick funding, and you can receive your money the business day after your loan is approved. The interest rate for this type of loan varies and can fall between 5.99% and 35.99%. Loan terms are typically between 3 and 60 months.

Short-Term Loans

If you need a short-term loan that you pay off sooner than installment loans, there are lenders who can help in this situation as well. Borrowers usually opt for a short-term loan when they need a smaller amount of cash and fast. These loans don’t go beyond a week to six months and are usually available for an amount between $100 and $2,500.

For a smaller short-term loan, welcomes people with bad credit and offers the borrower $100 to $1,000. It does require that the borrower have a monthly income of at least $1,000 per month and that they have been employed at their current job for at least 90 days. offers much higher interest rates and varied loan terms.


For short term loans up to $2,500, MoneyMutual provides an online marketplace of lenders that can provide funds to qualified borrowers in as little as 24 hours. Their online form is easy and straightforward and takes a few minutes to complete. Their interest rates and loan terms vary depending on the qualifications of the borrower and the amount of the loan.

Borrow with Caution

If you need cash fast but have poor credit, there are still options available to you.

However, borrow with caution. Some of the options for those with poor credit, come at the cost of higher interest rates, which can result in a much higher cost for the life of the loan. And if you can’t commit to the repayment plan and higher costs offer by subprime lenders, you put your personal finances and your credit score at risk.

Image: top, VStock; bottom, courtesy of the Woods

This article was last published June 10, 2013, and has since been updated by another author.

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How Bad Credit Can Make Your Mortgage More Expensive

For sales sign in from of home that had bad credit mortgage

Borrowers who come to the table with lower credit scores can find that their mortgage loan costs more because of their bad credit scores.  This is true for first-time buyers as well as people buying second or third homes. A loan costs someone with a bad credit score more because of higher interest rates and the resulting higher monthly mortgage payments imposed on those with less-than-perfect credit.

Here’s a rundown of why and what your options might be if your credit score is less than ideal.

What Is a Conventional Mortgage Loan?

A conventional fixed-rate mortgage is a home loan originated by a bank, lender or mortgage broker and sold on the primary mortgage market to Fannie Mae and Freddie Mac. Conventional loans are not guaranteed to a government agency where some loans are, such as FHA and VA loan. And the interest rate and terms are almost always fixed for the life of the loan. The majority of home loans are conventional loans.

A conventional loan’s terms and interest rate are determined using what mortgage lenders call “risk-based pricing.” That means that the costs are based on the apparent risk of the consumer’s financial situation. It also means that different people get different terms and interest rates based on how risky their financial situation makes them to the lender as far as paying back the loan and making payments on time.

If you have a lower credit score—from bad to poor or fair—lenders see you as a higher risk and, if they’ll approve you for a conventional mortgage loan, they’ll charge you a higher interest rate that will result in higher monthly payments and a higher cost for the total loan in the end.

The Added Cost of Bad Credit for a Conventional Mortgage

With a conventional mortgage loan, your credit score is the biggest driver of your costs.

If your credit score is between 620 and 679, you can expect to see higher costs when:

  • You don’t have at least a 20% down payment (or 20% equity if you’re refinancing)
  • Your loan size is more than $417,000-or whatever your county’s conforming loan limit is
  • You’re refinancing to reduce your monthly payment

Other factors that affect the price and rate of a mortgage include occupancy, property type, loan-to-value ratio and loan program.

Let’s say your home buying scenario looks like this:

  • Primary home
  • Single family residence
  • Conventional fixed-rate loan
  • 5% down payment
  • 630 credit score
  • $417,000 loan size

Due to your lower credit score, it’s not uncommon that you’d be expected to pay an interest rate that’s 0.375% higher than the average 30-year primary mortgage rate and higher than someone with a credit score above 800. If the 30-year primary mortgage rate is 3.875%, someone with good credit would pay 4.125% in interest (.25% above the primary rate) and you’d pay 4.5%.

Your monthly payment would be $2,112.88 compared to 2,029.99—that’s 82.99 more each month and $29,876.40 more over the 30-year life of the loan. Ouch!

Also, when you have less than a 20% down payment—so you’re financing 80% or more of the home price—your lender will require that pay a mortgage insurance premium. That private mortgage insurance (PMI) premium might be 110% of the loan amount on an annualized basis.

Here again, your creditworthiness factors into the PMI amount for a conventional loan—the lower your score, the more you’ll pay in mortgage insurance. For someone with a 630 credit score, that might be $4,587 per year or $382 per month. Another ouch!

For someone with a 700 credit score, the mortgage insurance premium would be approximately $3,127 per year or $260 per month—a $122 savings compared to your rate or $1,464 annually.

The Bottom Line

It pays to have a good credit score when applying for a conventional loan. If you expect to buy a home in the next year, now’s the time to check your credit scores and credit reports and get yourself on a plan to build your credit. A lender can guide you on the best steps to take, too.

Get your free credit score and credit report card on Your score will be updated every 14 days, so you can track your progress. And your report card will include tips on how to improve each of the five key factors that go into your credit score—payment history, debt usage, credit age, account mix and credit inquiries.

Don’t fear though. If you need to get a home loan now, you might be able to get one with poorer credit and improve your score after the fact and then refinance to get a better interest rate and monthly payment. There are also other loan options available to those with poorer credit scores.

How to Reduce Your Mortgage Costs If You Have Bad Credit

You may be able to raise your credit score simply by paying down credit card debt. Use the credit card payoff calculator to see how long it might take to pay off your credit card debt. Paying down debt decreases your debt-to-income ratio and makes you look less risky to lenders.

Know too that your overall credit history will affect how quickly paying off debts now will affect your score. If you have a long history of late payments, it will take longer for making payments on time now to improve your score.

Generally, a good rule of financial thumb is to keep your credit card balances at no more than 30% of the credit limits per credit card—this is also known as your credit utilization ratio which accounts for a significant portion of your credit score.

In addition to paying down debts, ask your mortgage professional if they offer a complimentary credit analysis. In addition to checking your score and getting your free credit report card on, a mortgage-specific credit analysis can help you see just what factors are affecting your mortgage interest rate. You can then focus on improving those factors first.

Most mortgage brokers and direct lenders offer a credit analysis service. By having the mortgage company run the analysis, you can see how much more your credit score could increase by taking specific actions.

You may also want to consider putting more money down when buying a home to help offset a lower credit score, if that’s possible, of course.

Or, you may want to change gears and go with a different mortgage loan program. An FHA loan is another viable route in keeping your monthly mortgage costs affordable. It may also be easier for you to qualify for an FHA loan with a lower credit score.

The Federal Housing Administration or FHA grants FHA loans. It doesn’t weigh credit scores as heavily as private lenders who give conventional loans do. There is no sliding scale based on your credit score like there is with a conventional loan.

An FHA loan does charge an upfront mortgage insurance premium of 1.75% usually financed in the loan, but the effect of the payment isn’t a lot, which can make an FHA loan a lower cost monthly alternative to a conventional loan for someone with a lower credit score.

Other FHA loan tidbits:

  • FHA loans are not limited to first-time home buyers—they’re open to everyone
  • FHA loans can be used for the purchase of a home or to refinance an existing FHA home loan.

If you’re in the market for a mortgage and are trying to purchase or refinance a home, consider working with your loan officer to qualify on as many loan programs as possible upfront. This approach gives you the opportunity to cherry-pick which loan is most suitable for you considering your payment, cash flow, loan objectives and budget.

More on Mortgages and Home Buying:

This article was last published May 27, 2015, and has since been updated by another author.

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