Monthly Archives: April 2015

Are Personal Lines Of Credit Good Lending Alternatives To Loan

Personal lines of credit can be the difference between a rock and a hard place financially. They can infuse cash quickly when you need a quick infusion of cash such as when you have an unexpected expense such as a broken motor or a burst pipe in your house. For those who are in seasonal employment, sales jobs or other income volatile professions, personal lines of credit also come in handy to keep cash flowing in during lean times. While a savings account would be a far better cash cushion at least this is an option for those who need it.

Personal lines of credit for those who do not know are much like a loan, but more flexible. Personal lines of credit are usually granted by a bank or a credit union. Borrowers tend to make use of them when they want to leave their savings accounts in tact, or when they have none. They also have less interest than credit cards and many other loan products on the market which makes them an attractive loan product. Like a credit card, personal lines of credit have a limit to, but these limits tend to be much higher than that of a credit card. Merely have a line of credit does not put you into debt, in fact you can have an open line of credit your entire life and never owe on it, as long as you do not use it. It is only when you draw on your line of credit that you owe any money. There are monthly minimum payments just like a credit card, but again at a lower interest rate than a credit card. Personal lines of credit are often secured with your home as collateral, but there are plenty of lines of credit based just off of your signature. Personal lines of credit which are secured with the equity of your home are known as HELOCs or home equity lines of credit. The only difference between a HELOC and a personal line of credit is that HELOCs are always secured with your home as collateral while personal lines of credit tend to be signature only.

Personal lines of credit however do not automatically come with a plastic card to use at merchants or withdraw from. However there are some personal lines of credit that do offer plastic or that can be tied to your bank account for ease of use. Some personal lines of credit when attached to a bank account or issued a plastic card can be used just like a debit card.

Personal lines of credit tend to charge less interest than credit cards making them an ideal go to source for spending when you do not have the funds available that day to spend. Although this is not always the case, there are exceptions to this rule such as those with credit cards on an introductory rate or those with a maxed out credit score of 850. Because they do not automatically come linked to a plastic card (as you have to request this or look for a personal line of credit which offers it.) they provide less temptations to use on impulse spending, making this the perfect credit source for those who have trouble with impulse spending. Personal lines of credit often are processed fast meaning you can often make use of your personal line of credit within weeks or even days of applying, with the exception of HELOCs which can take a few months depending on the lender. Unless your line of credit is a HELOC your personal line of credit will be unsecured meaning your assets are likely safe should you run into problems and default on payment. Personal lines of credit are also very flexible in that you can borrow only what you need and once paid back you can borrow from it again without an application, making this an ideal form of credit in place of a loan.

Understanding How Credit Inquiries Can Impact Your Scores

One of the least understood aspects of credit scores and credit reports are inquiries. How do they affect your credit score? What exactly are inquires? When do they fall off your credit report? Do they affect your credit score the entire time they reside on your credit report? What about multiple auto loan inquiries within say a 2 week period? Inquiries remain one part of credit scoring that everyday people still just do not seem to understand, so lets break it down shall we?

A credit inquiry is a flag that appears on your credit report each time your credit report is pulled by someone with a permissible purpose. This includes lenders that you have applied for credit with and any collection agencies that have a past due account that you owe on. Credit inquiries will remain visible on your credit report for a period of two years. There are two types of inquires as well, hard and soft. Hard inquiries are the ones from lenders and collection agencies, while soft inquiries are the ones caused when you pull your own credit score or when a potential creditor pre-screens applicants. Only hard inquires can damage your credit score and only hard inquiries from the last year will effect your credit score.

Hard inquires appear the instant a lender pulls your credit report and scores it using any of the various credit scoring methods such as the FICO8 scoring model or the Vantage 3.0 credit scoring model. In the early years of credit reporting it took some time for inquiries to appear but now they appear instantly so that other creditors know you are applying for credit elsewhere. Collection agencies often pull your credit report as well to check on the state of your finances as well as to skip trace debtors trying to avoid being contacted by the collection agencies.

When you see a soft inquiry it is when you pulled you own credit report. They can also appear from lenders who have screened you with a pre-approved credit offer. They can also appear when a creditor you already do business with wants to check on your credit progress. Insurance checks and pre employment checks also appear as soft inquiries. Soft inquiries are not only ignored for calculating your credit score, they also do not even appear visible to creditors.

You can use inquiries to easily spot identity theft if you monitor your credit regularly. Any inquiries appearing from creditors you do not recognize is often a sure fire sign that your identity has not only been stolen but that the thief is now applying for credit in your name.

Under most scoring models each hard inquiry will deduct 5 points from your credit score. This damage fades away over time and in one year your score goes back to normal. Inquires can be grouped together within a 14 day or 45 day period for rate shopping purposes so that only one of the inquiries counts against your credit score, the amount of days 14 vs 45 depends on which credit scoring model the lender is utilizing at the present time.