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Your FICO Score and Applying for a Loan
Have you wondered how loan and mortgage companies decide whether or not to lend you money when you apply for a loan? For nearly all, the decision is based on one version or another of a credit score based on your credit report. The most commonly used credit scoring device is the FICO - software developed by Fair Isaac and Company to evaluate credit histories.
When you make an application for a mortgage loan, the finance company or bank makes an inquiry to a credit reporting agency. The credit reporting agency takes the information given them by the finance company and compiles a report based on information in its own records and other information thats a matter of public record. That information is not only compiled, its fed into a software program that uses a series of algorithms to estimate the likelihood that youll pay the loan back. It makes that estimation by comparing information about you with a profile created by compiling the ideal borrower. The closer your information tallies with the ideal profile, the higher your credit score.
Among the things that the FICO software evaluates when coming up with a credit score are:
- the length of time youve been in your current job
- the length of time youve lived at your current address
- how long youve had credit of any kind
- how many credit cards and loans you have
- whether youve ever made any late payments (or made any in the past four years) on credit accounts
- if youve paid off any loans in full
- if youve ever had an account referred to a collection agency
- how much debt you carry
- how much credit you have available to you
Those are only a few of the factors that affect your credit score. But just how much does your credit score affect your chances of getting the mortgage you want?
According to many financial experts, while your credit score is a large factor in determining whether or not to grant a loan or mortgage to you, banks and finance companies take many factors into account. Most have their own underwriting rules and scoring systems of which the FICO is only a part. Those may include your employment history, the local job market and many other things. Based on all of those factors, a company may decide to extend a mortgage to you despite a low credit rating - or refuse you credit even if your credit rating is high.
One common belief is that a low credit score is forever. Nothing could be further from the truth. Your credit score is very fluid - its meant to represent a picture of your current circumstances and ability to repay a loan thats extended to you. For that reason, new information added to your credit report will affect your credit score - and the further in the past that credit mistakes are, the less they matter. In some cases, it takes as little as 4-6 months of on time payments to bring your credit score up high enough to qualify you for a new loan or mortgage. A new job, a raise in salary, or paying down one or two credit cards could make the difference between a rejection and getting the mortgage that you want.
Payday Loans, A Viable Option?
What are payday loans?
Payday loans are short-term loans that are extended between two pay days. A payday loan is normally provided for 14 days. The borrower, on acceptance of the loan conditions, provides a check favoring the lender as security against the loan. On the due date, the lender deposits this check to recover the loan dues. The due date is generally the next pay day of the borrower. No credit checks are conducted for granting payday loans. Therefore, the FICO score of the borrower is irrelevant. It doesn?t matter whether the borrower has a bad credit history, or has no credit history, or has declared bankruptcy.
Qualifications for payday loans
To qualify for a payday loan, the borrower needs to fulfill all of the following conditions. There are no exceptions.
? You must be a US citizen.
? You must at least 18 years of age.
? You must be at a full time job currently and must be at this job for at least three months.
? You must either have an active checking account or a savings account.
? Your after tax salary should be at least $ 1,000 or you must have a fixed income of $800.
Cost of payday loans
Payday loans carry a very high cost. Generally the lender fees for a $ 100 payday loan is anywhere between $15 and $25. It should be remembered that this fee is for 14 days as the loan itself is extended for these many days only. If one considers the cost on an annual percentage rate (APR) basis, the average is 391%, which by any standard is exorbitant. By law, it is mandatory for the lender to specify the APR to the borrower. Many lenders do compare the cost of payday loan against other forms of financing; but the common denominator of such a comparison is that all of them are very expensive.
When to avail of payday loans?
Payday loans should be availed only during emergencies. Considering the fact that the cost of carrying a payday loan is very high, it should be a resource of last resort. If one implements good budgeting techniques and has a good financial plan, the need for borrowing by way of payday loans can be minimized. Moreover, one must ensure that a payday loan is paid on time. Payday loans should not be rolled over or extended as within no time the borrower will find himself or herself in a debt trap where money may have to be borrowed just to repay the interest.
Profile of a payday loan borrower
? A typical payday loan customer is between 25 and 40 years of age with an annual income anywhere between $ 25,000 and $ 50,000.
? According to the US Census report of Year 2000, the results of the payday loan borrowers survey are:
22% of those surveyed hold a bachelor?s degree.
51% of those surveyed have a retirement savings plan.
In excess of two-thirds of those surveyed have a savings account.
More than two-thirds of those surveyed have an annual income of at least $ 25,555.
Why are Payday loans popular?
They are popular for a number of reasons such as:
? Credit checks are not required. The personal check that you make payable to the lender acts as security.
? Approval is quick. If all the necessary documents are submitted, your loan application maybe approved in minutes.
? The paperwork involved is simple. Generally one or two documents would suffice which explains the loan process and your obligations.
? The repayment process is without hassles. The check submitted as security is encashed on the next payday by the lender. You could extend the loan to subsequent paydays for a fee. However this is very expensive.
? Easy availability. Payday loans are particularly appropriate for emergency situations provided the amount required is small and one is willing to bear the high cost of the loan.
In summary, payday loans might be a viable option if you need cash and need it fast. You still should be careful who you are working with to obtain your loan. If you dont need money right away, there is probably a better solution for you.
College Loans: How Much Do You Really Need?
Many students are leaving high school to begin the long endeavor of college. But before YOU go to college, you may find yourself wondering how youre going to pay for it. The answer is with a college loan. Most college students obtain student loans, but how do you figure out how much you really need for your college expenses? There are many aspects to consider.
The first part of determining how much you need for a student loan is to figure out how much the cost of your schooling will be each year. First, figure out the cost of your tuition. Next, figure the cost of books, lab supplies, and school supplies. Finally, figure out the cost of your room and board. Once you have each expense tallied, add the cost of up for 1 year.
The second thing you should determine is personal needs. This includes: food, transportation, unexpected expenses, car insurance, medical insurance, etc. Be sure that you always figure in a little extra because unexpected things can arise, and prices always tend to go up. Then add all of this together for the amount it would cost for 1 year.
Youve now figured the cost for a year, but its best to get the college loan for the entire time you are to be at school. Most college loans are offered this way. Your credit score and your debt to income ratio determine college loan amounts. Loans will not be given for high amounts if the lender doesnt think youll make enough to pay the monthly loan payment.
Now that you know how much its going to cost you to go to school and survive, you need to see if you will have any other type of income coming in. If you are working a part time job, you may not need the loan for the total amount. Do remember, that each month you will have to make a payment for the loan. Make sure that whatever your income is, that it is enough to make your monthly loan payment and any interest incurred. Pay attention to your debt to income ratio. If you dont make enough money to pay the monthly payment, you will have to take out a smaller student loan.
You can go online to get help determining what you really need to pay for college. Check out our college loan calculator resources athttp://www.collegeloanresource.com/collegeloancalculator/ or, you can sit down with a piece of paper and figure it with some help from family or loved ones. Take your time and dont forget to include everything. College can be very expensive. It is best to calculate the expenses right the first time.
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