Here are five key tax preparation tips to keep in mind this year:

1. Stay Organized with a Tax Season Checklist

One of the best ways to ensure you don’t miss any important documents or deadlines is to create a tax season checklist. Organizing your paperwork in advance will save you time and stress when it’s time to file. Start by gathering all the necessary forms, such as your W-2, 1099s, and receipts for deductions. Don’t forget to include important information for your dependents, such as Social Security numbers, if applicable.

By following a tax season checklist, you can make sure you’re fully prepared and avoid scrambling for documents at the last minute. A well-organized tax file will also make it easier for your tax preparer (if you hire one) to process everything efficiently.

2. Maximize Deductions with Updated Tax Rules

The IRS updates tax laws regularly, and staying informed about changes is essential. In 2025, several key deductions and credits may be different, so be sure to review the latest tax rules to maximize your refund. For example, the standard deduction has increased, which might impact your decision to itemize deductions. If you qualify for credits like the Earned Income Tax Credit (EITC) or Child Tax Credit, these can significantly reduce your taxable income.

Make sure you’re aware of any specific changes related to your filing status or income, as these could affect your final tax liability. One of the most valuable tax preparation tips is to take full advantage of available deductions and credits—especially the ones that are unique to the 2025 filing season.

3. Contribute to Retirement Accounts Before the Deadline

Contributing to retirement accounts before the tax filing deadline is an excellent way to lower your taxable income and prepare for your future. In 2025, you can still make contributions to your IRA, 401(k), or other qualified retirement plans up until the filing deadline (April 15). By contributing to tax-deferred retirement accounts, you’ll reduce your taxable income for the year, which could lead to a lower tax bill or a larger refund.

Even small contributions can have a significant impact on your taxes, so consider making the most of this opportunity if you haven’t already maxed out your contributions for the year.

4. Review Your Filing Status and Adjust if Needed

Your filing status plays a crucial role in determining your tax bracket and the deductions you can claim. In 2025, it’s important to review your filing status to make sure it’s still the best option for your situation. For example, if you’re married, consider whether filing jointly or separately will be more beneficial for you and your spouse. If you’ve had significant life changes like marriage, divorce, or the birth of a child, these may affect your filing status and tax outcome.

Taking the time to review your tax preparation tips based on your filing status can ensure that you’re not overpaying or missing out on valuable credits.

5. File Early to Avoid Last-Minute Stress

One of the easiest yet most overlooked tax filing tips 2025 is to file early. By filing as soon as you have all the necessary documentation, you can avoid the stress of last-minute filing. Early filing can also help you secure your refund faster, especially if you choose direct deposit. Additionally, filing early reduces the risk of identity theft and gives you ample time to address any errors or discrepancies.

Filing early also allows you to make any necessary adjustments or take advantage of last-minute tax-saving opportunities before the deadline hits.

Final Thoughts

Tax season doesn’t have to be stressful if you follow the right steps and stay organized. These tax filing tips 2025 will help you navigate the filing process, minimize your tax liability, and make sure you’re taking full advantage of all available deductions and credits. Don’t forget to use a tax season checklist to keep track of your documents and deadlines, and always stay up-to-date with the latest changes in tax laws.

And once you get your tax deduction, consider signing up for CreditStrong to put that money to work in raising your credit score!

The post 5 Tax Filing Tips You Can’t Afford to Miss in 2025 appeared first on Credit Strong.

Let’s start with a way these two are similar. A business checking account is FDIC insured in the same way that your personal bank accounts are with the same limit of $250,000 per depositor. This includes savings accounts. 

But there are more differences you’ll need to be aware of. 

Difference #1 – You Need Business Documentation to Open A Business Checking Account

Opening a personal checking account only requires you to show two forms of ID with the most common ones being a driver’s license and a debit card. That’s easy for most people to do. 

As any business owner is familiar with, you likely filed so much paperwork it made your head spin. From registering your EIN with the IRS, registering your business name with the state, and filing for the licenses and permits you need just to do business officially. It’s a lot. 

Many of those same documents are needed to open a business checking account. Without the right documentation, getting your business account opened can be delayed or the bank may request extra documents at a later time.

You’re a busy person, so let’s avoid all that. 

Get prepared to open your business checking account by gathering these documents: 

• Social Security Number for Sole Proprietorships
• EIN for LLCs, corporations, or partnerships
• Valid Driver’s License or Passport
• Business Licenses
• Articles of Organization (LLCs) or Articles Incorporation (Corporations)
• Partnership agreement with the business name and names of the partners
• Certificate of Assumed Name or Doing Business As (DBA) if your name differs from the name you’re doing business under.

Some banks and credit unions require additional documents on your business depending on the industry you’re in. Some may even require less documentation. It’s best to check out the bank’s website to see what their specifics are for opening a new business bank account.

Difference #2 – You Need to Consider Transaction Limits

There are some things business bank accounts are just better at handling. One of them is transactions. The fact is, personal banking wasn’t designed to handle the increased transactions that come with running a business. 

On any given day, you might need to:

• Place an order for coins
• Make large cash deposits
• Process payroll for employees
• Accept debit and credit card payments
• Make payments to vendors or suppliers
• Deposit or write a large number of business checks

Those things can be difficult or not possible to do if you’re still operating out of a personal checking account. Most banks won’t allow you to accept debit and credit card payments to your personal account at all, effectively limiting the number of sales you can make. 

Operating out of a personal account is out of the question if you’re running a cash-heavy business. If you make large cash deposits regularly or make large exchanges for coins, you’ll run into roadblocks when trying to do that from your personal checking account.

With a business account, you’ll encounter transaction limits you didn’t have with your personal checking account. Certain business accounts may limit the number of business checks you can process each month or limit the number of ATM or teller transactions you can make. 

On a personal side, you’re able to make as many teller transactions, ATM deposits, and payments as you want. 

Business accounts are typically limited on the number of free transactions each month. And a transaction fee is charged if you’re over the transaction limit during the billing cycle. So it’s important to find business checking that works for the number of transactions you need. 

Difference #3 – The Fees and Requirements Are Often Higher

One of the biggest differences between business bank accounts and personal checking accounts is the fee structures and the requirements to avoid those fees. 

Many brick-and-mortar banks have business checking requirements including higher minimum daily balances of around $500 to $1,000 with a basic business checking account. 

You’ll also see monthly maintenance fees or a higher opening deposit than you would see on your personal checking account. 

It’s not the most conducive for a new business without tons of revenue yet unless you absolutely need some of the services and features they offer. 

You might be able to avoid those monthly maintenance fees with some banks if you already have your personal accounts with them. Some financial institutions allow you to meet the minimum balance requirements by linking your personal and business accounts. 

You can also minimize fees by opening other qualifying accounts with the same bank. For example, when you open a business credit card or business savings account alongside your business bank account, it might waive the monthly fee depending on the bank. 

There’s also the option of choosing an online bank if that meets the needs of your company. Many digital business banking options offer free business checking accounts with minimal fees. You might even come across some with unlimited transactions. 

Some even have no minimum opening deposit while still providing great benefits like accounting integrations, invoicing tools, and access to the same ATMs as traditional banks. This can be a great option for e-commerce business owners or other online storefronts. 

Difference #4 – There Are Often Other Business Services to Consider

Your personal account likely comes with features including:

• Online banking and mobile banking
• Bill pay
• Personal checks
• A small APY on your deposits
• Use of a debit card for purchases and payments

That pales in comparison to the tools and services you can get with a business bank account. Many banks with business checking account services also offer:

• Invoicing capabilities to make collecting and tracking customer payments easier.
• Financial statement reports to see what your business expenses and profits are.
• Employee debit cards to handle purchases your employees need to make for the business. 
• Enhanced overdraft protection.
• Quicker Wire transfers with some banks.
• Access to treasury management services for cash-heavy businesses.
• Access to merchant services to accept debit and credit card payments.
• Integrations with bookkeeping software and other third-party business programs.
• Fraud protection features.

Many of these services aren’t free, but there are benefits to having them through the same financial institution where your business checking account is.

Yes: your business account can also help protect you from fraud in some cases. Positive pay, which is available at some banks, uses a list of your business checks to verify outstanding checks that might not match others on your bank account. 

The same feature isn’t available for personal checks. Operating out of a personal bank account could leave you open to fraud. As of 2018, US businesses reported a loss of an average of 5% of their gross profits to fraud, so it’s important to have the tools to combat it. 

Other Business Checking Considerations

A Business Bank Account Helps Separate Your Small Business Finances

Co-mingling your business and personal expenses can get messy. When you can’t tell where your finances end and where the business finances begin, it can be difficult to determine how well you’re doing. 

And if you’re having a hard time finding that information then so will your lenders, tax professionals, and accountants. Having separate accounts for your business allows you to easily manage and maintain your finances at a glance. 

Most banks make it easy to keep track of your success by integrating with common bookkeeping software like Quickbooks and Freshbooks. So your financial statements can be sent over to whoever needs them in just a few clicks. 

It can also be helpful to further separate your business finances between a checking account and a savings account to plan for the future. 

It doesn’t just end at organizing your finances. Separating your accounts can add to your credibility as well.

Imagine what your customers are thinking when they love your products or services, but have to send their payments to a personal bank account or through transferring apps like Cash App or Venmo. 

It can come across as unprofessional, and they might not trust the security of sending their payment to an individual instead of a company. 

The last thing you want is to have customers withdrawing purchases. Savvy shoppers know that making a payment to a personal account is a potential security risk. And they’re not wrong. It’s hard to keep your accounts safe these days and scammers seem to be everywhere. 

The business banking benefit of having access to merchant services allows you to accept a wider variety of payments than you could with your personal account. And it’s much more secure. 

How many more sales could you gain if you accept credit card and debit card payments? How many extra customers would you have if you used a more secure form of payment collection?

Reinvest in your business and boost your credibility by opening a small business checking account. 

It Will Help You Qualify for Business Financing

Keeping a relationship at one bank comes in handy when you start considering a business credit card or a business loan to help cover expenses. While the checking account doesn’t help build business credit, a credit card or business loan with on-time payments will. 

The business checking account helps you establish a good record with your bank when you manage your account well. When they can readily see the details of your business finances, your bank can use that to help qualify you for financing options. 

When you’re looking at expanding your business, the right financing can be essential. Some financial institutions may even offer special terms for their existing business checking account customers. 

It Streamlines Accounting and Tax Reporting

When all your financial statements, expenses, and revenues are in one place, it makes tax time so much easier. Especially if you opted for quarterly tax filing. With a few clicks, you can involve your office manager, accountant, or tax pro to get your financial to-do list done. 

Get quick access to information about your quarterly revenues for potential investors. Pull financial statements to do a progress check on your business. Easily identify your biggest business expenses and make a plan to cut extra spending when needed. 

When you streamline your business accounting, you spend less time sifting through transactions to find the information you need. I’m sure your accountant will thank you too. 

Things to Consider When Looking for a Business Bank Account

When you go to open your new business account, you’ll find plenty of options available. With all those options, you’ll need to know what to look for: 

• Account opening bonuses
• Minimum balance requirements
• Account transaction limits
• Monthly service fees
• ATM fees
• Minimum opening deposits
• Interest on your balances
• Cash deposit limits

Things like account opening bonuses and a healthy APY on your balances are nice to have, but they’re not necessary. 

You’ll want to pay special attention to the minimum balance requirements, transaction limits, fees, and opening deposits as those can determine how much you’re paying for the account overall. 

You might also want to consider how you prefer to do your banking and whether it’s online or in person. That alone can narrow it down significantly. 

In summary, differences between a business account and a personal account are far more than their similarities, but for good reason. Business accounts offer you the security, credibility, and organization that any good business needs to be successful.

Be sure to consider what your business needs when you open your account and be mindful of how you can maximize the benefits you’re receiving without drowning in fees.

The post Business Checking vs Personal Checking: Why The Difference Matters appeared first on Credit Strong.

If you’re hoping to secure better interest rates or qualify for a mortgage, the three digits that make up your credit score can significantly define your chances of success. If your past credit behavior caused your score to take a hit, all hope is not lost. 

With consistent and responsible habits over time, you can build your score back up. In this guide, you’ll learn the basics of responsible credit management and discover how to improve your FICO credit score.

What Is a Credit Score, and Why Does It Matter?

A credit score is a number between 300 and 850 that describes your creditworthiness. It’s a major factor creditors and lenders use to predict how likely you are to repay your debt. Your potential landlord or employer may also ask for your credit score—they use it to determine how financially responsible you are.

Of all the credit-scoring models, there’s one that the majority of credit agencies and bureaus recognize—the FICO score. This score comprises five main components that determine the range you fall into. This table summarizes each factor:

Your credit score significantly influences how likely you are to get credit and how high your interest rate will be. It could also be the difference in whether you get a house or car loan and at what cost. Simply put, a strong credit score saves you a lot over time, while a poor score can cost you substantially. 

What Is Considered a Good FICO Credit Score?

Different scoring models classify their scores with varying ranges, so what may be good for a scoring model like VantageScore may not be considered good with FICO. According to FICO’s classification, a good score ranges between 670 and 739. Here’s what the total score breakdown looks like:

• Excellent: 800–850
• Very Good: 740–799
• Good: 670–739
• Fair: 580–669
• Poor: 300–579 

The above scores forecast your chances of defaulting on a credit product, such as a credit card, mortgage, or personal loan. However, having a good credit score may not guarantee your qualification for certain financial products. Lenders or creditors may evaluate other factors, such as your income, to determine your eligibility.

The Benefits of a Strong FICO Score

There are a lot of benefits to having a strong FICO score. Some of these benefits include:

• Reduced cost of borrowing—A good FICO score helps you bring down the total cost of borrowing because it makes you eligible for lower interest rates. Reduced rates significantly save you money over time
• Increased chances of loan approvals—The stronger your score, the more likely a lender will approve your loan. A high score portrays you as financially responsible and less risky
• Improved eligibility for housing—A great score gives you a higher chance of getting your desired apartment. Most landlords will be less reluctant to accept applicants with a better credit score as it demonstrates reliability 
• Improved qualification for rewards—When you have strong credit, you become eligible for better rewards, including travel points, exclusive perks, and cash back offers

Does a Credit Score Increase Over Time?

Yes, your credit score can increase over time with positive borrowing habits and other responsible financial behaviors. 

Improving your credit score is a gradual process, not a quick fix. As negative items naturally fall off your report, or you eliminate errors and inaccuracies, you may likely notice an increase in your score. Even if the negative items on your score are accurate and, therefore, irremovable, practicing consistent and positive credit building habits will help raise your score. 

Avoid credit repair services that claim to be able to remove accurate but negative items on your report, as they’re likely scams.

How Long Does It Take To Rebuild a Credit Score?

There’s no specific timeline for rebuilding your credit. It will largely depend on the extent of the damage your credit has sustained and the way you approach the rebuilding process. 

Negative items take about seven to ten years to fall off on their own. It may take longer to recover from other grievous credit issues, such as bankruptcy or foreclosures. You have a better chance of boosting your credit score over time if you follow the steps below. 

How To Build FICO Credit Score Yourself in 7 Steps

If you’re eager to rebuild your credit and start seeing a positive increase in your credit score, follow the steps below consistently:

1. Pay down your revolving credit 
2. Raise your credit limit 
3. Review your credit report frequently 
4. Dispute inaccuracies in your report 
5. Don’t miss payments
6. Have a diverse credit mix
7. Use credit building resources and solutions

Pay Down Your Revolving Credit 

The sooner you pay off your balance every month, the better it is for your credit score. Pay off more than the minimum amount as often as you can to significantly reduce your revolving debt because the amount of debt you owe accounts for 30% of your score. 

If you can afford it, make multiple monthly payments to erase your balance since paying off debt has the most impact on your score.

You should also reduce your credit utilization by keeping it below 30% every month. The lower the percentage of the credit you use, the greater the impact it will have on raising your score. 

Raise Your Credit Limit 

The higher your available credit, the lower your credit utilization rate—that is, if you’re not maxing out your credit card every month. To increase your credit limit, you can request an increase on your present credit card or open a new card. 

Before you apply for a card, you must be sure that you will only spend what you can afford to pay off. If you decide to open a new credit line, do your research first. Applying for new credit will trigger a hard inquiry on your credit report, which will ding your credit score. 

Multiple hard inquiries on your account within a short period could cause further damage. Choose a creditor who will not make a hard inquiry on your account and ensure your score is in excellent standing for a better chance at success.

Review Your Credit Report Frequently

If you’re not frequently going over your credit report, you may miss out on errors that negatively impact your score. Common errors you’ll find on your credit report include duplicated accounts, misreported payments, incorrect balances, and incorrect account status.

You can request your credit report from AnnualCreditReport.com for free and comb through it to spot negative items and derogatory remarks so you can take immediate action.

Dispute Inaccuracies in Your Report

Disputing the inaccuracies on your credit report is the next step after spotting them. Due to your past credit behaviors, your credit report may have some accurate derogatory remarks that may be affecting your score. If this is the case, it’s unnecessary to file a dispute to have them removed—they will naturally fall off your report after some time.

If the errors or remarks are false or outdated, you have the right to request that they be removed. Contact the credit bureaus to find out their dispute process so you can clean up your report. You can also contact the creditor involved to request the removal.

Don’t Miss Payments

Paying your bills on time has the most significant impact on your credit report. Turn on reminders or set up automatic payments to ensure you never miss a payment. If you unavoidably do, stay consistent afterward to ensure you don’t miss more payments. 

The impact of a missed payment on your score will eventually diminish as time passes and you maintain good payment habits.

Have a Diverse Credit Mix

Your credit mix makes up 10% of your score—this means having different types of credit in your credit portfolio is good for your score. For instance, if you have two credit cards, one auto loan, one personal loan, and one mortgage, you’ll have a stronger credit mix than someone who has only one type of credit.

There’s no need to apply for different types of credit all at once if you don’t need them, but adding them to your portfolio over time when the need arises will be beneficial for your score.

Use Credit Building Resources and Solutions

Credit building resources can be valuable for improving your score if you’re rebuilding after past mistakes. They educate and guide you on responsible credit management to avoid making more mistakes that may hurt your score. 

A credit building platform like CreditStrong also helps you establish a positive credit history, significantly affecting your score. CreditStrong offers three main types of FDIC-insured accounts that help improve your FICO score by 45–86 points. 

Each product is designed to help you build your credit and regain your financial confidence after past damage.

Boost Your Credit Score With CreditStrong

CreditStrong is an independent community bank owned by Austin Capital Bank. It is focused on helping you build positive credit and growing your savings through responsible financial habits. A CreditStrong account combines a secured consumer installment loan or a revolving line of credit with a savings account, enabling you to build your score and savings together. 

To ensure the utmost transparency, CreditStrong works with the three major credit bureaus in the U.S.—Equifax, Experian, and TransUnion. It reports your on-time payments to the bureaus to build your score and allows you to track your progress with a free monthly FICO score. 

CreditStrong is not a credit repair service, and it does not help you remove negative remarks from your credit profile. 

CreditStrong Accounts and Key Functions

CreditStrong offers three main account types: 

1. Instal/CS Max—An installment credit builder account that can build up to $1,100 of installment credit
2. Revolv—An account based on a secured revolving line of credit at 0% utilization that helps to increase the total available credit and lower your overall utilization
3. MAGNUM—A special installment account designed to build large credit ($2,000 to $30,000 worth of credit)

The table below provides a summary of how these accounts work:

To improve your score faster with any of these CreditStrong accounts, you must make significant and consistent on-time payments. Your payment history is the largest and most significant factor in determining how strong your credit will be.

Getting Started With CreditStrong

To open a CreditStrong account, take the following steps:

1. Click here to get started and discover account options
2. Select a CreditStrong account based on your credit goal:
   • MAGNUM—$30/year
   • Revolv—$99/year
   • Instal—$28/month
3. Fill in the form with the necessary information to apply for a CreditStrong account
4. Monitor your progress with the credit dashboard provided

The post How To Improve Your FICO Credit Score in 7 Clear Steps appeared first on Credit Strong.

In this article, we explain what happens when hard inquiries fall off and share positive credit building habits and solutions that can help you bounce back after your score dips.

What Is a Hard Inquiry?

A hard inquiry, also called a hard pull, is an inquiry that appears on your credit report after a lender requests information about your credit history. Say you apply for a new credit card, home loan, auto loan, personal loan, or any other line of credit. The potential lender will pull your credit report to get a glimpse into your credit history and determine if you qualify for their loan.

It is part of the application for any major type of loan and can stay on your credit report for up to two years for other lenders and creditors to see. A potential landlord can also check your credit as part of the application process when you want to rent a new apartment. 

FICO^®, the credit-scoring model used by most lenders, defines a hard inquiry as any instance in which you permit someone to check your credit report.

The Difference Between a Hard Inquiry and a Soft Inquiry

Aside from a hard inquiry, another type of credit inquiry you should be aware of is a soft inquiry. A soft inquiry happens when a lender checks your credit report with or without your approval, or when you check it yourself. 

The main difference between a soft and a hard inquiry is the impact they have on the credit report. This table clearly explains the differences between both types of inquiries:

In summary, soft inquiries are harmless, don’t appear on your credit report, and don’t affect your score.

Can You Remove Hard Inquiries From Your Credit Report?

You may be able to remove a hard inquiry from your report in two cases:

1. If the inquiry is reported in error
2. If it’s as a result of identity theft or fraud

If a hard inquiry is reported on your account for a credit application you didn’t submit, it could be an error or a telltale sign of attempted fraud. Once you get notified of this, immediately file a dispute to ensure the inquiry is removed. If the report is a result of fraud, it’s important to review your accounts for other signs of fraud and dispute them immediately. 

You may be unable to remove hard inquiries from your credit report if they stem from a credit application you made. The inquiries are recorded on your credit history and cannot fall off until their validity elapses.

Does Removing Hard Inquiries Increase Credit Score?

Removing a credit inquiry from your report only affects your score if it has been there for less than a year. 

Remember that only an erroneous or fraud-related inquiry can be removed from your report. If you dispute a fraud-related inquiry, and it’s removed from your account, you will likely gain a few points. Your score will not be impacted if one year passes before you remove the inquiry. 

Again, your score will not be affected when a credit application inquiry falls off naturally after the two-year mark. 

How Does a Hard Inquiry Affect Credit?

A hard inquiry is considered a sign of uncertainty, making a lender perceive that you may be financially unstable or an unreliable borrower. However, this shouldn’t alarm you. 

FICO’s scoring model reveals that a hard inquiry makes up only 10% of your FICO Score. This means that if you get one on your report, it will have little impact on your score. One hard inquiry on your report may cause your score to drop by about five points or fewer if you have a good credit history. 

You can regain the points in a few months if you maintain positive credit habits. One year after the inquiry appears on your report, it will no longer affect your credit score. 

While a solitary hard inquiry may not cause a significant dip in your score, accruing multiple hard inquiries from applying for different types of credit within a short period may cause a weightier drop. It may also flag you as a risk to lenders and harm your chances of securing a loan. 

In some cases, multiple hard inquiries in a row may be overlooked. For instance, if you’re shopping around and comparing rates for a mortgage or car loan, you will accrue many hard inquiries from lenders you interact with. If you keep your rate shopping within a 14–45-day period, most credit-scoring models like FICO will treat all the inquiries as a single hard inquiry, keeping the reduction to a minimum.

How To Reduce the Effects of Hard Inquiries on Your Credit

Hard inquiries are a normal part of a credit application process, and although they can temporarily hurt your credit score, you shouldn’t worry too much about them—unless you already have a low credit score. In that case, here are a few ways to minimize the impact on your credit:

• Apply strategically—Time your applications and try to keep them within a 14-day timeframe when rate shopping. Doing this will ensure the scoring models categorize all the hard inquiries on your report as one inquiry
• Reduce your credit applications—Only apply for credit when you genuinely need it and use a selective application method to narrow down your preferred creditor. Look for lenders that offer prequalification tools to determine your eligibility without triggering a hard inquiry 
• Practice good credit habits—Frequently reviewing your credit reports can help you stay current on loan payments and keep your credit card balances minimal. It also helps you spot unauthorized inquiries on your report so you can dispute and clean them up before one year elapses

A credible and transparent credit building solution like CreditStrong can help you improve your credit over time. It provides a free monthly FICO Score with details of your credit report to keep you updated. CreditStrong also offers different accounts with specific features that can help you build your credit score and savings at the same time.

Maintain a Healthy Credit Score With CreditStrong

CreditStrong, a division of Austin Capital Bank, is an FDIC-insured credit building platform that helps you make positive changes to your credit score. It doesn’t require a hard credit pull to open an account, and you can build from any stage, whether beginning or building back from damage.

CreditStrong allows you to build credit and save at the same time because you’re building your payment history by saving instead of spending. It achieves this easily by combining a secured installment loan or a revolving line of credit with a savings account in your name.

Types of CreditStrong Accounts and Ways They Help Improve Credit

To build credit with CreditStrong, choose any of its three main account types:

1. Instal/CS Max—Instal is ideal for beginners as it builds credit through secured installment loans locked safely in a savings account. It promptly reports on-time payments to the credit bureaus, helping to improve your credit score by up to 45 points. CS Max focuses on building larger credit lines for 60 months and is fitting if you seek significant credit growth for the long term
2. MAGNUM—This account builds substantial credit ($2,000–$30,000) and improves your score by up to 86 points if you make 12 on-time payments. It’s ideal for unlocking higher credit limits, accessing bigger loans, and building credit for business purposes. It’s not a good fit if you’re concerned about debt-to-income ratio
3. Revolv—The Revolv account provides a secured revolving line of credit with 0% utilization. This helps to improve credit by decreasing utilization and growing savings while building credit. It’s perfect for users with high credit card balances, and it provides a 62-point FICO Score 8 increase 

The table below highlights each account’s key credit building features:

How To Create a Credit Strong Account

Unlike credit repair services that make unrealistic promises and charge upfront payments for DIY services, CreditStrong empowers you to build a positive payment history that improves your credit score at a low cost. To create a CreditStrong account, take the following steps:

1. Click here to get started 
2. Select any of the three products that best fit your credit building goal:
   • MAGNUM—Starting at $30 a month
   • Revolv—$99 a year
   • Instal—Starting at $28 a month
3. Fill out the online application form with your details to set up your CreditStrong account
4. Monitor your progress, savings, and payments via the credit dashboard

The post Does Your Credit Score Go Up After Inquiries Fall Off—Answered appeared first on Credit Strong.

If you’re considering asking for an increase in your limit, begin by weighing the benefits and potential drawbacks of a credit increase. Knowing when to do so and if you should raise your credit limit is also important to avoid damaging your credit score.

In this article, we explain how increasing the credit limit affects your credit score, what to consider before asking for an increase, and how to boost your credit limit without hurting your score. 

What Is a Credit Limit?

A credit limit is the maximum balance available on your credit card. Card issuers put this limit on your card to represent the maximum amount of credit you are allowed to charge. For example, if the limit on your credit card is $4,000, you can’t charge the card for more than $4,000 unless you get a credit limit increase. Your credit limit is determined by a couple of factors, including:

• Payment history—A strong history of on-time payments on your loans and credit cards indicates that you are reliable and responsible with your finances. If you have a track record of making on-time payments, you may be eligible for a higher credit limit
• Credit utilization—This is the amount of credit you use compared to your total available credit. Lower credit utilization rates indicate that you manage your credit responsibly, leading to higher credit limit offers
• Income level—Earning a higher income makes you eligible for higher credit limits because lenders believe you have a greater ability to repay the debt
• Debt-to-income (DTI) ratio—This ratio compares your monthly debt payments to your total monthly earnings. Having a lower DTI shows you have enough disposable funds to repay your debts, so lenders can offer you a higher limit
• Stability and length of employment—The longer you’ve been employed at a job, the more stable lenders perceive your income to be, which can positively impact your credit limit 

These factors also influence what could ensue when your limit is increased. 

Does Asking for a Credit Limit Increase Hurt Your Score?

Requesting a credit limit typically shouldn’t affect your score, but what happens after your request may do some damage. When you ask for a raise in your credit, you could incur a hard or soft credit inquiry—which is a normal part of a credit application process.

Your card issuer might use a soft or hard inquiry to review your credit history to determine if you’re eligible for a credit raise. A soft inquiry is harmless and does not affect your credit score, but a hard inquiry could cause your credit score to drop a few points. However, a hard inquiry naturally falls off after the second year. 

If your credit increase request is denied, and you incur a hard inquiry, asking for an increase too soon after can negatively and significantly impact your score. Multiple hard inquiries on your account within a short period can harm your credit health. A better option would be to consult your credit card issuer about their procedure for requesting a higher credit limit to learn what it entails. 

Requesting a credit limit increase has both benefits and downsides. Knowing how your request influences your score can help you time it to your advantage or avoid it altogether.

How Does a Credit Limit Increment Benefit Your Score?

Increasing your credit limit may have advantages if you manage your credit wisely. Here’s how it could help:

• Reducing your credit utilization—If you increase your credit limit, maintain your regular spending habits, and make consistent, on-time payments, your utilization ratio will reduce. Experts generally advise keeping this ratio at 30% or less. If the utilization ratio goes higher, your credit score may suffer
• Making it cheaper and easier to get a loan—A higher credit limit assures lenders that you are a responsible borrower. It demonstrates financial stability and responsibility, making it easier to qualify for larger loans. They’ll also offer you lower interest rates, which makes it easy to repay your debts faster, potentially improving your credit score
• Helping you evade credit score dips—According to the FICO^® Scoring Model, opening a new credit card or line of credit may incur a dip in your score. This is because a new credit account is factored into calculating the length of your credit history, which accounts for 15% of your score. Increasing your limit on another card is a better alternative if you want to avoid hurting your score 

How Requesting a Credit Limit Increase Could Harm Your Score

A credit limit increase is often beneficial for your credit score, but there are a few ways it could potentially harm it, including: 

• Potential loan denials—A credit limit increase request may trigger a hard inquiry on your credit report. Although your credit score may dip by a few points, it’s the hard inquiry you should worry about. Multiple hard inquiries on your report signal to potential lenders that you may be in financial distress, which could lead to loan denials
• The temptation to overspend—Higher credit limits make overspending easy, leading to increased debt and a likelihood of higher credit utilization. Your credit utilization significantly impacts your credit score; anything higher than 30% can negatively affect your score
• Increased debt—A higher credit limit may alter your DTI ratio. If you spend carelessly and max out your credit card, you increase your overall debt burden, which may disqualify you from future loans and mortgages

The Benefits and Drawbacks of a Credit Limit Increase 

If you’re considering increasing your credit limit, the table below summarizes the benefits and drawbacks of asking for a raise: 

It’s important to carefully weigh the potential benefits and drawbacks before requesting a credit limit raise.

Should You Request a Credit Limit Increase?

Your circumstances and financial goals are the key determinants for whether you should request a credit limit increase. Timing also plays a key role in determining if your request will be approved. This is why you should know when to ask for a raise and what to consider and avoid before you do. 

When To Ask for a Credit Limit Raise

You can ask for a credit limit raise under the following circumstances:

• You want to make a big purchase—A higher credit limit could help you pay for a large purchase over time. However, it’s important to bear in mind that if you don’t pay back what you owe in one billing cycle, your lender may charge a higher interest and ding your credit
• You’re building for emergencies—Having a higher credit limit can help you cover some emergency costs when they occur, but setting up an emergency fund is a wiser financial decision in the long run
• You got a raise—An increase in your income can signify to lenders that you are financially capable of repaying more debt. To be on the safer side, it is good credit practice to only borrow more credit if you need it
• You have a good-to-excellent credit score—A healthy credit score indicates that you manage your existing credit well. If you plan to maintain your spending habits, i.e., not overspend, you can apply for more credit
• You want better loan deals—If you’re using your credit responsibly and keeping a healthy credit score, you have better chances of getting good loan deals when you ask for an increase in your credit limit
• You make on-time payments—Credit card issuers review your credit history before approving a credit limit. If you consistently make on-time loan payments, you have a great chance of getting approved

What To Consider Before Requesting a Credit Limit Increase

Before you ask for a credit limit increase, consider the following scenarios first. Don’t request a credit limit increase if you are in any of these situations: 

• You recently applied for a new line of credit—Applying for new credit and requesting a higher credit limit can both result in a hard inquiry on your credit report. Multiple inquiries of this kind are a telltale sign of possible financial instability
• Your income dipped—If your income suddenly decreases, you may not be approved for a credit limit increase
• You have a bad credit score—Having a below-average credit score lowers your chance of getting a credit limit increase. Consider working with a credit improvement service or a credit building application and practicing positive credit habits to boost your score first 

What To Avoid When Requesting a Credit Limit Increase

After considering the ideal scenarios for applying for an increase and deciding to request one, be cautious to avoid harming your credit health. Don’t make the following three mistakes when applying for a credit limit increase:

1. Skipping payments—Missing a payment is harmful to your credit score. Your payment history accounts for 35% of your FICO Score, and missing a single payment can cause you to lose many points 
2. Overspending—One of the key factors that decide if you qualify for a credit limit increase is how much of your credit you utilize. If you overspend, your credit utilization ratio climbs higher, and anything above 30% could disqualify you. If you’re a big spender, applying for a higher limit could also encourage you to incur more debt, which would damage your score
3. Excessively applying—Applying to many lenders for a credit limit increase at the same time could negatively affect your score. Request a credit limit increase only when necessary

How To Handle Automatic Credit Limit Increases

You may receive an automatic credit limit without requesting it if you have maintained a great credit score for a long time. If your card issuer sees that you’ve increased your spending but still have an excellent credit history, they may choose to raise your limit.

You may also get an increase if you have low credit utilization, repay loans on time, and have a few hard inquiries. The increase often occurs 6–12 months after consistently paying your debts on time. 

If you do not want a credit limit increase, you don’t have to accept it. Ask your credit card issuer or lender to reduce your limit if you are worried about overspending on a higher limit. Note that decreasing your credit limit may negatively affect your credit score, so speak with your issuer about the aftermaths of the reduction before you request it. 

3 Tips To Increase Your Credit Limit Without Hurting Your Score 

Follow these tips to achieve a credit raise that causes minimal damage to your score:

1. Request a credit limit increase directly—Contact your card issuer to request a credit limit and learn more about their process so you can prepare for what it entails. For example, they can inform you that they will make a hard inquiry as part of the process. In this case, you can avoid triggering another hard inquiry while waiting for your increase
2. Keep your utilization rate low and make timely payments—Aim for a 30% credit utilization rate to improve your score. For instance, if you have a credit limit of $3,000, try to keep your balance below $900. Consider using automatic payments to ensure you never miss a payment, which could cause your score to drop
3. Use a trusted credit building solution—Work with a trusted credit building platform like CreditStrong to establish and improve your credit history responsibly. The platform offers different accounts that allow you to build large credit, grow your savings, and decrease your credit utilization rate, which helps boost your credit score 

CreditStrong—Building Credit With Confidence

CreditStrong by Austin Capital Bank is the number one solution for borrowers looking to improve their credit score significantly. If you’re just starting your credit building journey or building back from past damage, CreditStrong offers a reliable way to establish credit. It provides a secured installment loan or a revolving line of credit plus a savings account, encouraging you to save as you build. 

The platform is FDIC-insured, offering complete transparency by working directly with the major credit bureaus—Experian, Equifax, and TransUnion. With CreditStrong, you can track your monthly progress for free through the FICO Scores it provides.

3 CreditStrong Accounts To Know

CreditStrong offers three main accounts to help you improve your score and potentially qualify for a credit limit increase:

1. Instal/CS Max—Instal and CS Max accounts offer a secured installment loan with options for a higher credit limit. You deposit the loan into a secured savings account and make regular payments, both of which are reported to the credit bureaus to build a positive credit history faster
2. MAGNUM—This account includes an installment loan, and it is designed to increase credit scores significantly with low monthly payments. Maintaining consistent, on-time payments on this account can help you boost your score by up to 86 points
3. Revolv—This account is based on a secured revolving credit line that helps you decrease utilization while building your credit and savings. You start with a $1,000 limit with the potential of increasing to $3,000. Revolv can improve your credit score by an average of 62 points

Key Differences Between CreditStrong Accounts

Here’s a table summarizing the main differences between CreditStrong’s main accounts:

How To Get Started With CreditStrong

To get started with CreditStrong, you’ll need to create an account. Follow these steps to open one:

1. Click here to get started
2. Choose from any of the account options that fit your goals:
   • MAGNUM—Starting at $30 a month
   • Revolv—$99 a year
   • Instal—Starting at $28 a month
3. Provide the required information to open a CreditStrong account
4. Track your progress, savings, and payments via your dashboard

The post Does Increasing Your Credit Limit Affect Your Credit Score—A Beginners’ Guide appeared first on Credit Strong.

They’re among the most flexible type of funding for businesses and individuals alike. Here’s what you should know about them, including what they are, how the different variations work, and how they affect your credit.

What Is a Revolving Line of Credit?

A revolving line of credit is a type of account that lets you borrow funds up to an assigned limit, pay off the balance, and then borrow up to the account’s limit again. 

Generally, you can leave the balance outstanding as long as you make minimum payments, though some accounts require periodic renewal.

For example, you might receive a revolving line of credit with a borrowing limit of $10,000. It would be available whenever you wanted to use it, and there would be no interest or payments until you withdrew from the account.

Say you use the line of credit to buy $10,000 worth of supplies for your business after having the line for a few months. Only then would your lender start to charge you interest on the $10,000 balance.

You’d have to make a minimum monthly payment, but there would likely be no final due date where you’d have to pay the balance off entirely. In the meantime, it would simply continue to accrue interest.

Once you paid off the principal and any interest charges, you could reuse the $10,000 to finance another purchase, and the process would repeat itself.

Revolving Line of Credit Examples

There are many different types of revolving lines of credit, and though they share a fundamental structure, there are some significant differences between them.

Credit cards are by far the most common example. You can get a business credit card or a personal one, and they come in secured and unsecured credit lines.

They generally have a grace period of about 25 days during which interest doesn’t accrue on outstanding balances.

If you carry a balance long enough for the lender to charge you interest, it gets expensive quickly. Credit cards have an average interest rate of 20.35%.

The second most popular revolving credit line is the home equity line of credit (HELOC). HELOCs use the equity you own in real estate as collateral. If you default, your lender could foreclose on your property.

HELOCs usually have a lower interest rate than credit cards, averaging around 8.73%, but they don’t have a grace period. As soon as you take a cash advance from the account, interest begins to accrue.

These are the most popular types of revolving lines of credit, but they’re not the only ones. You may also qualify for a business or personal line of credit.

These function similarly to a HELOC, but they may or may not require collateral. If they do, it won’t be the equity in your home. As a result, they usually have higher interest rates than HELOCs.

Revolving Line of Credit vs. Line of Credit

A revolving line of credit includes any account that lets you borrow against a credit limit, pay off the balance, then repeat the process at will. Because you can also wait to draw against the funds as long as you like, they’re a supremely flexible type of credit.

A non-revolving line of credit can take multiple forms, but you can only ever use the funds once. It usually has to be when you first receive approval for the account. 

Once you pay the balance back, your lender closes the account. To get further financing, you’d have to apply again.

The typical example of a non-revolving line of credit is an installment loan, such as student loans or an auto loan. They pay out their principal balance in a lump sum upfront.

You can use the funds to finance a purchase, and then you have to pay back the balance, plus interest in regular intervals over a fixed repayment term.

Non-revolving credit usually has a date where your balance comes due in full. Revolving lines of credit may not, but they often have high enough interest rates that you should pay off your balance quickly anyway.

How They Affect Your Personal Credit

Revolving lines of credit play a significant role in building your personal credit. In fact, whether you have them at all affects your score.

Your credit mix is worth 15% of your personal credit score under the FICO model, and a big part of that factor is having installment debts and revolving lines of credit. If you’ve only ever had a term loan, getting a credit card will benefit your score.

In addition, like any credit account, your monthly payments toward revolving lines of credit establish your payment history. It’s worth 35% of your FICO score, so paying on time and in full is essential to building good credit.

Finally, personal credit scoring models consider your total revolving debt balances and the percentage of your available credit that those balances represent. These factors are worth 30% of your FICO score.

The latter is called your credit utilization ratio. For example, say you have two revolving lines of credit. They have borrowing limits of $10,000 and $5,000.

If you have a balance of $5,000 on the first account and $3,000 on the second, their respective credit utilization ratios would be 50% and 60%. Your total credit utilization would be 53%.

It’s best to keep your utilization as low as possible. 30% should be your absolute maximum, and staying below 10% is best.

How They Affect Your Business Credit

There are more relevant business credit scores than relevant personal credit scores, and each one’s calculation relies on a unique combination of factors.

As a result, the impact revolving lines of credit have on your business credit depends significantly on which score you’re discussing.

Some business credit scores don’t include financial tradelines in their calculations, while some focus on them entirely. Others consider them in combination with vendor tradelines.

Financial tradelines are business financing accounts from a lender, like a business loan or revolving line of credit.

Vendor tradelines are lines of credit from the people you do business with, such as a supplier that offers you net-30 terms.

Among the credit bureaus whose scores consider financial tradelines, using revolving lines of credit to build business credit is a lot like doing so with your personal credit.

Establishing an extensive credit history between several accounts, keeping your balances at reasonable levels, and making your payments on time help you develop a good credit score.

Conclusion

Revolving lines of credit are among the most flexible financing types for businesses and individuals.

You can keep them in reserve to draw on them only when you need them, then repay your balances at a pace that’s more relaxed than most forms of installment credit.

Best of all, once you’ve paid them off, you can repeat the process without having to go through another round of credit applications.

Whether you’re a business owner who needs working capital to cover dips in cash flow or an individual looking to earn rewards for paying monthly bills, there’s a revolving credit account out there to suit your needs.

The post What Is a Revolving Line of Credit? appeared first on Credit Strong.

Let’s take a look at hard inquiries, soft inquiries, and how they affect your credit score.

Soft Inquiry vs Hard Inquiry

The Fair Credit Reporting Act (FCRA) guarantees your right to know who is checking your credit. If someone checks your credit, the credit reporting companies list the inquiry on your credit report. Each of these inquiries is classed as a hard or soft inquiry. 

What Is a Hard Inquiry?

A hard inquiry or hard credit check is recorded when you authorize a creditor to check your credit. When you sign an application for a loan or credit card, you authorize a credit check by your lender. A hard inquiry cannot be recorded without your signature.

A hard credit check is recorded when you apply for a new credit line, such as a credit card, auto loan, personal loan, or student loan.

A hard inquiry becomes part of your credit record and will be seen by anyone who checks your credit. It will remain on your credit report for up to two years.

What Is a Soft Inquiry?

A soft credit inquiry can be recorded without your permission. You can see soft inquiries on your credit report, but other people who check your credit don’t see them.

If you ever got a credit card offer in the mail, the issuer probably did a soft credit inquiry to determine whether they wanted to make the offer. 

If you prequalify for a loan, the lender will perform a soft inquiry. If you have a credit counseling session, your counselor will do a soft inquiry.

When you check your own credit, it will register as a soft inquiry on your credit report.

All of these soft inquiries have two things in common: only you can see them on your credit report, and they have no impact on your credit score.

Hard and Soft Inquiries: Some Examples

Let’s look at some ways that hard and soft inquiries can appear on your credit report.

Examples of Hard Inquiries

These are some common ways for a hard inquiry to land on your credit report.

• A credit card application.
• An application for a car loan, student loan, personal loan, or any other loan.
• A credit check before leasing a car.

In each case, you have to sign a document when you apply for credit. This document authorizes the lender to place a hard pull on your credit record. The document will state that you are authorizing a hard inquiry on your credit report (it may be in the fine print).

Examples of Soft Inquiries

Soft inquiries can be registered without your express permission. Here are some examples.

• A credit card company that intends to send you an offer.
• An existing creditor running a periodic check.
• An employer running a background check.
• A car insurance company evaluating your risk.
• You checking your own credit.

These inquiries do not affect your credit, but you may still wish to keep track of them.

Inquiries That Can Be Hard or Soft

Some businesses may perform either a hard or a soft credit check. Be careful in these situations.

• Renting a car.
• Applying for utility service.
• Opening an account at a financial institution.
• Applying for an apartment.

All of these situations involve your signature, so they can involve a hard credit check, though, in many cases, they will only use a soft inquiry. Check the agreement you’re signing to see if you are authorizing a hard credit inquiry. You can also ask before signing.

How Inquiries Affect Your Credit Score

Understanding the impact of inquiries on your credit score can help you to manage your inquiries and protect your credit. 

Remember that if you have a thin credit file with a small number of files and a short history, any new item, including a hard inquiry, will have a greater impact. If your credit record is extensive, you may not even notice the difference!

There are two major types of credit scores: the FICO score that most lenders check and the VantageScore that you get from free providers like Credit Sesame and Credit Karma. These credit scoring models handle inquiries in much the same way.

How Do Hard Inquiries Affect Your Credit Score?

A hard credit inquiry indicates that you are applying for new credit. Applying for new credit indicates that you need credit, which potential lenders could see as an indication of risk. 

If you are applying for multiple credit cards and loans in a short time, it looks like you are desperate for credit. That would make lenders and card issuers reluctant to approve your application.

A single hard credit inquiry is generally a minor issue. It may reduce your credit score by as much as five points, sometimes less. Multiple hard credit inquiries in a short period of time make you look like you’re desperately seeking credit. That can hurt your credit score.

The more recent hard inquiries you have, the greater the impact each new inquiry will have on your credit. Don’t apply for credit unless you really need it, and try to space your applications out. 

There is one important exception to this rule. If you are shopping for a loan or credit card you can make multiple applications and the credit reporting companies will record them as a single hard credit pull, as long as you keep them within a 15-day window. 

If you are planning to apply for a major loan, like a car loan, personal loan, student loan, or mortgage, you may wish to avoid applying for any other credit. Even a small difference in your credit score can mean a substantial difference in the interest rate you are offered.

A hard credit inquiry will remain on your credit report for up to two years, but its impact on your credit score fades quickly. A hard pull has no impact on your credit after one year.

Remember that hard inquiries have a relatively minor impact on your score. They matter but don’t obsess over them. Late payments will hurt your credit more than any number of hard inquiries!

Remember that you have credit reports from three credit reporting companies: Experian, Equifax, and TransUnion. 

If a creditor checks your Experian credit report, the inquiry will appear on your Experian credit report. If they check Equifax, the inquiry will appear on your Equifax report.

How Do Soft Inquiries Affect Your Credit Score?

A soft credit check has no impact on your credit score, and soft credit checks are not visible to creditors who pull your credit report. They are only there so that you can keep track of who is looking at your credit.

You should still check the soft inquiries listed on your credit report. If there are soft inquiries that you don’t recognize, check the entry on your credit report and consider following up with the organization that made the inquiry.

A soft credit inquiry that you don’t recognize could just mean someone considered you for a prequalified offer. It could also be an initial sign of identity theft.

How to Dispute or Remove Credit Inquiries

Hard inquiries affect your credit, so it’s important to monitor hard inquiries on your credit report. You may spot inquiries that are not legitimate. You can remove hard inquiries from your credit report under two conditions:

• You did not apply for a new credit line.
• You did not specifically authorize an inquiry.

Remember that you may have authorized an inquiry without realizing it. Before you sign any loan application or application involving a payment, check to see if you are authorizing a hard credit inquiry.

A hard pull that you don’t recognize could mean that a company you applied with is doing business under another name or has passed your application to another lender. An application for a store card could show the name of the issuing bank instead of the store’s name. 

A hard inquiry that you don’t recognize could also be an early sign of identity theft. Always check the hard inquiries on your credit reports. If you see one you don’t recognize, follow up immediately.

The record on your credit report should provide a company name, address, and phone number. Call that number and ask why the entry is on your credit report.

If you believe that a hard inquiry on your credit report is illegitimate, you can dispute the record. The credit reporting company is legally obligated to investigate your dispute and give you written notice of their findings.

For detailed instructions on the dispute process, you may visit the dispute centers maintained by Experian, Equifax, and TransUnion.

There’s no point in disputing a legitimate hard inquiry. It won’t be removed, and its impact on your credit is not that serious to begin with.

FAQs

How Can I Minimize the Impact of Hard Credit Inquiries?

You can minimize the impact of hard inquiries on your credit by only applying for credit when you need it and by spacing out any new credit applications. Avoid multiple credit inquiries: Try not to apply for more than one new credit line in any six-month period. 

If you are shopping for a loan or credit card, keep all your inquiries within a 15-day window. The credit bureaus will recognize that you are shopping and record only a single hard inquiry.

You can minimize the impact of hard inquiries by taking steps to improve your credit. Keep a good payment history, watch your credit utilization rate, and consider using a credit builder loan or other credit building products. 

How Long Does a Soft Inquiry Last?

A soft credit pull will remain on your credit report for 12 months.

How Long Does a Hard Inquiry Last?

A hard inquiry will remain on your credit report for two years but will have no impact on your credit score after the first year.

How Many Hard Inquiries are Too Many?

There’s no set rule for how many hard inquiries are too many. One hard inquiry can cause up to a 5-point drop in your credit score. The more you add, especially in a limited time period, the greater the impact will be.

The impact of hard inquiries will be greater if you have a thin credit file with a limited number of records and a relatively short credit history. Even a small change in your credit score can have a significant impact on the terms you are offered on new credit accounts.

The post Soft Inquiry vs Hard Inquiry: How They Affect Your Credit appeared first on Credit Strong.

Credit cards and other revolving credit accounts function in a cyclical way. The consumer initiates the borrowing cycle by making a purchase and then repaying the balance over one or more months. 

Car loans and other installment credit accounts involve borrowing a lump sum and repaying the balance over a predefined series of months.

What is Revolving Credit?

Two of the most common types of revolving credit accounts include credit cards and home equity lines of credit (HELOCs). Revolving credit accounts typically have an established maximum or limit, which could change at some point.

The account holder may make purchases that accrue debt often–assuming they remain within their credit limit. Revolving debt accounts lack a fixed or formalized repayment plan; however, a required minimum payment often applies each month when a balance remains.

The interest rates that lenders impose on revolving debt are typically defined in the agreement terms when initiating the account. Those with a positive credit history and good credit score are most likely to qualify for the most desirable credit card accounts with lower interest rates.

Any remaining debt (balance) on a revolving account at the end of the billing cycle will typically incur the finance charges associated with the interest rate.

Many consumers obtain credit cards or revolving credit lines to temporarily cover unforeseen expenses that arise such as car repairs or medical treatment. Some retailers offer credit cards to customers specifically for purchasing their goods or services.   

What is Installment Credit?

The most common types of installment debt accounts include home mortgages, auto loans, student loans, and personal loans. Installment loans often finance large purchases and have lengthy, multi-year repayment schedules.

Installment loans feature a prearranged length of time for repayment (loan term) and a set monthly payment. Although often classified as personal (installment) loans, many “payday” loans today also have characteristics traditionally associated with revolving accounts.

Installment loans typically have a defined amortization schedule, which illustrates how each monthly payment is applied to the amount borrowed (the principal) and the interest until the loan is fully repaid.  

Examples of Installment Loans

Source: Installment Loan Calculator

An installment loan is essentially a one-time agreement that has a closed-end date.

The Difference Between the Two

Both secured and unsecured debts exist in the installment and revolving loan markets. A secured debt involves some property or asset that serves as collateral.

Unlike most unsecured debts such as credit cards or personal loans, the lender in a secured loan may assume control or repossess types of collateral if a borrower fails in fulfilling their repayment obligation; therefore, car loans and mortgage loans represent common secured debts.

Difference 1: Installment Loans Have End Dates

Unlike a revolving credit account, an installment loan has a predetermined end date. After a borrower makes the monthly payments for the full term, the loan agreement terminates and the account status on your credit report shifts from active to “closed” or “inactive” or “paid as agreed.”

A revolving credit account will generally remain open or active unless the borrower specifically closes the card or line of credit.

Difference 2: How Much You Pay

Both of these accounts have minimum payments that must be paid. But they’re calculated in a different way.

An installment loan has a fixed, monthly payment that the borrower must make. It is the same amount every month.

A revolving account, such as a credit card, typically allows the borrower much more flexibility.

For example, your monthly credit card statement usually lists the total balance owed, which the borrower may opt for paying off in full; however, the account holder might also choose the option of making only a partial, nominal minimum payment. 

As your revolving account balance changes over time, so too will your minimum payment. 

Keep in mind that differing your payments will result in accruing potentially substantial interest charges.

Remember that most lenders will report a single late or partial payment to the credit bureaus, which results in an adverse credit report entry that will negatively impact your credit score.

Difference 3: Lump Sum Debt vs. Changes Over Time

When a borrower enters an installment loan agreement, they will incur a “lump sum” amount of debt. This occurs because the borrower typically enters the loan agreement specifically for financing a large purchase such as a home or car.

A consumer who opens a credit card agreement or another revolving credit account is not automatically assuming a debt. Unlike an installment loan account, revolving credit accounts generally finance smaller, ongoing individual purchases.

For example, you could charge $100 on a credit card or $1,000. The level of debt goes up and down over time in a revolving credit account. 

Pros and Cons of Installment Credit

Pros

Installment loans may make big-ticket items more affordable using longer, multi-year repayment terms. This set monthly payment schedule is also predictable, which fits well when creating a written budget, and has a clear, definite end date. 

In many cases, installment credit options offer attractive interest rates; therefore, consumers often will consolidate various higher-interest revolving accounts into a single installment loan when implementing a debt management strategy.

Cons

The loan funds in most installment credit options provide financing for a single, one-time purchase in the form of a lump sum. Borrowers seeking additional financing through these sources must typically enter the formal credit application process again.

Some lenders that issue installment credit products allow no options for prepaying a loan; in fact, additional fees or penalties often may apply when doing so.

Many installment loan applicants encounter more stringent qualifying requirements that might hinder those with self-employment income or other situations that pose challenges in the verification process.

Pros and Cons of Revolving Credit

Pros

Revolving credit accounts allow borrowers tremendous purchasing flexibility. For example, most local and online retailers and service providers accept credit card payments today and the application approval process often takes only a few minutes.

Certain industries and sectors of the economy, such as many involved in the travel industry, require that customers use a credit card. For example, many airlines require a credit card deposit when booking a flight and some hotels require a credit card when reserving a room.

Hotels and rental car companies might have credit card requirements for confirming a potential customer’s identity, collecting a fee if the reservation is abruptly canceled, or ensuring they collect “incidental” charges for add-on services, damage to a room or vehicle, etc.

Credit card accounts also allow borrowers the flexibility of paying back over time. Keep in mind that repaying a purchase in full at the end of the month may represent a type of “interest-free loan.”

Borrowers with good credit scores often find that revolving credit accounts such as HELOCs and some credit cards offer favorable (low) interest rates, particularly when compared with many personal loans and payday loans.

Many credit cards now offer additional benefits for cardholders including liability protection, travel rewards, and cash back or rebate bonuses. 

Cons

While revolving accounts such as credit cards allow increased flexibility and convenience, these features may pose challenges for people with tendencies toward overspending or “impulse buying” if not responsibly managed.

Most types of revolving credit represent unsecured debt, which is often higher interest debt than secured forms—particularly for those with below-average or bad credit.

Consumers must remain diligent when reviewing the terms of credit card agreements, which might contain substantial annual fees and other costs.

Unlike home mortgages and several other loan products, interest associated with revolving accounts generally is not tax-deductible.

How Do They Impact Your Credit Score?

Lenders recognize that a consumer’s past credit history often predicts their future behavior. Therefore, your credit bureau report and credit score play critical roles in eligibility for credit and whether you qualify for the lower, more preferable interest rates.

Installment loans represent opportunities for demonstrating a lengthy history of responsible credit use based on their terms.

Over the course of a multi-year installment loan, a consumer will likely encounter some challenges such as large unanticipated expenses, potential lapses in employment, and other adverse events that could create financial concerns.

Revolving credit accounts also will show how well an individual manages their financial obligations. A credit card account is a clearly more volatile form of debt that varies from month to month and also may continually test a consumer’s spending behavior.

According to Experian, consumers should recognize the importance of having two or more types or categories of credit within their credit history—particularly both installment and revolving accounts.

This concept, referred to as a consumer’s “credit mix”, presents opportunities for demonstrating responsibility across multiple types of debt. Experian estimates that this factor equates to roughly 10% of your overall credit score.  

Keep in mind that some types of loans are often issued by organizations that likely do not report lending activity to the major credit bureaus.

The primary types of loans that might go unreported include: payday loans, vehicle title loans, and many car loans issued at “buy-here-pay-here” automobile dealerships. People seeking credit improvement strategies should avoid these options.

Another important factor is your credit utilization rate, which represents a variable that pertains exclusively to revolving credit accounts.

Expressed as a percentage, your utilization rate shows how much of your available credit you currently have in use.

Credit utilization rates or utilization ratios are calculated using the following simple formula:

Credit Utilization Rate = Total Current Debt / Your Total Available Credit

For example, assume you have Credit Card A with a $1,000 balance and $2,000 credit limit and Credit Card B with a $0 balance and $2,000 credit limit. Here, you are using $1,000 of a maximum available $4,000, which equals 25%.

Credit utilization rates are among the reasons why “maxing out” credit cards are typically discouraged. Equifax, one of the three leading credit bureaus, recommends keeping your credit utilization rate below 30%.

Which One Should You Have?

You need both installment loans and revolving credit accounts to build great credit.

The single most influential factor impacting your score is payment history. Regardless of whether you have revolving or installment debt, consistently making timely payments will result in improvement over time.

Your payment history represents approximately 35% of your overall FICO score, which is the industry-leading calculation model. Similarly, VantageScore, the other primary model, states that payment history in their recent VantageScore 4.0 version equates to roughly 41% overall.

Consumers looking for ways of improving their credit should remember the importance of reviewing their credit history each year, which often reveals errors and possible fraudulent activity. 

Another choice involves considering a credit builder loan, which is an installment loan option.

The post Revolving Credit vs Installment Credit appeared first on Credit Strong.

Revolving utilization is a big part of your credit score: 30% to be exact. There are certain accounts on your credit report that contribute to it while others don’t. There are also ways you can reduce your utilization rate and improve your credit score. 

In this article, we’ll cover what revolving utilization is, how to improve it, and how it impacts your credit score.

What Is Revolving Utilization?

Revolving utilization goes by a few names–credit utilization rate, debt usage, and debt utilization. It compares your total revolving credit limits to your total revolving balances. It’s also the second largest factor in your credit. 

In addition to being a large component of credit scoring models, it’s also a metric that lenders use to determine your capacity for more debt. So if your revolving utilization is too high when applying for a new credit card, you might see a lower credit limit or even a flat-out denial. 

The calculation to find it is pretty simple. Just divide your total credit balance by your total credit limit. For example, if you have several credit cards with a total credit limit of $40,000 and your balance across all of the credit cards is $10,000, you would have a revolving utilization of 25%. 

This only applies to revolving accounts though. Things like credit cards or lines of credit. The amounts owed on installment accounts such as student loans, mortgages, car loans, or personal loans don’t contribute to your credit utilization ratio.

What Is A Good Revolving Utilization Rate?

Finding the best revolving utilization rate is almost like the tale of Goldilocks. You don’t want it to be too high or too low. According to credit experts, the ideal credit utilization ratio is 30% and below. Going higher than 30% can drop your credit score significantly. 

However, you shouldn’t drop it to zero either. Find the utilization rate that’s just right for you. People with excellent credit tend to keep their revolving utilization rate at 10% and under without hitting zero percent. Because sitting at zero also knocks your credit score by up to 20 points. 

Why wouldn’t you want to have a 0% utilization rate? If everything is paid off then you’re good, right? Not really. Because then you’re not using your credit at all. Using it in a controlled manner demonstrates more responsibility when it comes to the credit bureaus. 

How It Affects Your Credit Score

It’s one of the biggest factors in your credit score, second only to your payment history. So if you’re constantly using your revolving credit and paying it down, you’ll likely see your credit score fluctuate alongside your balances. 

Anything you purchase with your credit cards or other revolving credit accounts has a direct impact on your credit utilization rate. When your credit utilization ratio is too high, you’ll have a harder time getting approved for new credit accounts. 

If you bring your utilization ratio down to zero, you’ll still be able to qualify for new credit, but you’ll lose up to 20 points from your score.

How To Improve Your Revolving Utilization Rate

The overarching theme to improving your credit utilization rate is to pay down your debts as much as possible. This makes it sound simple, but it may take time and a thorough plan.

Pay Down Debt

If you’re ready to make a dent in your debt, there are several strategies you can use to pay down debt quickly and effectively. 

You may want to pay extra towards a higher balance card while making minimum payments on the others. Once that card is paid off, you transfer that payment to the next highest card. This aggressive strategy is also known as the avalanche method. 

Another way to tackle it is to start from the bottom up. Paying off your smallest debt while making minimum payments to other cards. Once that debt is paid, transfer the payment to a slightly larger debt. This is the snowball method.

Increase Your Credit Limit

Requesting a credit limit increase from your credit card issuer is another solution that can boost your credit score by a few points. Depending on the credit card company, they might not do a hard inquiry when you request the increase, but you should ask to be sure. 

Getting a higher credit limit on a card with a high utilization ratio increases your available credit and improves your overall utilization ratio. The key to making this work is not using the extra available credit. 

Balance Transfer

If you have high-interest revolving debt, it can be helpful to do a balance transfer to a different credit card. At any given time, there are several credit card companies offering balance transfer promotions for new credit card holders with good credit scores.

This is most effective when you take advantage of 0% APR promotions for a certain length of time. Typically this involves paying a balance transfer fee to the new card to get started. 

Once you transfer the balance from the old credit card to the new one, it’s best to stop using the old card so you can boost your credit utilization rate. Just don’t close it!

Consolidate Revolving Debts

Making payments on revolving debts can sometimes feel like there’s no end in sight because of high-interest rates. To find some reprieve, consider consolidating your revolving payments into an installment loan. 

A personal loan can be used to pay off credit card balances at a much lower interest rate which may even speed up how long it takes to pay off your total credit card debt. 

If you own a home, you also have the option of leveraging the equity in your home with a home equity installment loan. These often come with interest rates that are extremely low since it uses your house as collateral. 

Keep Old Cards Open

When you start paying off credit card debt, it’s tempting to close down the old cards you haven’t used in a while. Doing this actually has the opposite effect on your credit utilization rate and your credit score. By closing out an old credit card, you’re losing access to that available credit. 

Less available credit means a higher credit card utilization ratio. Unless you’re paying a high annual fee to keep the card open, it’s best to keep it open without using it to keep your credit history pristine. 

Overall, maintaining a healthy credit utilization ratio is a major factor in earning good credit. It’s a measure of your responsibility in managing your credit card accounts. It also tells potential lenders how much they can comfortably approve you for. 

Use tactics like paying down your debt, increasing credit limits, keeping old cards open, and consolidating debts to bring your utilization ratio to a manageable level. By being mindful of your credit utilization ratio, you can earn excellent credit and escape the hassle of credit card debt.

The post Make Revolving Utilization Your Key To Better Credit appeared first on Credit Strong.

The rapid rescore process is a service most commonly purchased by a mortgage lender when a prospective homebuyer’s credit score needs a slight improvement for either qualifying for a mortgage loan or securing a more favorable interest rate.

A rapid rescore expedites the process of updating the consumer’s credit history, which accounts for very recent changes.

What Is a Rapid Rescore?

A bank, credit card company, or other lender typically transmits credit account activity to Equifax, Experian, and TransUnion on some regular cycle or interval. Often, the credit report information is sent every 30 to 45 days.

Once the credit reporting agencies receive the updated credit file, they will accordingly update the credit reports. Therefore, consumer credit information, the basis for calculating credit scores, will not represent a true “real-time” summary.

Mortgage loan officers or mortgage brokers may order a rapid rescore from a credit reporting agency for a fee. Here, the credit bureau will promptly update a borrower’s credit history, which will result in a recalculation of the consumer’s credit score that reflects recent activity.

Mortgage lenders typically establish a minimum credit score requirement or threshold for different mortgage loan products. Ideally, the credit rescore will improve your credit score, enabling the mortgage process to continue moving (hopefully) toward a home loan approval.

For many consumers, a home is among the largest purchases they will make; therefore, those with bad credit may struggle with qualifying for a mortgage loan or only qualify for the least desirable loan options with exorbitant interest rates.

Most mortgage loans are long-term, commonly spanning 15 to 30 years. Even a 1% decrease in the interest rate may result in thousands of dollars in savings over the life of the loan term. 

The Rapid Rescoring Process

Prospective homeowners seeking mortgage loan financing or applying for most types of new credit should expect that the potential lender will review their credit history, or at a minimum, check their credit score.

Mortgage lenders may require that applicants mitigate active collection accounts such as those stemming from delinquent credit card debt. For example, Fannie Mae requires payment of any accounts that “could result in a lien” before closing.

Often, mortgage lenders will review all negative information on credit reports and advise an applicant on certain accounts within the credit history that, when paid, will result in boosting your credit to a sufficient level for obtaining loan approval.

Another possibility involves credit reports that contain inaccurate information that requires correction. For example, a delinquent account listed on your credit report might have mistakenly been linked somehow with your personal information. 

Next, the lender or collection agency must verify receipt of the payment for the credit bureau so they can update your credit history. Keep in mind that the information from a credit reporting agency is then used for recalculating a credit score. 

The majority of consumer credit score calculations are a result of a formula created by the Fair Isaac Corporation, now known as FICO. Your FICO score is a three-digit number that represents your overall creditworthiness.

Consumers who plan on pursuing a home mortgage should always obtain and review an updated copy of their credit reports for any potential errors and resolve them before applying.

How Long Does It Take for a Rapid Rescore?

Because mortgage loans are among the most time-sensitive types, rapid rescoring is usually a process predominantly seen in this realm of financing. The general consensus affirms that the rapid rescore process usually takes only a few days.

Keep in mind that delays associated with a mortgage lender or creditor are often beyond the consumer’s control.

Informative Research (IR), a technology and research firm in the mortgage and insurance industry, explains the rapid rescore process in detail. Rapid rescoring is an option for promptly updating most delinquent accounts or any adverse information reported in error.

IR noted that the credit bureaus cannot update any credit report entries marked with the Equal Credit Opportunity Act (ECOA) code “T” for “terminated” and may only be deleted; therefore, you should avoid delaying the rescore process by contacting these lenders.  

The standard processing time for the credit reporting bureaus is three to five business days. Equifax and Experian offer one business day “rush” processing for an additional fee, but TransUnion offers no such service.

How Much Does Rapid Rescore Cost?

Only a lender may initiate a rapid rescore and some of them may not offer this service. The lender will also pay for any charges incurred in the rapid rescore process.

The Fair Credit Reporting Act (FCRA) now prohibits lenders from imposing fees for rapid rescoring or otherwise disputing or correcting credit report data. Lenders will likely offer rapid rescoring and absorb the costs because it might represent the lone option for securing approval.

Unlike Equifax, which adds no additional cost, Experian and TransUnion impose a $20 charge for each credit report entry requiring modification. Experian is the lone bureau that will participate in voice calls during this process.

Equifax and Experian’s one-day rush processing option requires payment of an additional $40.

Should I Consider Rapid Rescoring?

Rapid rescoring is a viable option for those seeking a mortgage loan who have a current credit score just lower than a score that would allow them eligibility for approval, a lower interest rate, or other more favorable terms.

The following table summarizes the factors that determine a consumer’s FICO Score.

The Categories That Influence FICO Scores

Source: myFICO

In the aforementioned table, the first two factors have the greatest relevance regarding rapid rescoring. Payment history, the largest single factor, may potentially improve by paying delinquent credit accounts and correcting any errors adversely impacting your score.

Paying off delinquent accounts is most effective for recent accounts from the past couple of years.  

One important component within the second accounts owed category is the credit utilization rate or credit utilization ratio, expressed as a percentage using the following simple formula:

Utilization Rate = Current Balances on All Revolving Accounts / Total Credit Limit (Maximum) on All Revolving Accounts. 

The credit utilization rate involves credit card accounts; specifically, the proportion of current credit incurred relative to the maximum credit available. Most experts agree that consumers should maintain a ratio of below 30%.

Consumers considering rapid rescoring that have some cash on hand could make a substantial payment, reduce their balances owed, and improve their utilization ratio.

Other Options for Raising Your Credit Scores

Based on the significant influence that payment history has on your credit score, ensure that all accounts are paid on time. Consider using reminder tools that will send you an email or text reminder as due dates approach or enroll in automatic recurring bill payment options.

Explore opportunities for improving your credit utilization rate, particularly if it currently exceeds 30%. Two ways of doing so include paying down existing credit card balances and contacting your credit card issuer regarding a credit limit increase.

Obtain a copy of your credit report each year and review the entries so that any errors that may adversely impact your credit are detected and promptly corrected. The major credit bureaus will provide consumers with a free copy of their reports each year.

A credit builder loan is another good option for consumers seeking credit repair methods or ways of building credit and boosting their score.

CreditStrong, a subsidiary of an established, five-star rated bank based in Austin, Texas, offers installment loans specifically used for improving your credit. Unlike a typical loan, the “borrowed” funds remain in secured savings accounts throughout the loan term.

Each month, you simply make a single, affordable monthly payment toward the loan balance. CreditStrong will report these payments to all three major credit bureaus, which allows for establishing a good payment history that should boost your credit score.

After making the loan payments, the original loan funds in the savings account become available to the borrower.

FAQs

Can I Rapid Rescore Myself?

No. Only a lender may order a rapid rescore on your behalf. Not all mortgage lenders offer rapid rescoring services.

Some home mortgage lenders such as OVM Financial use a “rapid rescore simulator” for analyzing and predicting how taking certain actions i.e., making a large payment on an existing credit card account and then requesting a rescore will help your credit score.

Always exercise caution if an organization other than a mortgage lender that you are already working with on a home loan offers you rapid rescoring services. Unscrupulous individuals might use rapid rescoring, like some other credit services, to scam innocent consumers.

What Documentation is Needed for a Rapid Rescore?

Advantage Credit, a provider of credit reporting services for the mortgage industry, explained that documentation requirements apply for any credit accounts involved in the rescoring.

Any account that was paid must be confirmed with a mailed statement or “online snapshot” showing the revised account balance. The proof must contain the lender or collection agency’s logo, the borrower’s (consumer’s) name, and at least the last four digits of the account number.

Who Pays for a Rapid Rescore?

Only a lender or broker may order a rapid rescore and they also assume responsibility for paying any of the fees that the three major credit reporting agencies may impose for the service. 

Lenders typically provide rapid rescore as a value-added service, which they might already factor into closing costs. Federal laws prohibit companies from charging consumers for conducting these types of processes.

Because credit reporting agencies do not market the service directly to consumers, pricing details are vague. Bankrate provided generalized pricing for rapid rescoring ranging between $20 and $100.

Crediful, a guide for consumer personal finance, says that prices range from $25 to $50 per account on each credit bureau’s report.  Another source stated that Equifax and Experian now offer one-day “rush processing” for an extra $40.

The post What Is a Rapid Rescore? [And When to Use It] appeared first on Credit Strong.