Repossession Credit Scores: What You Need to Know

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One of the harsh truths of secured loans is that your asset can be repossessed if you fail to make the payments. In the words of the FTC, “your consumer rights may be limited” if you miss your monthly payments, and when that happens, both your financial situation and your bank balance will take a hit.

On this guide, we’ll look at what can happen when you fall behind on your car payments, and how much damage it can do to your credit score.

What is a Car Repossession?

An auto loan is a loan acquired for the sole purpose of purchasing a car. The lender covers the cost of the car, you get the vehicle you want, and in return you pay a fixed monthly sum until the loan balance is repaid.

If you fail to make to make a payment or you’re late, the lender may assume possession of your car and sell it to offset the losses. At the same time, they will report your missed and late payments to the main credit bureaus, and your credit score will take a hit. What’s more, if the sale is not enough to cover the remainder of the debt, you may be asked to pay the residual balance.

The same process applies to a title loan, whereby your car is used as collateral for a loan but isn’t actually the purpose of the loan.

To avoid repossession, you need to make your car payments on time every month. If you are late or make a partial payment, you may incur penalties and it’s possible that your credit score will suffer as well. If you continue to delay payment, the lender will seek to cover their costs as quickly and painlessly as possible.

How a Repossession Can Impact Your Credit Score

Car repossession can impact your credit history and credit score in several ways. Firstly, all missed and late car payments will be reported to the credit bureaus and will remain on your account for up to 7 years. They can also reduce your credit score. 

Secondly, if your car is repossessed on top of late payments, you could lose up to 100 points from your credit score, significantly reducing your chances of being accepted for a credit card, loan or mortgage in the future. 

And that’s not the end of it. If you have had your car for less than a couple of years, there’s a good chance the sale price will be much less than the loan balance. Car repossession doesn’t wipe the slate clean and could still leave you with a sizable issue. If you have a $10,000 balance and the car is sold for $5,000, you will owe $5,000 on the loan and the lender may also hit you with towing charges.

Don’t assume that the car is worth more than the value of the loan and that everything will be okay. The lender isn’t selling it direct; they won’t get the best price. Repossessed vehicles are sold cheaply, often for much less than their value, and in most cases, a balance remains. 

Lenders may be lenient with this balance as it’s not secured, so their options are limited. However, they can also file a judgment or sell it to a collection agency, at which point your problems increase and your credit score drops even further.

How Does a Repo Take Place?

If you have a substantial credit card debt and miss a payment, your creditor will typically take it easy on you. They can’t legally report the missed payment until at least 30-days have passed and most creditors won’t sell the account to a collection agency until it is at least 180-days overdue.

This leads many borrowers into a false sense of security, believing that an auto loan lender will be just as forgiving. But this is simply not true. Some lenders will repo your car just 90-days after your last payment, others will do it after 60 days. They don’t make as many allowances because they don’t need to—they can simply seize your asset, get most of the money back, and then chase the rest as needed.

Most repossessions happen quickly and with little warning. The lender will contact you beforehand and request that you pay what you owe, but the actual repo process doesn’t work quite like what you may have seen on TV. 

They’re not allowed to break down your door or threaten you; they’re not allowed to use force. And, most of the time, they don’t need to. If they see your car, they will load it onto their truck and disappear. They’re so used to this process that they can typically do it in less than 60-seconds.

It doesn’t matter whether you’re at home or at work—you just lost your ride.

What Can You Do Before a Repo Hits Your Credit Score?

Fortunately, there are ways to avoid the repo process and escape the damage. You just need to act quickly and don’t bury your head in the sand, as many borrowers do.

Request a Deferment

An auto loan lender won’t waste as much time as a creditor, simply because they don’t need to. However, they still understand that they won’t get top dollar for the car and are generally happy to make a few allowances if it means you have more chance of meeting your payments.

If you sense that your financial situation is on the decline, contact your lender and request a deferment. This should be done as soon as possible, preferably before you miss a payment.

A deferment buys you a little extra time, allowing you to take the next month or two off and adding these payments onto the end of the term. The FTC recommends that you get any agreement in writing, just in case they renege on their promise.

Refinance

One of the best ways to avoid car repossession, is to refinance your loan and secure more favorable terms. The balance may increase, and you’ll likely find yourself paying more interest over the long-term, but in the short-term, you’ll have smaller monthly payments to contend with and this makes the loan more manageable.

You will need a good credit score for this to work (although there are some bad credit lenders) but it will allow you to tweak the terms in your favor and potentially improve your credit situation.

Sell the Car Yourself

Desperate times call for desperate measures; if you’re on the brink of facing repossession, you should consider selling the car yourself. You’ll likely get more than your lender would and you can use this to clear the balance. 

Before you sell, calculate how much is left and make sure the sale will cover it. If not, you will need to find the additional funds yourself, preferably without acquiring additional debt. Ask friends or family members if they can help you out.

How Long a Repo Can Affect Your Credit Score

The damage caused by a repossession can remain on your credit score for 7 years, causing some financial difficulty. However, the damage will lessen over time and within three or four years it will be negligible at best.

Derogatory marks cease to have an impact on your credit score a long time before it disappears off your credit report, and it’s the same for late payments and repossessions.

Still, that doesn’t mean you should take things lightly. The lender can make life very difficult for you if you don’t meet your payments every month and don’t work with them to find a solution.

What About Voluntary Repossession?

If you’re missing payments because you’ve lost your job or suffered a major change in your financial circumstances, it may be time to consider voluntary repossession, in which case there are no missed payments and you don’t need to worry about repo men knocking on your door or coming to your workplace.

With voluntary repossession, the borrower contacts the lender, informs them they can no longer afford the payments, and arranges a time and a place to return the car. However, while this is a better option, it can do similar damage to the borrower’s credit score as a voluntary repossession, like a traditional repossession, is still a defaulted loan.

Missed payments aside, the only difference concerns how the repossession shows on the borrower’s credit report. Voluntary repossession will look better to a creditor who manually scans the report, but the majority of lenders run automatic checks and won’t notice a difference.

Summary: Act Quickly

If you have student loan, credit card, and other unsecured debt, a repo could reduce your chances of a successful debt payoff and potentially prevent you from getting a mortgage. But it’s not the end of the world. You can get a deferment, refinance or reinstate the loan, and even if the worst does happen, it may only take a year or so to get back on track after you fix your financial woes.

Source: pocketyourdollars.com

How and Where to Find Good Deals on Furniture

When I moved into a house this summer, my first big task was to buy a sectional couch.

I had an exact vision in mind. I wanted a teal velvet fabric to go with my already-planned design scheme and an L-shape that would allow for two people to lie down separately while watching TV.

But when I started searching online, I was shocked by the sticker prices. In the world of furniture, it seemed there were two options: sites like Amazon and Wayfair, where you can often find a bed frame or couch for as cheap as $300 or $400, or larger luxury furniture chains like West Elm and Crate and Barrel, where almost every big piece is over $1,000.

Yes, furniture stores have sales, but they usually cap out at the 20 to 30 percent off range. That takes some of the burn off the tag, but not all of it. I ended up buying a slightly reduced custom sectional from West Elm and chalked it up to an investment.

There’s a reason I use the term investment. Purchasing furniture isn’t like buying an item of clothing or a car — its value doesn’t drop the second you walk off the lot. You can take your furniture with you to any space you live in. And if you get rid of it, you can generally make up some of your cost by selling the pieces on sites like Facebook Marketplace and Nextdoor.

But there are also ways to save money from the get-go while buying good furniture. Here are my strategies.

Shop the Outlets

Many furniture stores have outlets, including one you may not expect: Anthropologie.

Anthropologie opened its first (and so far only) home outlet in Pittsburgh in the fall of 2019, according to the Pittsburgh Business Times. The outlet is now taking virtual appointments.

How do they work? First, email [email protected] to get an appointment. In my experience, they respond fairly promptly with a 30-minute time and ask if there are any kinds of furniture in which you’re particularly interested.

When the time comes, you’ll have a Zoom appointment with an employee who will take you through the store. If there are specific items that catch your eye, they’ll stop and answer any questions about things like price, dimensions, details. This is likely the cheapest you’ll ever find unused Anthropologie furniture, but that comes with a caveat. I found that the best deals were on damaged merchandise, which ranged from a fabric stain to a chipped piece of wood furniture.

The worst part about virtually shopping the store is that they don’t offer shipping. During my virtual appointment, I didn’t fall in love with anything, so I didn’t look into shipping. But the outlet does offer recommendations for local third party delivery companies.

My biggest piece of advice: watch their Instagram story @anthro_homeoutlet if you’re on the hunt for furniture. Their home outlet is a great choice if you’re looking to totally rework your style because they have so many options.

Another great place to look for discounted furniture is HomeGoods, owned by the same company as T.J. Maxx and Marshalls. Home Goods’ merchandise varies from store to store, but they often have great bargains and stylish furniture, as well as little knick-knacks to decorate your space.

Other spots I always check for unexpected discounts are the clearance sections of department stores like Macy’s or Nordstrom. Macy’s even has a Last Act section for their deeply discounted items — these usually aren’t couches or bed frames, but you can almost always find plates, curtains, throw pillows and home accoutrements here for heavily reduced prices.

Mix High and Low

I knew I wanted to replace the chandelier above my dining room table. It might have resembled ornate crystal but it was actually just plastic. And I had a style in mind: the Sputnik design, which looks like a giant orb with spokes coming off of it.

I typed “gold Sputnik chandelier” into Amazon and found a $92 option that I loved.

I love how the style adds flair to my dining room but also didn’t break the bank. When making investments in furniture, it’s important to think about your values. Do you value comfort or style more? Do you view furniture as part of your life or more like pieces of art?

For me, I knew I would be much happier having the style I wanted in a light fixture, even if it wasn’t as well-made as independent, artisan options.

A gold Sputnik chandelier sits above a dining room table in this screenshot taken from Amazon.
Elizabeth Djinis found a gold Sputnik chandelier on Amazon for $92.

One pro trip: when searching for things like light fixtures or even bigger furniture pieces online, be as specific as possible. I do this by identifying a “dream item,” the model item I can’t afford but want to find something similar to, and then use generic terms to describe it.

If you want to actually see your items in person but don’t want to drop top dollar, stores like Target and Walmart give you that choice. Most of these stores have partnered with celebrity designers or just plain celebrities, like Chip and Joanna Gaines and Drew Barrymore, to create stylish collections that look like your favorite luxury home items at a fraction of the price.

Buy Thrift, Then Redesign It

If you really want to save money on furniture and get high quality, the best option is to go vintage. Not only is it environmentally sustainable, but you’ll likely find really interesting styles at a much lower price than anything new.

For all the best advice on vintage furniture, I went to Paul Donofrio, owner of St. Petersburg’s Vintage Marché, a monthly market of vintage furniture from a variety of vendors.

His guidance is to be constantly on the lookout and ready to make a purchase for a good piece even when you’re least expecting it.

An owner of a vintage market stands next to vintage furniture and wall hangings at his store. He's wearing a blue shirt with a bandana around it.
Paul Donofrio, who owns St. Petersburg’s Vintage Marche, says to be constantly on the lookout for a good piece of furniture. Chris Zuppa/The Penny Hoarder

In terms of design, Donofrio holds to this adage: “if it’s on stilts, it will sell.” What that means is look for furniture with tapered atomic legs, or what Donofrio calls casually “ice cream legs.”

But all in all, Donofrio says good design is timeless. And if you find a design you love with elements you don’t — say, a darkened wood dresser or a mustard yellow couch — you can always reupholster or stain and refinish the piece and make it different. In the case of mid-century furniture, Donofrio says, that can even add value.

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Source: thepennyhoarder.com

How Long Do Hard Inquiries Stay on Your Credit Report?

March 3, 2020 &• 5 min read by Cheryl Lock Comments 56 Comments

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Your credit report offers valuable insight into your financial history and affects most of your financial future. Everything from whether you get approved for a mortgage to what your credit card interest rate will be balances on your credit score.

Negative information on your credit report can be detrimental for years. Wonder how long hard inquiries stay on your credit report? It’s not always clear how long inquiries and other negative information stays on your credit report and affects your score. The length and severity vary, but here are four common types of inquiries and how long they affect your credit score.

1. How Long Do Hard Inquiries Stay on My Credit Report?

What is a hard inquiry?

Hard inquiries are created every time your credit report is accessed by a business when you apply for a line of credit. For example, when you apply for a car loan, mortgage, student loan or credit card, your credit receives a hard inquiry.

How long do hard inquiries stay on your report?

Inquiries remain on your credit reports for 24 months. However, hard inquiries impact your score for only the first 12 months. After that, they have no impact on your score.

How much do hard inquiries affect your credit score?

New credit—including inquiries and any new credit accounts—make up just 10% of your FICO score. A single inquiry typically only drops your credit score by three to five points. As long as you apply for credit only when you need it, this is one of the lesser hits to worry about.

It is important to consider the perception associated with numerous hard inquiries, though. Even if your credit score can take a few hits and remain good or excellent, perception can matter. If a lender pulls your history and sees you’re running up a string of inquiries, they may wonder why. It can look like you’re desperate for credit but not getting approved by lenders, which isn’t an ideal look on your credit report.

2. How Long Do Credit Accounts Stay on My Credit Report?

What is a credit account?

Credit accounts refer to all of the accounts for which you hold credit, including credit cards, mortgages and car loans. Credit scoring models like to see a healthy balance to the types of credit accounts you have and can manage effectively. Negative information on a credit account includes late or missing payments.

How long does negative credit account information stay on your report?

Negative account information, such as a late payment, can stay on your credit report for seven years from the date it was first reported as late. If you close the account, the entire account typically will be removed from your report after seven years. If the account remains open, the negative information should be removed after seven years while the rest of the account information stays on your report.

Positive information, on the other hand, remains on your credit report indefinitely. If you close the account, positive information typically stays on your report for 10 years past the closing date.

How much do credit accounts affect your credit?

Your credit mix accounts for 10% of your credit score. A healthy mix means more points. The age of your credit accounts also impacts your score, accounting for 15% of the score. If you don’t have many credit accounts or if you close your accounts, it could negatively affect your credit score.

Payment history accounts for 35% of your credit score, and making payments on time is the most important factor in determining your credit score. A single late payment can drop a good score by as much as 90 to 110 points.

Most lenders don’t report missed payments until accounts are more than 30 days past due, so if you can catch the missing payment in enough time, you might not notice a hit at all. Other lenders will let one late payment slide, especially if you’ve been a loyal customer for many years and have a good excuse for why you missed it.

3. How Long Do Collection Accounts Stay on My Credit Report?

What is a collection account?

When you fall behind on making payments on an account, your debt could end up in the collection’s department of that company. The creditor may also sell your debt to a collection agency, which reports it as a collection account. At this point, the original creditor that sold the debt should not continue to report a balance owed, but you should watch out for duplicate collection accounts.

How long will collection accounts stay on your report?

Collection accounts remain open for seven years plus 180 days from the date the account was delinquent. After that time, it must be removed regardless of when it was paid or when it was placed for collection.

How much do collection accounts affect your credit?

Understanding how collection accounts can affect your credit score is tricky. The most important factor that will affect your credit score when it comes to collections is how recently the collections occurred—the more recent the collection, the lower the score. Multiple collection accounts can also lower your score. Unfortunately, settling or removing a collection may not impact your score positively.

While there’s no way to tell exactly how much a collection account will affect your credit score, it is one of the higher penalties. The best course of action is to avoid having accounts sent to collection in the first place.

4. How Long Do Bankruptcies Stay on My Credit Report?

What are bankruptcies?

Bankruptcies are proceedings that let you restructure debt you have no way of paying. Depending on the type of bankruptcy you file, you may pay a portion of some of your debt back via a plan. Once your bankruptcy is over, outstanding debts are considered discharged and no longer owed.

How long do bankruptcies stay on your report?

Chapter 7, 11 and 12 bankruptcies stay on your credit report for 10 years from the date filed. Completed Chapter 13 bankruptcies are usually removed after seven years from the filing date.

How much do bankruptcies affect your credit?

In the aftermath of a bankruptcy, your score is likely to drop dramatically. However, the purpose of bankruptcy is to provide a last-resort option for restructuring your financial life. By making strong financial decisions during and after your bankruptcy, you can work on bringing your score back up.

How long do inquiries stay on your credit report? As you can see above, it depends. And the impact each has to your score is variable.

But one truth remains. Negative items on your credit report do impact your score. You can’t afford to ignore these items, especially since some may not even be accurate. Sign up for your free Credit Report Card today. You can check your credit, get a better grip on your credit report and learn how to get the most from your credit score. 

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Source: credit.com

Credit.com Review For 2021

Credit.com offers free credit scores as well as paid services surrounding credit advice. The website offers helpful tools, most of which are free. Keep reading to see if Credit.com can help you track and fix…

The post Credit.com Review for 2021 appeared first on Crediful.

How Long Will A Negative Event Appear On My Credit Report?

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Many of us have had a negative event appear on our credit report.  Whether it’s simply a late payment, a credit inquiry or even a bankruptcy, having those things on your credit can have a negative affect on the interest rates you receive on loans you take out.

The question is – just how long do these things stay on your credit report?

credit-report

credit-report

Will your youthful mistakes stay with you forever, or will you be able to wipe the slates clean?

Let’s take a look at just how long your credit mistakes live on via your credit report.

What Is Your Credit Score Made Of?

Before we look at how long your mistakes stay on your credit report, let’s examine just what a credit score can be made of, and what types of things are included on your report. Here they are, in order of importance:

  • History of Payments (35%): Are you making your payments, and are you making them on schedule?
  • Amount Owed (30%): How much of your credit lines are you using, and how much do you owe in general?
  • Length of Credit History (15%): How long have your credit accounts been open, and how long since you last used those accounts.
  • New Credit (10%): Are you opening new lines of credit? Opening new credit cards, home loans or other lines of credit?  Do you have a lot of credit inquiries – looking for loans for one purpose or another?
  • Types of Credit Used (10%): How many accounts and what types of accounts do you have?

So there is a good amount of information that is being pulled into your credit reports from your payment history and inquiries, to negative events. So how long do they stay on your report?

Credit Mistakes Don’t Live Forever (But They Can Linger)

We’ve all made financial mistakes of one kind or another, but often credit blunders can be extremely costly ones. For example, missing a few payments on a debt and having your credit drop from one score range to another can cost you thousands of dollars on a home mortgage.

In the U.S there are around 2 billion data points entered every month into credit records, and that information can stay there for quite a long time.

So just how long do credit mistakes reside on your credit report? From Experian:

25 months – Credit Inquiries

Credit inquiries happen when your credit report is accessed, for one reason or another – usually when applying for a credit card or a loan.

I applied for a home loan 27 months ago when we were buying our new home. I went online today to verify that the credit inquiries from that time are no longer on my credit report.  The inquiries were there a few months ago, but they are in fact gone today. I found a note on the report that there were credit inquiries removed since the last time I checked the report.

7 Years – Chapter 13 Bankruptcies, Civil Judgements, Late Payments

There are a variety of negative credit events that will be on your credit report for 7 years.  Among them are:

  • Chapter 13 Bankruptcy: A Chapter 13 Bankruptcy generally allows you to pay back some or all of your debt. It’s going to stay on your report for 7 years though.
  • Civil Judgements: Paid and unpaid civil judgements against you will be on your report.  So don’t get sued!
  • Collection Accounts: If your credit account goes to collections, the negative event will be on your report 7 years from your first missed payment.
  • Tax Liens – Paid: Don’t pay your taxes and have a lien placed?  It can be on your report for 7 years if you end up paying it.
  • Late payments: Even if the payment is made, it will stay on your account for 7 years.

10 Years – Chapter 7 Bankruptcies, Closed Accounts, Unpaid Tax Liens

A few negative credit events are treated even more seriously and will remain on your credit report for a full 10 years. They include:

  • Chapter 7 Bankruptcy: If you don’t repay a debt under Chapter 7 bankruptcy, it stays on your report for 10 years. If dismissed it can still stay on your credit for 7 years.
  • Tax Liens – Unpaid: If you have  unpaid tax liens it can stay on your report even longer than a paid one.  10 years.
  • Closed Accounts: If there was no negative history an account is removed 10 years after it is closed.

Ongoing Information

There is some information on your credit report that is ongoing.  It includes your identifying information (name, addresses, related aliases), open and active accounts and payment activity on open accounts.

Be Careful With Your Credit, Or It Could Come Back To Haunt You

While mistakes on your credit report aren’t going to be the end of you, they can stick with you longer than you might realize.

Do your best to avoid that negative information by keeping your credit behaviors strong: like not taking on credit that you don’t need or can’t afford, and always staying up to date on your payments. If you do those things you’ll be in better shape next time you’re looking to get a loan.

This blog post was written as part of a sponsored program for ConsumerInfo.com, Inc., an Experian Company. All views expressed are entirely my own and were not influenced or directed by Experian. This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

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Source: biblemoneymatters.com

Does Refinancing Hurt Your Credit?

Before you make any big financial decision, it’s crucial to learn how it may affect your credit score. If you’re looking to refinance, it’s natural to wonder if it might hurt your credit.

Typically, your credit health will not be strongly affected by refinancing, but the answer isn’t always black and white. Whether you’re still considering your options or already made your choice, we’ve outlined what you need to know about refinancing below.

What Is Refinancing?

Refinancing is defined by taking on a new loan to pay off the balance of your existing loan balance. How you approach a refinancing decision depends on whether it’s for a home, car, student loan, or personal loan. Since refinancing is essentially replacing an existing debt obligation with another debt obligation under different terms, it’s not a decision to take lightly.

If you’re worried about how refinancing will affect your credit health, remember that there are multiple factors that play into whether or not it hurts your credit score, but the top three factors are:

1) Having a Solid Credit Score

You won’t be in a strong position to negotiate refinancing terms without decent credit.

2) Earning Sufficient Income

If you can’t prove that you can keep up with loan payments after refinancing, it won’t be possible.

3) Proving Sufficient Equity

You’ll also need to provide assurance that the payments will still be made if your income can’t cover the cost. It’s recommended that you should have at least a 20 percent equity in a property when refinancing a home.

criteria-for-being-able-to-refinance-successfully

How Does Refinancing Hurt Your Credit?

Refinancing might seem like a good option, but exactly how does refinancing hurt your credit? In short, refinancing may temporarily lower your credit score. As a reminder, the main loan-related factors that affect credit scores are credit inquiries and changes to loan balances and terms.

Credit Inquiries

Whenever you refinance, lenders run a hard credit inquiry to verify your credit score. Hard credit inquiries typically lower your credit scores by a few points. Try to avoid incurring several new inquiries by using smart rate shopping tactics. It also helps to get all your applications in during a 14–45 day window.

Keep in mind that credit inquiries made during a 14–45 day period could count as one inquiry when your scores are calculated, depending on the type of loan and its scoring model. Regardless, your credit won’t be permanently damaged because the impact of a hard inquiry on your credit decreases over time anyway.

Changes to Loan Balances and Terms

How much your credit score is impacted by changes to loan balances and terms depends on whether your refinanced loan is reported to the credit bureaus. Lenders may report it as the same loan with changes or as an entirely new loan with a new open date.

If your loan from refinancing is reported as a new loan, your credit score could be more prominently affected. This is because a new or recent open date usually means that it is a new credit obligation, therefore influencing the score more than if the terms of the existing loan are simply changed.

How Do Common Types of Refinancing Affect Your Credit?

Refinancing could help you pay off your loans quicker, which could actually improve your credit. However, there are multiple factors to keep in mind when refinancing different types of loans.

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Refinancing a Mortgage

Refinancing a mortgage has the biggest potential impact on your credit health, and it can definitely affect your FICO score. How can you prevent refinancing from hurting your credit too much? Try concentrating your credit inquiries when you shop mortgage rates to a 14–45 day window — this will help prevent multiple hard inquiries. Also, you can work with your lenders to avoid having them all run your credit, which could risk lowering your credit score.

If you’re unsure about when to refinance your mortgage, do your research to capitalize on the best timing. For example, refinancing your mortgage while rates are low could be a viable option for you — but it depends on your situation. Keep in mind that losing your record of paying an old mortgage on time could be harmful to your credit score. A cash-out refinance could be detrimental, too.

Refinancing an Auto Loan

As you figure out if refinancing your auto loan is worth it, be sure to do your due diligence. When refinancing an auto loan, you’re taking out a second loan to pay off your existing car debt. In some cases, refinancing a car loan could be a wise move that could reduce your interest rate or monthly payments. For example, if you’re dealing with an upside-down auto loan, you might consider refinancing.

However, there are many factors to consider before making an auto loan refinancing decision. If the loan with a lower monthly payment has a longer term agreement, will you be comfortable with that? After all, the longer it takes to pay off your car, the more likely it is to depreciate in value.

Refinancing Student Loans

When it comes to student loan refinancing, a lower interest rate could lead to major savings. Whether you’ve built up your own strong credit history or benefit from a cosigner, refinancing can be rewarding.

Usually, you can refinance both your federal and private student loans. Generally speaking, refinancing your student loans shouldn’t be detrimental in the grand scheme of your financial future. However, be aware that refinancing from a federal loan to a private loan will have an impact on the repayment options available to you. Since federal loans can offer significantly better repayment options than private loans, keep that in mind before making your decision.

Pros Cons
If the cost of borrowing is low, securing a lower interest rate is possible Credit scores can drop due to credit checks from lenders
If your credit score greatly improved, you can refinance to get a better rate Credit history can be negatively affected by closing a previous loan to refinance
Refinancing a loan can help you lower expenses in both the short term and long term Refinancing can involve fees, so be sure to do a cost-benefit analysis

How to Prevent Refinancing from Hurting Your Credit

By planning ahead, you can put yourself in a position to not let refinancing negatively affect your credit and overall financial health.

Try to prepare by reading your credit reports closely, making sure there are no errors that could keep your credit application from being approved at the best possible rate. Stay one step ahead of any errors so you still have time to dispute them. As long as you take preventative measures in the refinancing process to save yourself time and money, you shouldn’t find yourself struggling with the refinancing.

If refinancing makes sense for your situation, you shouldn’t be concerned about it hurting your credit. It might not be the most ideal situation, but it’s extremely common and typically relatively easy for your credit score to bounce back.

If you notice that your new loan from refinancing causes alarming changes when you check your credit score, be sure to reach out to your creditor or consider filing a dispute. As long as you’re prioritizing your overall financial health through smart decision making and budgeting, refinancing shouldn’t adversely hurt your credit in the long run.

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Source: mint.intuit.com