How does a loan default affect my credit?

loan default

Nobody takes out a loan expecting to default on it. Despite their best intentions, people sometimes find themselves struggling to pay off their loans. These types of struggles happen for many reasons, including job loss, significant debt, or a medical or personal crisis.

Making late payments or having a loan fall into default can add pressure to other personal struggles. Before finding yourself in a desperate situation, understanding how a loan default can impact your credit is necessary to avoid negative consequences.

30 days late

Missing one payment can further lower your credit score. If you can pay the past due amount plus applicable late fees, you may be able to mitigate the damage to your credit, if you make all other payments as expected.

The trouble starts when you (1) miss a payment, (2) do not pay it at all, and (3) continue to miss subsequent payments. If those actions happen, the loan falls into default.

More than 30 days late

Payments that are more than 30 days past due can trigger increasingly serious consequences:

  • The loan default may appear on your credit reports. It will likely lower your credit score, which most creditors and lenders use to review credit applications.
  • You may receive phone calls and letters from creditors demanding payment.
  • If you still do not pay, the account could be sent to collections. The debt collector seeks payment from you, sometimes using aggressive measures.

Then, the collection account can remain on your credit report for up to seven years. This action can damage your creditworthiness for future loan or credit card applications. Also, it may be a deciding factor when obtaining basic necessities, such as utilities or a mobile phone.

Other ways a default can hurt you

Hurting your credit score is reason enough to avoid a loan default. Some of the other actions creditors can take to collect payment or claim collateral are also quite serious:

  • If you default on a car loan, the creditor can repossess your car.
  • If you default on a mortgage, you could be forced to foreclose on your home.
  • In some cases, you could be sued for payment and have a court judgment entered against you.
  • You could face bankruptcy.

Any of these additional consequences can plague your credit score for years and hinder your efforts to secure your financial future.

How to avoid a loan default

Your options to avoid a loan default depend upon the type of loan you have and the nature of your personal circumstances. For example:

  • For student loans, research deferment or forbearance options. Both options permit you to temporarily stop making payments or pay a lesser amount per month.
  • For a mortgage, ask the lender if a loan modification is available. Changing the loan from an adjustable rate to a fixed rate, or extend the life of the loan so your monthly payments are smaller.

Generally, you can avoid a loan default by exercising common sense: buy only what you need and can afford, keep a steady job that earns enough income to cover your expenses, and keep the rest of your debts low.

Clean up your credit

The hard reality is that defaulting on a loan is unpleasant. It can negatively affect your credit profile for years. Through patience and perseverance, you can repair the damage to your credit and improve your standing over time.

Consulting with a credit repair law firm can help you address these issues and get your credit back on track. At Lexington Law, we offer a free credit report summary and consultation. Call us today at 1-855-255-0139.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.


How joining a credit union can boost your credit

credit union teller

When it comes to establishing or repairing credit, one of the first things you’ll need is a checking or savings account. If you can join a credit union, that’s even better. Credit unions are member-owned banks (sort of like a banking co-op) that tend to offer better perks than a large corporately owned bank. Furthermore, since they’re owned by members and not stockholders, customer service tends to be better and more personal.

Credit unions are not-for-profit, which means service will always take a higher priority than bottom line, because there are no profit margins to worry about and no stockholders to whom they must answer. Joining a credit union can do wonders for your credit. Here’s why:

Credit unions genuinely want to help you

Since credit unions are member owned, it’s beneficial to them if their members have good credit across the board. It’s for this same reason that it’s a better banking situation for those who are working on credit repair than a traditional bank. When credit union members have better credit scores across the board, not only does it help lower fees for everyone, but it also helps better the community in which the credit union is located.

Credit unions have lower fees

Since credit unions aren’t trying to appease stockholders or increase profit margins, fees and interest rates tend to be considerably lower for members. For those who are working to build or repair credit, every penny matters, so lower fees and interest rates are especially beneficial in such instances. If you’re looking for a small auto loan, secure credit card, or other credit building tool, you may want to consider joining a credit union.

You might be able to get a small loan from them

Credit unions are more likely to work with a member on a small loan, even if that member has a poor credit rating. These are usually referred to as “credit builder loans” and can really help those with bad or no credit get a leg up on building their credit. They also have other offerings designed to help members improve their credit, so it’s worth your time to do the research and find a credit union that you can qualify for.

How to join a credit union

The one drawback of a credit union is that they have specific rules about who can join. Many credit unions exist to cater to a specific demographic (such as Naval Credit Union, which serves military members and their families). Credit unions may also accept members based on where they live or work, where they went to college, or for many other reasons. Many people might think it’s difficult to join a credit union because of their strict eligibility rules, but there’s a credit union out there for everyone. You may even be able to join one based on your religious affiliation, as many churches have started credit unions to help their parishioners.

If you’re concerned about your credit, contact Lexington Law for a free consultation.

You can also start up a conversation on our social media channels. Like and follow and interact with us on Facebook, Instagram, and Twitter.


Getting a second chance with credit repair

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Credit can be difficult – it’s easy to make mistakes. You apply for credit card after credit card and get approved for every single one of them. You feel like a VIP. Your buying potential seems unlimited, and the temptation to spend is strong. Then, like Brittany, you begin to rationalize your spending. “It’s only a little credit here and only a little credit there,” you think.

Sooner or later, your cards are maxed out, and you’re barely able to keep up with the minimum payments each month. You’re no longer a VIP, but a someone who is a financial risk in the eyes of creditors. You might find yourself in a situation where you may have a financial emergency that you can’t cover. Like Brittany, you may be denied for a necessary loan. Instead of being approved for credit like you were before, you face denial after denial, which can be humiliating. But when you’re faced with this situation, what can you do? Who do you turn to? It may feel like there’s no way of getting what you need, because credit impacts so many aspects of our lives – from being able to get a credit card to buying a home, to how high insurance premiums are going to be or even if you get hired for a job.

Impact of Bad Credit

Bad credit can have serious consequences and in Brittany’s case it influenced her becoming homeless and hopeless. Her credit created challenges as she struggled to find housing to rent or to own. Credit can make or break you. It can be the difference between paying or saving thousands of dollars in interest, between homelessness and having a roof over your head. Credit impacts your lifestyle and having good credit can help you have the type of lifestyle you deserve.

Going from bad to good credit may feel hopeless, and fixing it can seem impossible. Luckily, the right inspiration can lead to starting the credit repair journey. This can be daunting, but Brittany found the inspiration to start hers. It was her family. She wanted to give her child a better life. Good credit can lead to a more stable, secure future – and that’s something a lot of us want to give our children. But it can be easy to lose hope if you’re drowning in debt, or if you don’t have the credit score needed to qualify for a home.

Credit Repair

Enter Lexington Law Firm. We will challenge negative accounts on your behalf that are unfair and inaccurate. In 2017, we saw 10 million removals from our client’s credit reports. We have over a decade of experience working with hundreds of thousands of clients on working to improve their credit, making us the trusted leaders in credit repair.

We will personalize your case to your unique credit circumstances – ranging from medical bills to divorce to help you with errors on your credit reports. With extensive knowledge of consumers rights and laws related to credit reporting, and a team of paralegals and attorneys fighting on your behalf for your right to a fair and accurate credit report, there is hope. There is a second chance. We offer credit repair, credit monitoring, and identity theft protection services to help you stay on track. Lexington Law Firm wants to help you reach your goals, like Brittany did, so that you can have the second chance you deserve that can help lead you to a better future. Call today for your free credit consultation.

rebuilding credit

Disclosure: Similar results should not be expected and are not guaranteed. Your results will vary.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.


What is debt validation?

A group of people seated in a discussion.

Information in this article is not intended to provide legal advice for your individual circumstances and does not create an attorney client relationship with Lexington Law. If you need specific legal advice, contact an attorney in your jurisdiction.

A debt validation (or verification) letter may help you resolve some issues related to collection accounts and potentially minimize the damage done to your credit score.

For example, collection agencies may “reactivate” debt that you might have forgotten about, reporting very old debt again on your credit report. Or they may even try to collect debt that you already paid or that is past your state’s statute of limitations. In these cases, you may want to use a debt validation letter.

What Is Debt Validation?

Debt validation is simply the act of demanding that a credit agency prove that you owe a specific debt. The right to debt validation is protected under the Fair Debt Collection Practices Act.

Debt validation is simply the act of demanding that credit agency prove that you owe a specific debt.

How to Request Debt Validation

To protect your FDCPA rights, should follow a certain process. These steps help you document that you sent a proper validation letter and whether or not the collection agency responded in a timely manner.

1. Obtain a Copy of Your Credit Report

Obtain a copy of your credit report and highlight the
negative items you want to challenge. Make sure you have a basis for
challenging them. Examples for reasons include that you already paid the debt,
that you never owed the debt to begin with or that the debt is beyond your
state’s statute of limitations on collections.

2. Write and Mail a Letter

Write a letter including the reasons you feel the debt
is invalid. Address the letter to the collection agency that reported the debt
to the credit bureau. State that you’re requesting validation of the debt or
removal of the debt from your credit report. Then mail the letter and request a
return receipt so you have proof that you sent it and that the collection
agency received it.

3. Follow Up With a Challenge Letter

If you don’t receive a validation of your debt and it’s
still on your credit report, follow up with a credit challenge letter. Send
this letter to the credit bureau and include copies of any documentation you
have that disputes that you legally owe the debt. Make sure to note that you
contacted the creditor and did not receive a response to your validation
request, and include copies of the letter and the return receipt as proof.

4. Wait 30 Days for a Response

The credit bureau must investigate dispute letters. It will contact the reporting collection agency and request documentation of the debt. If the collection agency doesn’t provide sufficient documentation within 30 days, the credit bureau must remove the item from your credit report. Continue to check your credit report, even if you don’t hear from the bureau or creditor, to see if the item is removed.

How to Write a Debt Validation Letter

Dealing with collection accounts and agencies can be
stressful, and if you don’t think you owe the debt, you might also be angry. Remember,
it’s important to be as professional, clear and concise in a debt validation
letter as possible. You might need to use this letter later for proof that you
asked for validation of the debt, so you don’t want to complicate the issue or
use unprofessional wording.

Instead, keep it as brief as you can, including only what
you need to for the validation request. That includes:

  • What debt you are writing about
  • That you are requesting validation under the
  • What information you are requesting
  • That you dispute the debt and request it be
    removed from your credit report
  • Your request that the creditor stop trying to
    collect the debt

Is a Creditor Required to Respond to Debt Validation?

Creditors do not have to respond to every debt verification letter sent to them. Under the FDCPA, if a collector contacts you about a debt, you have 30 days to request validation. If you send a verification request within that time, the creditor is legally obligated to respond to you. However, if you send a letter outside of that time or based on something you see on your credit report, the creditor is not legally obligated to respond.

Some people might tell you that it’s better to simply pay the debt and ask the creditor to delete the item from your report in return. That can in some cases, be an expensive proposition that doesn’t provide any results—especially if you don’t actually think you owe the money. Payment for deletion isn’t an option most creditors can back up because many collection agencies have contracts with the credit bureaus that prohibit it.

If a collector contacts you about a debt, you have 30 days to request validation.

How a Debt Validation Letter Can Help

Even if you’re outside of the debt validation window
under the FDCPA, a debt verification letter can still offer some benefits.
First, if the collector realizes that there is an issue with their information,
they might remove the negative item from your credit report. Even if that doesn’t
happen, you at least have documented proof you took these steps, and that can
help you when you try to dispute the information with the credit bureaus.

For more help with staying on top of your credit report and disputing incorrect items, get in touch with the credit consultants at Lexington Law.

Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.


Can I Fix My Credit in 30 Days?

Free Credit Report Summary - Payment History

See your payment history?

Payment history is the record of when—and if—you pay your bills. And, it’s one of the main things that creditors look at. Payment history makes up 35% of your credit score—the biggest part. Your report card shows your grade, total late payments and more. See your payment history now »

See How You’re Using Available Credit

How you use credit affects your credit score. Use too much and your score goes down. Your credit utilization ratio, or how much of your credit limit you use, makes up 30% of your credit score. Your credit report card shows your ratio, credit card debt, credit limit and how different factors affect your score. Get your debt usage now »

Free Credit Report Summary - Debt Utilization Free Credit Report Summary - Number of Inquiries

Take a Peek at Your Credit’s Age

Credit age, aka credit history, is the age of your oldest account, not how long you’ve used credit. Creditors want older credit histories. And older accounts are better for your score. Credit age makes up 15% of your score. See your credit history and the ages of the oldest and newest account on your credit report card. Know your credit age now »

See Your Account Mix

Revolving credit, installment loans and the mix of the two—student loans, auto loans, mortgages, etc.—make up 10% of your credit score. A good mix shows creditors you can handle different types of debts. See how many revolving credit accounts and loans you have in your free credit report summary. Check your account mix »

Free Credit Report Summary - Age of Accounts Free Credit Report Summary - Account Mix

Know How Many Inquiries You Have

Every time you apply for a new credit card or loan, it can show up as a hard inquiry on your credit report. That’s true even for denied credit. And hard inquiries make up 10% of your score and can cause it to drop. Applying for credit too frequently is a red flag to creditors. When was your last inquiry? See how many inquiries you have and how long you’ve had them on your report card. Check your inquiries now »

See Why—and How—Your Score Changed

If you want the details of why your score changed, it’s all there. Simply select “See details” for “Why did my score change” to see the historical view of your credit score—and what’s changed it.

Free Credit Report Summary - Age of Accounts


Why You Shouldn’t Ignore Credit Repair Ads

Let’s be honest: online credit repair has gotten a bad rap. Google “credit repair scam” and you’ll find thousands of sites dedicated to denouncing all credit repair companies, regardless of their reputation. To be fair, there are a few bad apples on the tree; companies that promise results, charge high fees, and do little to help your cause. But what about the good apples? Not all credit repair companies are created equal, and paying attention to online ads can be a valuable resource if you want to improve your financial life. Read on to learn why you shouldn’t ignore credit repair ads.

• Spot the money-suckers.

Sun Tzu said it best in The Art of War: “It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles.”

Credit repair is about improving your life and repairing unwanted problems. The last thing you want is to attach yourself to a money-sucking credit repair scam. The question remains, is it possible to identify the scammers (your enemies) without reading their online ads? Browsing the web for credit repair companies will help you accomplish a few things, including:

  • Spotting the “gimmick” text, e.g., “We guarantee results,” “We’ll remove all negative items from your credit report,” “We’ll increase your credit score by 100 points in 30 days,” etc. These promises sound great, but their reliability depends on your individual situation. Stick with someone who guarantees the truth rather than a one-size-fits-all sound bite.
  • Identifying the right qualifications. Bob’s Credit Repair Shop isn’t likely to provide the service you’re looking for. While it’s true that every person has the right to repair their own credit, why trust your information with a novice who has no expertise or skill? A reputable credit repair company will provide their qualifications, track record, and provide testimonials about their services. Make a list of the credit repair companies you find and begin excluding candidates based on this information. It won’t take long eliminate the weak links.

• Find free information.

The Internet has opened our society to a world of information that, until 10 years ago, wasn’t available to the average person. Credit repair is a perfect example. The average Joe didn’t have access to the resources we have today such as credit score anatomy, articles about identity theft, savings, credit utilization, and more. An advocate’s primary job is to help you improve your credit score, but their secondary job is to provide insight. Sure, they can help you fix your credit, but do they offer tools to help you sustain it? A worthy advocate will supply you with a place to gain free knowledge through a blog (like this one!)

• Find a true credit repair advocate.

As Sun Tzu pointed out, knowing your enemies is important. By identifying who you shouldn’t work with through credit repair ads, you’ll see the worthy candidates outshine the others. While you can’t learn much from a simple sidebar, taking the time to research your options will help you learn who you should work with, and who will waste your time. Keep your credit repair goals in mind and make the effort. It will be worth it.


What’s the Right Way to Pay Off Debt?

paying off debt

When you get right down to it, any way you go about paying off debt is going to be a positive thing. So, do not let confusion over specific debt-reduction strategies get in the way of taking action. But, there are nearly as many different ways to get out of debt as there are to get into it, so it makes sense to consider the various alternatives and determine which method makes the most sense for you.

For the sake of this discussion, we are limiting the topic to actual debt-reduction strategies that rely on using your own income to fully pay off your legitimate debt. That is not to say that other options for eliminating debt are not worth considering. Depending on your circumstances, these can include negotiating debt with your creditors or even declaring bankruptcy.

We are also not discussing methods of consolidating, refinancing, borrowing against other assets, or otherwise replacing your existing debt with another form of debt, although these, too, have their place in every smart consumer’s book of options.

So, the rest of this article is going to focus on the three most popular and effective strategies for actually eliminating your debt, the pros and cons of each, and why you may choose one over the others.

The Avalanche Method

As defined by Investopedia, the “avalanche method” of debt reduction is, “A method of repaying debts in which a debtor allots enough money to make the minimum payment on each debt, then devotes any remaining debt-repayment funds to repaying the debt with the highest interest rate. Using the debt avalanche method, once the debt with the highest interest rate is completely paid off, the extra repayment funds go toward the next highest interest-bearing debt. This process continues until all the debts are paid off.”

To illustrate, imagine you have four separate debts you are working to pay off:

  • A credit card with a $3,000 balance, $50 minimum payment, and a 22 percent interest rate
  • A car loan with a $7,500 balance, $250 minimum payment, and a 6 percent interest rate
  • A home equity loan (HEL) with a $12,000 balance, $100 minimum payment, and a 8 percent interest rate
  • A personal loan with a $800 balance, $25 minimum payment, and a 15 percent interest rate

Using the avalanche method with this debt profile, you would pay just the minimum payment on every account you are paying off except for the account with the highest interest rate (in this case, the credit card.) So $375 of your $500 budgeted debt payments would go to the car loan, HEL, and personal loan, and the remaining $125 would go toward the credit card.

As time goes on and the highest interest account is completely paid off, you would continue making the minimum payments on all but the next highest interest balance, and move the remaining balance of your $500 to paying off that account. This continues on down the line until all the debt is gone.

Using these figures, and assuming you are not increasing any of these debts, here’s what it would cost you and how long it would take to eliminate all this debt using the avalanche method:

Account Time Until Paid Off Total Interest Cost
Credit Card 32  months $1,001.30
Personal Loan 32 months $216.92
Home Equity Loan 57 months $3,548.68
Car Loan 32 months $646.40
Total 57 months $5,413.12

From strictly a financial perspective, this is the best strategy you can use. That is because it focuses first and foremost on eliminating the actual cost of your debt — the interest payments — as quickly and efficiently as possible. So, in the long run, the avalanche method will always save you the most money.

But, that is only if you have the self-discipline to truly stick with it, month after month. And, that is why the other two methods are even more popular.

The Snowball Method

Made famous by personal finance guru, Dave Ramsey, the snowball method combines the payment strategy of the avalanche with a twist that’s based in human psychology:

Rather than starting with the debt with the highest interest rate, the snowball method starts by attacking the account with the lowest balance and works up towards the largest accounts. This can be powerful because of its potential motivational impact. By starting out paying down the smallest balance first, you establish what Ramsey calls “momentum” — basically a feeling of accomplishment that encourages you to keep at it — which can make it easier to stay motivated and disciplined over the long haul.

In fact, a study conducted by HelloWallet and the Harvard Business School determined that people using the snowball method paid off their debts 15 percent faster than those who split up their budget equally.

Compared to the avalanche method, the snowball method will almost always cost more in total interest, but when compared to its motivational power and the increased compliance that comes with it, most debtors find that a small price to pay. Still, you should research the numbers before making a final decision between the two.

Using the same scenario described above, this is how the numbers look using the snowball method:

Account Time Until Paid Off Total Interest Cost
Personal Loan 7  months $39.44
Credit Card 33 months $1,294.05
Car Loan 32  months $646.40
Home Equity Loan 57  months $3,568.66
Total 57 months $5,548.54

The Equality Method

The final method is definitely the easiest to manage and does a fair job of balancing out the “interest vs time” argument that rages among proponents of the other two methods described above.

Basically, using the equality method, you again start with a budget and simply divide that amount up evenly among all your debts, regardless of minimum payments, balances or interest rates. That way, you’re working on paying all of them down at once, and you can easily use a “set it and forget it” bill pay arrangement to automate your debt reduction.

In a perfect world, you could always divide it evenly, but one of the downfalls of the equality method is clear looking at our example (which is pretty typical of real world debt reduction situations.) The minimum payment for the car loan requires an outsized piece of the pie. And, once that’s covered, it also puts the home equity loan’s minimum payment above the amount that can be relegated to cover it.

That is why the equality method is only practical in circumstances where someone is highly motivated and willing to do whatever is necessary to commit to a very high budgeted monthly payment toward debt reduction. For instance, if the same creditor we’ve been discussing made a number of difficult sacrifices and vowed to apply $1000 toward debt reduction per month, they would be able to use the equality method successfully, with the following results:

Account Time Until Paid Off Total Interest Cost
Personal Loan 4  months $21.64
Credit Card 11  months $357.63
Car Loan 21  months $449.58
Home Equity Loan 40  months $1,355.44
Total 40  months $2,184.29

In Conclusion…

So, after discussing all three of these popular methods for paying off debt, what’s the best option for you?

Look at it this way:

  • If you have plenty of money to spend every month toward eliminating your debt, the equality method is both the fastest and cheapest way to go.
  • If you have a limited amount (above and beyond the minimum payments) to spend, the snowball method will cost a little more in the long run, but it has a better success rate because it’s easier to stay motivated.
  • If you are highly motivated by saving the very most money, then spend your limited budget using the avalanche method and you will save the most on interest over time.

But, what if you are so deep in debt that even making all the minimum payments is too much? That’s where you would do well to work with credit repair and personal finance professionals to see what options are available to you for reducing or consolidating your debt to get those payments down to a point where you can start applying one of the three above methods to finally paying it all off.

Contact Lexington Law today if you would like to speak to an expert in credit law.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.


5 Smart Things to Do With Your Tax Refund

Young mother spending time with daughter playing with dog.

We are coming up on that time of year again. No, not the holidays – I’m talking about tax season.

Trends from the last 10 years show that on average, about 80 percent of Americans receive a federal income tax refund each year, averaging around $2,800.

That’s no small sum, and if you are due a refund, it’s not too soon to start thinking about what you will do with the extra cash. While it’s tempting to think about a luxurious vacation or a new flat-screen TV, it might be wiser to put your tax refund toward some budget-friendly, credit-friendly alternatives.

Here are some smart money moves you can make with your tax refund.

1. Bolster your savings

According to a 2017 GoBankingRates survey, 57 percent of Americans have less than $1,000 in their savings, and 39 percent have no savings at all. A general rule of thumb when it comes to savings is to set aside enough to cover at least three to six months’ of expenses in case of an emergency situation (like unexpected job loss or a medical emergency).

This year, consider stashing away a chunk of your tax refund in a high-interest savings account. Not only is your money safely tucked away in case you need it, it continues to grow.

2. Invest in the market

Investing in the stock market is a riskier move than opening a savings account, but if you already have a decent savings cushion, investing could be a worthwhile option. The stock market generally offers much higher returns on your money over the long term (although it’s not always consistent). There are a lot of investing options depending on your financial goals and risk tolerance, such as individual stocks and index funds.

3. Invest in yourself and your family

If you have been looking to improve your career prospects, now might be the time. Consider furthering your education through online courses, new certifications or other professional development opportunities. You could also use your tax refund towards startup costs for your own small business. Or, if you have kids, you may want to consider starting a college fund if you haven’t already.

4. Buy insurance

You never know when you will need the protection that insurance offers. If you have holes in your insurance coverage, whether life, home, auto, or medical, consider filling them now. In many cases, you can do so for a relatively low cost. For instance, for about $200-$400, you can purchase an umbrella liability policy that protects you in case someone is injured in your home or car.

5. Pay off debt

Before you do anything else with your tax refund, your first priority should be paying off any high-interest revolving debt you’re carrying. If your tax refund will not cover the whole amount of your debt, you can at least make a dent in it. If you are paying 18 percent interest on credit card debt, collecting minimal interest on money sitting in a savings account doesn’t make much sense. Plus, if you need to fix your credit score, paying off your debt is a major step towards repairing your credit.

Investing your tax refund wisely can be a big step in improving your financial and credit situation for the future. If your credit has been damaged in the past and you’re in need of credit repair company, the legal professionals at Lexington Law Firm can help. Contact us today to learn all of the ways we can help you improve your credit.

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Top 3 Scams to Avoid This Holiday Season

Holiday Scams

‘Tis the season — the season for scams.

With more holiday shopping taking place online each year, more online scams are popping up than ever before.

Victims of online scams are at risk of fraud, identity theft, and serious harm to their credit. The FBI reported that total loss from cybercrime in 2016 exceeded $1.3 billion.

That’s why each year, everyone from the FBI to politicians to the Better Business Bureau issues warnings for consumers be on high alert for such scams.

Here are some of the most common ones to avoid this holiday season:

  1. Email and social media scams

You’re probably getting bombarded by marketing emails right now, but be careful what you click. Scam emails may well sneak into the bunch. Some emails will try to direct you back to scammy websites, which could then try to trick you into buying fake products from them in order to give up your banking information.

Another common email scam involves scammers masquerading as a tracking service like UPS or FedEx. They send you phony information about your “recent orders” and ask you to download an attachment or click a phishing link. These could contain malware that scammers use hack into your personal data.

If you’re unsure if a tracking email is a scam, call the company’s customer service line — but only use the number located on its actual website, not one you found in the email.

Also, be cautious of social media promotions or contests. Scammers will sometimes use this method to get you to fill in fake surveys, and then steal your personal information.

  1. Fake charities

Charitable donations tend to spike around the holidays each year. Unfortunately, so do the scams looking to take advantage of the spirit of giving. Fake charities are so common that they regularly appear on the IRS’s annual list of “Dirty Dozen” scams.

Fake charities often design themselves after legitimate organizations, using similar names and page layouts to fool you. You can check if an organization is legitimate on the IRS website. Don’t give out personal information to anyone claiming to represent a charity and solicit donations. And when you do make donations, use a credit card or check rather than cash or wire transfer. They’re easier to recover if the charity ends up being bogus.

  1. Scam job postings

Our spending tends to increase over the holidays, so the idea of making a little extra pocket money may be appealing. But be cautious. Some seasonal employment is completely legitimate, but some postings are created by scam artists who are also trying to get a little extra pocket money — yours.

If a prospective “employer” expects you to spend any cash up front, whether on job training, a start-up kit, or your own inventory — beware. Jobs are supposed to pay you, not the other way around.

If you do become the victim of identity theft or fraud as a result of scammers this holiday season, and your credit takes a hit as a result, Lexington Law can help you with credit disputes and credit restoration. Contact us today to find out how we can help.

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Does Comparing Loans Affect My Credit Score?

loans and credit score

When it comes to shopping for the right loan, it makes sense that you’d want to do your research in order to score the best rate possible. And the Internet has made it easier than ever to do so. But before you start comparing loans, it’s important to understand the effect this could have on your credit.

And the answer isn’t as clear-cut as you might think.

Credit inquiries

Whether or not comparing loans will affect your credit score depends on whether a hard or soft inquiry is required.

Soft inquiries happen when a business pulls your basic credit information without your directly applying for anything — for instance, when credit card companies check to see if you prequalify for a card. Soft credit checks have no impact on your credit report.

Hard credit inquiries come whenever you directly apply for a loan or new line of credit, such as a mortgage, car loan, or new credit card. The lender pulls your complete credit report to determine whether you’re a safe borrowing candidate.

Since you took the steps to apply, hard inquiries are considered “authorized,” and they do end up on your credit report and affect your credit score. Luckily, if your credit is otherwise in good standing, the effect is fairly minimal; your credit score will only drop by a few points, and it usually bounces back from the hit within six months. (However, the effect may be more impactful if your credit isn’t as strong.)

When credit checks are required

Hard inquiries may not be required until you’re further into the loan process. Lenders can get an idea of what interest rate you’d qualify for by performing soft inquiries using basic information including your name and annual income. So if you’re shopping around, this is the best way to look at all of your options.

However, to get an official rate quote, you will have to directly apply for the loan, which will result in a hard inquiry.

But here’s the good news: if you submit multiple applications for the same type of loan (say, a car loan) over a short period of time (usually between 14 and 45 days), it’s not considered risky behavior because it’s evident to the credit bureaus that you’re simply looking for the best deal. As such, credit bureaus will often count these multiple applications as a single hard inquiry.

(Note: This isn’t the case for credit cards. Submitting multiple credit card applications over a short period could not only bring down your credit score, it could also make you look like a risky borrowing candidate to lenders.)

How to shop for loans

In order to avoid damaging your credit as you shop for loans, make sure you’re aware whether your credit is being submitted for a hard or soft inquiry. Many websites will let you know, but if you’re not sure, call the company’s customer service to ask.

Also, make sure you’re protecting your privacy. A secure Web page will begin with “https,” so if you’re entering your social security number or any other sensitive personal information, make sure to double-check for that protocol.

If you’re having trouble getting approved for a loan, it could be that you need to fix your credit. For credit help, consider speaking with a credit repair expert. Lexington Law offers the legal expertise to help you repair your credit and ensure that your credit report remains fair and accurate.

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