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How to travel cheap: 19 tips for budget travelers

You might be wondering how to travel cheap.

Growing up, my family’s idea of a vacation was taking a road trip to see relatives over the holidays. We simply couldn’t afford to splurge at Walt Disney World — let alone take a trip to somewhere like Europe.

I had no idea what I was missing. Don’t get me wrong: I love spending time with my family, but there’s a whole world out there waiting to be explored.

By the time I realized this, I was a broke journalist in my 20s. I barely had enough money to pay my rent and student loans. So how could I possibly come up with enough money to travel?

That’s when I became a budget traveler, and I discovered some of the cheapest ways to travel around the world.

Don’t let money problems stop you from traveling. Here are a few ways to travel cheap that can help you see the world on a budget.


19 of the cheapest ways to travel

Here are a few tips I learned along the way.

1. Pay with points

You’re smart enough to know money doesn’t grow on trees, but earning credit card points and miles may have you thinking otherwise.

Figure out how much money you regularly spend, and consider making those purchases on a travel card, like the Chase Sapphire Preferred® Card, so that you have the potential to be rewarded with points and miles every time you swipe. You can redeem these rewards for airfare, hotels and other qualifying expenses.


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With cards that offer them, you can earn a lot of points upfront by qualifying for a sign-up bonus. Take note that if you’re relying on points and miles you earn through your regular purchases, it may take longer to save up enough rewards for your trip.

2. Redeem miles wisely

If you’re ready to take your rewards strategy to the next level, check out the Travel Hacking Cartel. This is a subscription service that not only shows you how to earn credit card points and miles, but can also help you redeem them for the maximum value.

Typically, to get the most value out of your rewards, you should redeem them for expensive flights and hotels that could otherwise be out of reach, but use your credit card to pay for some of the cheaper expenses you encounter during your travels.

That’s what Stephanie Zito, cofounder of the Travel Hacking Cartel, is doing as she treks across Asia. She redeemed points for what would’ve otherwise been an expensive Cathay Pacific flight to Vietnam, but she is paying for regional flights between neighboring countries on budget airlines. Saving up her points to redeem for the more expensive leg of her trip helps make her trip more affordable.

3. Fly with a budget airline

Speaking of budget airlines, they’re a great way to save money on regional flights — but only if you’re prepared to sacrifice a little comfort. Be ready to pack lightly and squeeze into the middle seat of a cramped row, because if you’re looking for better perks, budget airlines may hit you with a bunch of unexpected fees.

Would you prefer a window or aisle seat? It can cost more to select your seat, which also means you might end up paying more if you’re traveling with a group and want to sit together.

Traveling with a carry-on? You might be hit with bag fees, even if you don’t check your luggage. Just about the only thing you won’t be charged for is a small backpack or purse.

Hungry? Budget airlines differ in their policies, but you might be charged for a snack or meal that may be complimentary on traditional airlines.

What if you want to board early? Time to pay up.

That said, budget airlines can be one of the cheapest ways to travel, as long as you know how to avoid additional fees.

4. Want to score even cheaper flights?

You may want to subscribe to Scott’s Cheap Flights. This email newsletter alerts budget travelers when airlines hold sales or mistakenly lower their prices. In the past, Scott’s Cheap Flights has notified subscribers about amazing deals like a $260 flight from New York to Paris and a flight from San Francisco to Bali for $364.

TheFlightDeal.com and SecretFlying.com are two more sites that may be able to help you find cheap flights, according to Nico Atienza, a front desk agent at the Travel Hacking Cartel.

5. Timing is everything

It’s typically easier to find cheap flights when your travel schedule is flexible.

Often, you’ll find the best deals when you travel in the middle of the week or take a red-eye flight overnight. If you’re prepared to face less-than-idyllic weather, you could save even more money on airfare and hotels by traveling during off-peak seasons.

“The most important thing is to be flexible on timing,” says Atienza. “The tighter your time frame, the less chance you’re going to get a cheap fare.”

It can also help to book early.

6. Don’t feel obligated to fly out of the nearest airport

You might save money by flying through less-convenient airports.

For example, if you live in Washington, D.C., you can often find cheaper tickets by flying out of Baltimore-Washington International Airport than, say, Reagan National Airport or Dulles International Airport. And if you’re visiting San Francisco, consider flying into Oakland International Airport, or if you’re visiting Oakland consider San Francisco International Airport — wherever the flight proves to be less expensive.

The key is to be flexible about where you fly, even if it means venturing away from your home airport a bit. Just make sure you factor in the cost of getting to and from the airport!

7. When you travel together, you can split the costs with your friends and family

There’s something to be said about solo travel.

But if you’re on a budget, you can split the costs of hotels and rental cars when you travel with a small group of friends or family. So don’t be shy about squeezing into a small motel room or renting an entire home on Airbnb if it’s less expensive per person.

“The optimal party size tends to work out to be four people,” says Atienza.

Any more than that and the hotel might charge you for another room.

You should also be able to fit about four people in your rental car, depending on the type of car you rent.

8. Enjoy two vacations for the price of one

Couples who travel together may save even more by traveling with a companion ticket.

I earned the Southwest Companion Pass, after earning 110,000 qualifying points in a calendar year, and I used it to take my girlfriend along everywhere I flew for nearly two years. We paid around $5.60 in taxes and fees for each one-way flight for her. Keep in mind, you may have to pay more in taxes and fees depending on your flight.

If you’re interested in scoring buy-one-get-one-almost-free airfare, you should check out Credit Karma’s ranking of our favorite companion tickets.

Another way to get more bang for your buck? Book a stopover flight.

When we traveled to France, Iceland Air allowed us to spend a week in Iceland’s gorgeous Snæfellsnes Peninsula before heading to Paris. The ticket cost the same price as it would’ve if we flew straight there.

“When booking a flight, always check if the carrier is offering a stopover program,” suggests Atienza.

9. Take a road trip

You don’t need to own a car to take a road trip. I once carpooled from Munich to Prague with a bunch of strangers for only $20. In hindsight, that probably wasn’t the safest decision. We all know that hitchhiking the old-fashioned way, by holding up your thumb, can be dangerous, because you don’t know who you’re getting in the car with.

You may be able to mitigate some of the risk by going through carpooling websites like BlaBlaCar, which not only connects you with other people who are traveling in the same direction, but also verifies drivers and riders. BlaBlaCar also offers a women’s only carpooling service. Of course, you should always do your due diligence before getting in the car with a stranger.

You could also look for car-transfer services that need to relocate rental cars that were dropped off somewhere other than where they were picked up. It’s a relatively new concept, so these services may not be available everywhere, but it’s worth looking into once you know where you’re traveling.

During a trip to New Zealand, Zito helped return a rental car for a steep discount through Transfercar.

“I paid $5 a day to rent a camper van, because I drove the opposite way as the rest of the tourists and helped to relocate the van back to its rental location,” she explains.

Whether you drive your own car, rent a vehicle or carpool with friends, hitting the open road may be cheaper than flying, and you may be able to save even more money with a gas rewards credit card.

“The open road has its charms and is much more economical as gas prices remain affordable,” Atienza says, speaking about his own travel experiences.

10. Ride the bus

Riding the bus is generally cheaper than flying.

Atienza traveled across Vietnam on a bus for only $5, hopping on and off the bus at different points along the roughly 922-mile journey between Ho Chi Minh City and Hanoi.

“Traveling on a bus takes time, but you get to experience the countryside and have a chance of meeting really wonderful people,” he says.

If you’re traveling between nearby cities, riding a bus may also be faster and more convenient than flying once you consider factors like airport location and stopovers.

11. Skip the taxi stand

You might save money with Uber or Lyft, but you’ll likely save even more if you opt to walk, bike or take public transportation around the city you’re visiting.

These are also great ways to see the city while you’re on vacation.

We recommend that you familiarize yourself with a city map and the public transportation routes so that you don’t get lost along the way. Be sure to do your research before heading to a new city to make sure the public transportation is safe for tourists.

12. Bring your own food

Instead of eating out for every meal, take time to pack a sandwich for lunch or cook dinner.

It helps if you’re staying at a hostel or Airbnb, where you have access to a kitchen. During our trip to Paris, we didn’t even need a kitchen, because the host offered croissants every morning for breakfast and leftovers for lunch.

“When I visited Tel Aviv in Israel, eating out was prohibitively expensive, with meals ranging from $15 to $40,” says Atienza. “I ended up going to a grocery store and making sandwiches for most of my trip to reduce costs.”

Another trick? Zito recommends grabbing some food to-go from your hotel or an airport lounge. (Certain credit cards like Chase Sapphire Reserve® provide access to more than 1,000 lounges around the world after one-time enrollment in Priority Pass™ Select.)


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13. Save money on travel insurance with a credit card

We hope you never need travel insurance, but if something goes wrong with your trip, you may be glad you have it.

Chase Sapphire Reserve® is one of our favorite credit cards offering complimentary travel insurance.

You can learn more about the different types of coverages these cards offer with Credit Karma’s guide to travel insurance. But make sure you check with your credit card issuer to understand which policies apply to you and how.

14. Find a credit card that doesn’t charge a foreign transaction fee

Credit card issuers sometimes charge foreign transaction fees on transactions made and processed in a foreign currency or passing through a foreign bank. The charge is a percentage of the amount of the transaction, typically 3%. So consider a credit card that doesn’t assess foreign transaction fees — you’ll thank us on your next international trip.

15. Avoid cellphone roaming fees

Savvy travelers often buy a SIM card from a local cellphone service provider when they arrive.

“During my recent trip to Cambodia, I paid $10 for a month’s service with a local mobile company,” Atienza says.

Personally, I switched to T-Mobile, which gives me unlimited data and text messaging in more than 140 countries for no additional cost. While T-Mobile has a reputation for spotty service in the U.S., it can provide great coverage in Europe.

16. Don’t waste your money on ATM fees

If you need cash, you’re better off using a debit card that refunds ATM-operator fees and doesn’t charge a foreign exchange transaction fee.

But don’t take out too much money at one time.

“When I was in Bolivia, I had more than $1,000 taken from my money belt without my knowledge,” Atienza warns. “You should never be carrying that much cash.”

What to know about using debit cards for international travel

17. Take advantage of the strong U.S. dollar

It’s important to keep in mind this could change at any time if the value of the U.S. dollar declines.

Right now, your money will go further when traveling to countries like Mexico, Colombia and Indonesia, where the exchange rate is more favorable.

18. Study abroad

Traveling as a student is a great way to score sweet discounts on your trip.

If you’re visiting Europe, Eurail offers a discount on standard adult train passes for anyone 27 or younger. CheapOair also offers student discounts on flights. You could also apply for travel scholarships through organizations such as National Geographic and SYTA Youth Foundation.

19. Get a job (or volunteer) overseas

If you’ve already graduated or will soon graduate, you might want to consider finding a job in a country you want to visit. You could also find a job that allows you to work remotely like Atienza did.

“I currently live in Sri Lanka and I’m able to do my job at the Travel Hacking Cartel anywhere in the world,” Atienza says.

Many volunteer programs also offer discounted housing in exchange for your help.


Bottom line

Traveling can be expensive.

But savvy travelers who are always on the lookout for a good deal can save money by following even just a few of these simple tips. Don’t worry, we won’t be offended if you don’t take every suggestion. Just pick a few of the ideas that resonate with you.

Every little bit helps.


About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.

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FICO® scores vs. credit scores: What’s the difference?

FICO® scores are commonly used by lenders to assess your credit risk, but other credit scores can also give you a good idea of where you stand.

In other words, your FICO® scores are just one type of credit score you can get. This is because FICO is a company that creates specific scoring models used to calculate your scores. But there are other companies that use different scoring models to determine your credit scores, too.

VantageScore is an example of one of these companies. Both FICO and VantageScore offer credit-scoring models to evaluate the information in your credit reports and issue a corresponding credit score. These scoring models evaluate many of the same factors when looking at your credit reports and calculating your scores, but they differ very slightly.

That’s why you may see different credit scores depending on which scoring model is used. Your scores can also differ depending on which consumer credit bureau report — Equifax, Experian or TransUnion — the scoring model pulls your information from.


  • The rundown on FICO scores vs. other credit scores
  • Which scores does Credit Karma offer?
  • Hear from an expert

The rundown on FICO® scores vs. other credit scores

There are several credit-scoring models out there, but here are a few you might want to have on your radar.

FICO® scores

Lenders started using FICO® scores, created by Fair Isaac Corporation, in 1989, and the scoring models have been updated several times since. According to FICO, more than 90% of top lenders use FICO® scores. In addition to its base versions, FICO also offers industry-specific scoring models (and scores) for distinct credit products, such as auto loans, credit cards and mortgages.

So even if you view your FICO® scores, say, through your bank, they won’t necessarily be the same scores the lender sees when you apply for credit.

Base FICO® scores range from 300 to 850 and are made up of the following important factors:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • New credit: 10%
  • Credit mix: 10%

Depending on what your scores are, you may wonder what they mean. FICO defines the following credit ranges based on FICO® Score 8 credit scores:

  • Exceptional: 800+
  • Very good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: 579 and below

Industry-specific FICO® scores — including FICO® Auto Score 8 and FICO® Bankcard Score 8 — have a broader range of 250 to 900. These scores are tailored to specific types of credit.

There are several ways to get free access to your FICO® scores, including from various credit card issuers. You can also check out Discover’s Credit Scorecard tool.

VantageScore

VantageScore Solutions was created in 2006 as a joint venture of the three major consumer credit bureaus: Equifax, Experian and TransUnion. There are four VantageScore® models, and the latest, VantageScore® 4.0, uses a range of 300 to 850.

“Data scientists don’t build a model and then just stick it on the shelf,” says Jeff Richardson, vice president of communications and public relations at VantageScore. “They’re continually testing and validating it. If there are new modeling technologies and techniques that are available or if the data changes or improves, they’ll update their models accordingly.”

To generate a score for you, FICO requires that you have at least one account opened for six months or more and at least one account reported to the credit bureaus within the previous six months.

VantageScore, on the other hand, might be able to provide more people with credit scores by using just one month of history and one account reported within the previous 24 months.

According to VantageScore, more than 2,200 financial institutions use its credit scores. The scores are based on the following factors:

  • Payment history: extremely influential
  • Age and type of credit: highly influential
  • Percentage of credit limit used: highly influential
  • Total balances and debt: moderately influential
  • Recent credit behavior and inquiries: less influential
  • Available credit: less influential

Pretty similar to the factors that FICO evaluates, right?

Here are the ranges for the VantageScore® 3.0 credit-score model.

  • Excellent: 750 to 850
  • Good: 700 to 749
  • Fair: 640 to 699
  • Needs work: 300 to 639

Proprietary scoring models

In addition to the FICO® and VantageScore® credit scores, each of the three national consumer credit bureaus offers its own proprietary credit scores. Because lenders typically don’t use these scores when making credit decisions, they’re often called “educational credit scores.”

For example, Experian offers the PLUS Score, which ranges from 330 to 830, and Equifax offers the Equifax Credit Score, which ranges from 280 to 850. Access to either of these scores may cost you.

What’s in my credit reports?

Your credit reports are records of your past dealings with creditors and other credit history. They include information such as your name, addresses, employers, the history and status of various credit accounts, and inquiries from companies checking your reports. If applicable, you’ll also find information from public records, such as bankruptcies, tax liens and civil judgments.

Which credit scores does Credit Karma offer?

The model used for credit scores on Credit Karma is VantageScore® 3.0.

While VantageScore® credit scores aren’t used as widely as FICO® scores for credit decisions, they can still give you a good idea of where your credit stands. Remember, the VantageScore® model incorporates many of the same factors that are used when calculating your FICO® scores, although it may assign a different weight to certain factors.

Credit Karma shows you the different credit factors that can affect your scores and where you can work to try to improve your credit. And if you opt for credit monitoring, Credit Karma will also send you alerts when there are important changes to your credit reports, which may help you spot potential errors or fraud. Using a service like this can give you tools to help you improve your credit.


Next steps

No matter what scores you look at, most do a good job of giving you an idea of the state of your credit. Staying on top of your credit scores can help you determine where you stand and steps you can take to improve your credit health.

“I think the best way to use these credit monitoring apps is to monitor your score[s] and look at where you fall into the range,” says Richardson.

If you check your credit scores regularly, you can keep track of how your scores are trending, work on building your credit history and address potential issues as they arise.


Hear from an expert

Q: Why is credit history so important?

A: It is important since it provides information to the lender about your financial stability. It reveals the level of risk they (lenders) will have to absorb when they deal with you.

— Dr. Miren Ivankovic, Adjunct Professor of Economics, Clemson University


About the author: Ben Luthi is a personal finance freelance writer and credit cards expert. He holds a bachelor’s degree in business management and finance from Brigham Young University. In addition to Cr… Read more.

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Top credit cards for airport lounge access


If your trip could be — or already has been — affected by COVID-19, check out the Credit Karma travel resources page for more information.

Find out how airport lounge access can upgrade your travel life — and which cards offer this traveler’s perk.

Long lines. Security. Crowds. No, we are not talking about an amusement park, but rather what most of us have to deal with when going to the airport.

Let’s face it, traveling can be a stressful experience. That’s why having airport lounge access can be a complete game changer for travel — it may offer you an enjoyable, even relaxing experience before you board your flight.


First, what are airport lounges?

If you’ve never been to an airport lounge, you might be wondering what they actually are. Airport lounges are exclusive areas where members or passholders can relax before a flight. Many airport lounges offer complimentary snacks and beverages, as well as comfortable seating.

If you frequently purchase single-use lounge passes (which can range from $25 to $59 per pass), the right travel rewards credit card may help you save on lounge entrance fees.

“The savings can add up in a hurry when you have complimentary lounge access, either through your credit card or a membership that you paid for yourself,” says travel and lifestyle writer Lee Huffman.

“You’ll have to do the math to determine how frequently you travel,” he says, “but it doesn’t take that many lounge visits to break even on a membership, especially if you’re traveling with friends or family.”

Airport lounge networks

If you’re looking into airport lounge access, it’s important to note that not all airport lounges are the same. There are several different airport lounge networks out there, including:

  • Priority Pass™
  • American Express Global Lounge CollectionSM
  • The Centurion® Lounge
  • Delta Sky Club®
  • American Airlines Admirals Club®
  • United Club℠

Can anyone have airport lounge access?

It depends.

Many airport lounges are a perk for members with certain credit cards, but you may be able to purchase an entrance pass for the day.

Best credit cards that offer airport lounge access

Access to airport lounges is often a major perk offered by certain credit cards. But which credit cards offer this elite perk? Below are the best cards we found for airport lounge access.

Chase Sapphire Reserve®

Chase Sapphire Reserve®
made a splash on the credit card scene because of its major travel perks. One of the best perks it offers? Airport lounge access.


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As a member of this card, you can enroll in Priority Pass™ Select, which grants you access to more than 1,200 airport lounges. The card does have a hefty annual fee of $550 per year, but the Priority Pass™ lounge access alone saves you $99 on a Standard Priority Pass™ membership as well as the $32 member fee (per visit). That can certainly add up!

Chase Sapphire Reserve® and the corresponding Priority Pass™ Select membership can get you airport lounge access to locations all over the world. So if you’re looking for some preflight food and drinks, you can skip the pricey airport options and take advantage of this card’s lounge access perk.

Platinum Card® from American Express

Another great option to get airport lounge access is the Platinum Card® from American Express
. This card is chock-full of travel perks, but the access you can get to airport lounges all across the world is noteworthy.

As a cardholder, you can score access to The American Express Global Lounge Collection℠, which is an impressive network of airport lounges. The American Express Global Lounge Collection℠ partners with and/or gives you access to …

  • The Centurion® Lounge
  • International American Express Lounges
  • Delta Sky Club®
  • Priority Pass™ Select
  • Airspace
  • Escape Lounges

In some cases, you can simply present your card to get access. However, you’ll need to enroll in the Priority Pass™ Select network to gain membership to certain airport lounges.

A great perk of this card is that you may be able to bring two guests to enjoy select lounges with you at no additional cost or at a discounted price, barring any limitations by individual program policies. So whether you’re traveling with friends or family, this card can help you relax together before your flight, in luxury and in style.

These perks don’t come cheap though, since the card has an annual fee of $550. But if you travel frequently, especially with guests, lounge benefits may make up for the cost.

Citi® / AAdvantage® Executive World Elite Mastercard®

If American Airlines is your preferred airline, then the Citi® / AAdvantage® Executive World Elite Mastercard® could be a good fit for you. This card offers access to the Admirals Club®, which is the American Airlines–specific lounge.


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At Admirals Club® lounges, members can enjoy snacks, drinks and personalized travel assistance. In some locations, there may be shower suites as well as a business center. Not only does this card give the primary cardholder access to the lounge, but it also gives any authorized users on your card access as well.

If you’re already an Admirals Club® member, you could be eligible for a prorated membership fee refund. The card has an annual fee of $450.

United MileagePlus® Club Card

If United is your airline of choice, then consider the United MileagePlus® Club Card to score access to United Club℠ lounges. The card has an annual fee of $525, but the United Club℠ membership could have a value of up to $650 annually.

At United Club℠ locations, you can enjoy complimentary beverages and snacks before your flight. Need a place to work? Or relax? You can do both at United Club℠ lounges.

In addition to food and beverages, United Club℠ locations may also offer printing services, Wi-Fi and travel assistance. In select locations, you’ll have access to a private phone booth for meetings or catching up with your family.

Using this card, not only do you gain entry to United Club℠ locations, but you may also be able to access certain Star Alliance™–affiliated lounges as well.


Bottom line

Airport lounge access can make a world of difference when you’re traveling. Having the right credit card can help you access these lounges so that you have a place to go before or during a long day of travel.

Though some of these cards don’t come cheap, the perks — like having airport lounge access — can go a long way if you know you’ll make use of them.


About the author: Melanie Lockert is a freelance writer and editor currently living in Portland, Oregon. She is passionate about education, financial literacy and empowering people to take control of thei… Read more.

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How often should you check your credit reports?

You know staying on top of your credit is important, but how often should you check your credit reports?

The answer depends on your situation, but the Consumer Financial Protection Bureau recommends checking your credit reports at least once a year, as well as under specific circumstances, including …

  • Before you take out a loan for a major purchase, such as a car or home
  • Before you apply for a new job, as many employers check your credit
  • To reduce your risk of identity theft

Freddie Huynh, vice president of credit risk with Freedom Financial Asset Management and former senior data scientist at FICO, advises getting and reviewing your credit reports annually.

“If you’re about to make a big purchase that requires a loan, it may be helpful to check reports a few months before so there are no surprises,” he says.

Surprises, such as mistakes on your credit reports showing a late payment that didn’t occur, could result in your credit scores being lower than they otherwise would be. Checking your reports helps you identify incorrect information, which you can then dispute with the credit bureaus. If the error is on your TransUnion® credit report, you can use the Credit Karma Direct Dispute™ feature to help rid your report of the error.

How to check your credit reports 

Checking your credit reports can be easy and free. You can obtain one credit report each year from each of the three major consumer credit reporting bureaus — Equifax, Experian and TransUnion — by visiting AnnualCreditReport.com. You’ll need to input your basic information, answer some identifying questions and select the reports you want.

You can also use Credit Karma to check your credit reports and monitor your VantageScore® 3.0 credit scores from TransUnion and Equifax for free year-round — there’s no limit on the number of times you can check and it’s a soft inquiry, so it won’t negatively impact your credit scores.

Credit reports vs. credit scores

There’s a difference between checking your credit reports and checking your credit scores.

  • Your credit reports give you details about your credit activity, including open and closed accounts and your payment history.
  • Your credit scores are three-digit numbers calculated based on information in your credit reports. Credit scores are designed to give lenders an idea of how risky you may be as a borrower. To many lenders, higher scores indicate that you’re a less risky borrower.

Your credit scores are an important indicator of whether you’ve been responsible with credit, and monitoring your scores is a good way to spot theft or potential mistakes in your credit reports. If your credit scores drop unexpectedly, something might be wrong. You can check your credit reports to help determine what that might be.

What factors affect your credit scores?

Does checking your credit reports hurt your credit?

The good news is that checking your credit reports yourself doesn’t hurt your credit scores.

When a lender has checked your scores (after you’ve applied for a new credit card, for example), your scores may have dropped a few points. Because of this, you may be concerned that checking your own credit reports might lower your scores, too. But you don’t need to worry.

When you check your scores or reports yourself, it’s a soft inquiry. When lenders check your credit to decide whether to give you a loan or a credit card, it’s generally a hard inquiry.

“Soft inquiries don’t negatively affect your credit score[s] at all. These are mainly used for reasons other than underwriting for a loan,” says Frank Acocella, an attorney and founder of CounselPro Lending.

Hard inquiries, on the other hand, can happen when a potential lender checks your credit, which they typically do to assess your creditworthiness. Unlike soft inquiries, hard inquiries could have a negative impact on your credit scores.

Because hard inquiries could mean you’re taking on new financial obligations, multiple hard inquiries within a short period of time have the potential to lower your scores. This is because certain credit-scoring models may determine that opening multiple credit accounts in a short period of time represents a greater credit risk.

Hard and soft credit inquiries: What they are and why they matter


Bottom line

Checking your credit reports at least once a year is recommended to monitor for errors and help reduce your risk of identity theft. However, keeping more-regular tabs on your credit is smart. When you spot problems early on, you can take timely action toward correcting any issues.


About the author: Christy Rakoczy Bieber is a full-time personal finance and legal writer. She is a graduate of UCLA School of Law and the University of Rochester. Christy was previously a college teacher… Read more.

Lance Cothern, Credit Karma contributing writer

The essential guide to Priority Pass™ lounges at JFK

If you’re a frequent flyer in the New York City area, having access to Priority Pass™ JFK lounges may elevate your travel experience.

The Priority Pass™ lounge network offers a VIP experience to its members, offering perks such as complimentary refreshments and drinks, showers and comfortable sitting spaces.

At JFK, in addition to offering access to four lounges (across terminals 1, 4 and 7), Priority Pass™ also allows you to use your lounge visit to eat at Bobby Van’s Steakhouse, which is located in Terminal 8.

“Long lines at airport security and cramped economy seating can ramp up the anxiety levels,” says Lee Huffman, a travel blogger at BaldThoughts.com and Priority Pass™ member. “Airport lounges offer a respite from this with their benefits and relaxed atmosphere.”


Things you should know about the Priority Pass JFK lounges

If your flight departs from terminals 1, 4 or 7 (or somewhere nearby), you may be able to visit one of the four Priority Pass™ lounges at JFK.

  • Air France Lounge — Terminal 1
  • KAL (Korean Air) Business Class Lounge — Terminal 1
  • Wingtips Lounge — Terminal 4
  • Alaska Lounge — Terminal 7

And if you’re in or around Terminal 8, you may be able to visit Bobby Van’s Steakhouse as well.

One thing to keep in mind, however, is that your Priority Pass™ membership doesn’t guarantee you’ll get in.

“With travelers signing up for premium credit cards like never before, lounges have started to get crowded,” says Huffman. “In some cases, some lounges have even been turning people away because they are too full.”

Here’s a summary of each lounge area and any conditions you may need to meet to gain entry.

Air France Lounge

Located near the Air France boarding area in Terminal 1, this lounge is open daily from 6 a.m. to 1 a.m. But you may not get in if the lounge is full.

As the Priority Pass™ cardholder, you must be at least 21 years old and have a valid boarding pass to enter, but you can bring younger guests. And you can stay for up to three hours.

Features include …

  • Refreshments
  • Alcoholic beverages
  • Wi-Fi
  • TV
  • Showers
  • Fax
  • Newspapers and magazines

KAL Business Class Lounge

You’ll find the Korean Air business class lounge near Gate 3 in Terminal 1, and you can get in between 2 p.m. and 8:30 p.m. daily. You must have a boarding pass showing a departure from Terminal 1, and you’re limited to two ticketed guests. If the lounge is full, you may be denied access.

Amenities include …

  • Refreshments
  • Alcoholic beverages
  • Internet
  • Wi-Fi
  • Showers
  • TV
  • Telephone and fax (interstate and international calls and faxes are subject to a fee)
  • Conference rooms
  • Newspapers and magazines

Wingtips Lounge

This lounge, located in Terminal 4 about 325 feet past security, is open 24 hours a day. But you may have a difficult time getting in between 5 p.m. and 1 a.m., because of space constraints.

You can stay up to four hours and cardholders can bring up to six guests. The lounge has a dress code that requires shoes and shirts and bans baseball caps.

Here’s what to expect when you get in.

  • Refreshments
  • Alcoholic beverages
  • Wi-Fi
  • TV
  • Fax (subject to a fee)
  • Newspapers and magazines

Alaska Lounge

The Alaska Lounge, located on the Mezzanine Level in Terminal 7 (above security), is open from 5 a.m. to 9 p.m. Sunday through Friday, and between 5 a.m. and 5 p.m. on Saturdays. Don’t try to get in on Christmas Day though — it’ll be closed for the holiday.

Feel free to drop in and hang out for the three hours before your scheduled flight. Just remember that to get in, you and your guests have to bring a boarding pass along that confirms same-day travel. If you’re a cardholder, you can bring up to two guests with you, or if you have a family, you can bring your spouse and any kids under 21. Keep in mind that if you plan on drinking, each adult in your group will be limited to three drinks.

This lounge’s benefits include …

  • Refreshments
  • Alcoholic beverages (premium drinks subject to a fee)
  • Wi-Fi
  • TV
  • Newspapers and magazines

Bobby Van’s Steakhouse

Located opposite Gate 14 in Terminal 8, Bobby Van’s Steakhouse is open from 6 a.m. to 10 p.m. daily. But you may find it difficult to get in, depending on when you go.

You can bring one guest with you, but both of you need to show a boarding pass confirming same-day travel. Once you get in, you and your guest will each get up to $28 off your bill. Though if your bill is less than $28 — or $56, if you have a guest — you can’t use the remaining balance to pay a tip.

How to get Priority Pass lounge access

Priority Pass™ has three membership plans to choose from. And the plan you choose determines how much you pay when you visit lounges in the network.

  • Standard: $99 annual fee; $32 per visit for you and each guest
  • Standard plus: $299 annual fee; 10 free visits for you (then $32 per visit), plus $32 per visit for each guest
  • Prestige: $429 annual fee; free visits for you, $32 per visit for each guest

If you want to skip the membership fees, you can also get access to Priority Pass™ lounges at JFK and other airports with some travel credit cards. (If you have one of these cards, remember you’ll usually need to call your credit card issuer to activate your membership and get a Priority Pass™ membership card.)


Bottom line

A visit to a Priority Pass™ airport lounge will likely provide you with a much better experience than sitting around a terminal and waiting.

“Make sure you download the Priority Pass™ app to keep up to date with all of the lounge features and locations,” suggests Huffman.

Additionally, consider a premium travel credit card that offers complimentary access to the lounges, so you don’t have to pay out of pocket for the membership fee. While these cards can also charge annual fees, they come with a flurry of other credit card perks that may make the cost worthwhile for you.


About the author: Ben Luthi is a personal finance freelance writer and credit cards expert. He holds a bachelor’s degree in business management and finance from Brigham Young University. In addition to Cr… Read more.

Louis DeNicola, Credit Karma contributing writer

What is a FICO® score?

If you’ve applied for a credit card, auto loan, mortgage or some other form of credit, odds are you’ve heard the phrase “FICO score.”

When you apply for credit, potential creditors may want to gauge how likely you are to pay your bills on time. Many creditors use FICO® credit scores to assess applicants, manage accounts, and determine rates and terms.

A FICO® score is a three-digit number ranging from 300 to 850 (and up to 900 for some industry-specific scores). These scores are largely based on your credit reports (statements generated by the consumer credit reporting bureaus that detail your credit activity and current credit situation) and can help creditors assess how likely you are to repay debt.

Fair Isaac Corporation, or FICO, introduced the first credit risk score in 1981. The organization’s reputation as one of the primary credit-rating companies in the U.S. has grown since then, reaching different industries with scores geared toward different credit products.

Even though you may hear “FICO score” and think of it as a single credit score, you can actually have several of FICO scores, which can differ by industry. Read on to learn more.


  • Why are your FICO scores important?
  • Why are there different FICO scores?
  • What affects your FICO scores?

Why are your FICO® scores important?

FICO® scores are widely used by many types of creditors, including lenders, credit card issuers and insurance providers to gauge your credit risk — that is, how likely you are to repay the money loaned to you.

The higher your credit scores, the more likely you’ll end up with better rates and terms on your loan. With lower scores, if you’re approved, it may be with worse credit terms than if you had higher scores.

In the case of insurance companies, lower scores could lead to higher premiums.

Knowing your scores may help you determine the likelihood of your application getting approved and whether the creditor is likely to offer you favorable terms. In some cases, a lender may even have a threshold that your scores must meet or pass to get approved.

You can try to check the lender’s website or ask a representative to find out whether there is a threshold to be approved and which scoring model(s) the company uses. But some companies may not share this information.

What’s a good credit score?

The answer depends on the lender or creditor that’s reviewing your scores and their criteria, but it’s important to know what range your credit scores are in. Higher credit scores are better than lower scores, and on the 300 to 850 scale, scores of 670 and above may be considered “good.”

Why are there different FICO® scores?

There are dozens of different FICO® scores, under two general categories.

  • Base FICO® scores (the most widely used type)
  • Industry-specific FICO® scores (tailored to certain credit products, such as credit cards or auto loans)

Every so often, FICO also releases new credit score versions that are meant to improve upon the last iteration and create a more predictive and reliable score for lenders.

As a result, there may be multiple editions of each scoring model, but lenders can choose to stick with an older version if they prefer.

FICO also creates three versions of its base FICO® scores to work with data from each of the major consumer credit bureaus: Equifax, Experian and TransUnion. The most recent edition is FICO® Score 9, though lenders may still be using FICO® Score 8 or an earlier version.

Industry-specific scores include the FICO® Bankcard Score and FICO® Auto Score. There are multiple versions and editions of these as well.

You may be able to contact a creditor and ask which credit-scoring model it uses to evaluate applicants. Even if you can’t find out, the good news is that the primary scoring criteria are similar for most FICO® credit scores. Therefore, if one of your FICO® scores is in the “very good” range, then your other FICO® scores may also be in that range.

What affects your FICO® scores?

FICO® credit scores depend on the information in your consumer credit reports, and different pieces of information may raise or lower your scores. For example, making on-time payments may help your scores, while a late payment could hurt it.

FICO breaks its scoring criteria down into five categories, with a percentage value based on each category’s importance, though the importance may vary for individuals.

ccupdateutilization-fico-2Image: ccupdateutilization-fico-2
  • Payment history (35%): Your history of paying bills is one of the most important factors in determining your scores. Your payment history includes your on-time and late payments on credit accounts, and public records related to non-payments, such as a bankruptcy.
  • Amounts owed (30%): How much you owe on credit accounts, such as installment loans and credit cards, and the portion of your available credit that you’re using (known as your credit utilization rate) together are worth about a third of your scores.
  • Length of credit history (15%): The age of your accounts — including how long you’ve had your oldest account and your newest account — and the average age of all your accounts are worth about 15% of your scores, along with how long it’s been since you last used specific accounts.
  • Credit mix (10%): This includes the types of accounts you have, such as credit card accounts, mortgage loans and retail loans. It’s not a key factor but it’s still considered in formulating your scores.
  • New credit (10%): New credit inquiries and recently opened accounts can also influence about a tenth of your scores.

While the exact percentage values differ depending on your overall credit file and the scoring model, understanding the relative importance of credit-scoring factors and what you can do to build good credit may help you improve your credit scores.


What’s next

Creditors can use FICO® credit scores to evaluate prospective customers and manage existing customers. Understanding what affects your FICO® credit scores could help you build good credit, which in turn may help you get the best rates and terms on a future loan or credit card.


About the author: Louis DeNicola is a personal finance writer and has written for American Express, Discover and Nova Credit. In addition to being a contributing writer at Credit Karma, you can find his w… Read more.

Debt settlement: Will it work for me?

Debt settlement is a service offered by third-party companies that try to reduce your debt by negotiating settlements with your creditors or debt collectors. But there are risks involved.

Although it may be tempting to use a debt settlement service to reduce your debt, it’s important to keep in mind that you could end up deeper in debt or with a negative impact to your credit.

Here’s some key information you should know about how debt settlement works, its pros and cons, and how it could affect your credit.


  • How debt settlement works
  • Debt settlement: Benefits and risks
  • Our picks for debt settlement
  • Alternatives to debt settlement
  • Next steps if you want to go ahead with debt settlement

How debt settlement works

Debt settlement companies may also be known as “debt relief” or “debt adjusting” companies. The companies generally offer to contact your creditors on your behalf, so they can negotiate a better payment plan or settle or reduce your debt. They typically charge a fee, often a percentage of the amount you’d save on the settled debt.

Learn more about different types of debt relief and how they work.

The company may try to negotiate with your creditor for a lump-sum payment that’s less than the amount that you owe. While they’re negotiating, they may require you to make regular deposits into an account that’s under your control but is administered by an independent third-party. You use this account to save money toward that lump payment.

While they negotiate, the debt settlement company may also advise you to stop paying your creditors until a debt settlement agreement is reached.

Once the debt settlement company and your creditors reach an agreement — at a minimum, changing the terms of at least one of your debts — you must agree to the agreement and make at least one payment to the creditor or debt collector for the settled amount. And then the debt settlement company can begin charging you fees for its services.

Keep in mind that there is no guarantee the company will be able to reach a debt settlement agreement for all of your debts.

How to ask for help when you’re struggling financially.

Debt settlement: Benefits and risks

There can be a few pros to debt settlement, but you should carefully consider the potential risks of debt settlement as well.

The benefits

Settling a debt through a debt settlement company could …

  • Lower your debt amount
  • Help you avoid bankruptcy
  • Get creditors and collectors off your back

The risks

But the risks may outweigh the benefits.

1. Your creditors may not agree to negotiate

Not only is there no guarantee that the debt settlement company will be able to successfully reach a settlement for all your debts, some creditors won’t negotiate with debt settlement companies at all.

2. You could end up with more debt

If you stop making payments on a debt, you can end up paying late fees or interest. You could even face collection efforts or a lawsuit filed by a creditor or debt collector. Also, if the company negotiates a successful debt settlement, the portion of your debt that’s forgiven could be considered taxable income on your federal income taxes — which means you may have to pay taxes on it.

3. You may be charged fees, even if your whole debt isn’t settled

Debt settlement companies can’t collect a fee until they’ve reached a settlement agreement, you’ve agreed to the settlement, and you’ve made at least one payment to the creditor or debt collector as a result of the agreement. But you could still end up paying a portion of the debt settlement company’s full fees on the rest of your unsettled debts, says Bruce McClary, senior vice president of communications at the National Federation for Credit Counseling.

“If you have five or six creditors and the company settles one of those debts, they can start charging a fee as soon as they receive a result,” McClary says.

And if a debt relief company settled a “proportion” of your total debt enrolled with its program, it can charge you that same proportion of its total fee. For example, if your total debts came to $10,000, and a debt relief company settled $5,000 of the total amount, it’s allowed to charge 50% of the total agreed-upon fee.

4. It could negatively impact your credit

A debt settlement company may encourage you to stop making payments on your debts while you save up money for a lump-sum payment. But at this point, your creditors might not have agreed to anything, which means all those payments you’re missing can wind up as delinquent accounts on your credit reports.

Your credit scores could take a hit as a result of any delinquent payments, and the creditor could also send your account to collections or sue you over the debt.

Debt happens for many reasons. Learn how to manage debt in five steps.

Our picks for debt settlement

We don’t recommend debt settlement as a first option because of the risks it poses. But if you’re looking for debt settlement service providers, some may be better for your situation than others. Our picks have a track record of helping customers successfully settle their debts while remaining flexible to their individual needs.

Freedom Financial

Why Freedom Financial stands out: Freedom Financial says it has resolved over $10 billion in debt since 2002. The company offers a free, “no-risk” debt relief consultation to help you decide if its program might work for you.

  • Eligible debt — Freedom Financial’s debt relief program helps settle unsecured debts, including those from credit cards, outstanding medical bills and personal loans. To qualify, you must have at least $7,500 in unsecured debt.
  • Fees — Freedom Financial doesn’t charge upfront fees. But if the company successfully negotiates a debt settlement for you, it typically charges a fee of 15% to 25% of your total debt. Fees may vary based on where you live.
  • Client dashboard — Freedom Financial’s client dashboard lets you track your payment progress so you can see how close you are to paying off your debt.

Resolve

Why Resolve stands out: Resolve is a debt management service that provides users with features such as debt settlement and negotiation as well as budgeting tools and credit score monitoring.

  • Flexible debt resolution — Resolve says it can contact creditors on your behalf to negotiate solutions to your debt, and that any solution Resolve offers you is optional.
  • Fees — Resolve charges a $17 monthly fee to use its services. If you decide to start a debt management plan, the service will match you with a credit counselor in its network. Although Resolve itself doesn’t charge a fee for each debt settlement provider you use, the providers it works with do. Your fees will vary depending on which of Resolve’s partners you work with.
  • Tools to track your finances — Resolve offers customers credit monitoring and budgeting tools to help manage spending, so you may find the app useful even after your debt has been settled.

Alternatives to debt settlement

1. Negotiate your own settlement

Try negotiating settlements with credit card companies or other creditors on your own. Offer an amount that you can pay immediately, even if it’s less than what you owe.

2. Transfer balances

If you have credit card debt, consider a balance transfer. A balance transfer is when you move debt from one credit card to another, usually to take advantage of an introductory 0% interest offer on the new card.

Balance transfer cards typically have one of these 0% intro APR offers for a specified period of time and may charge a fixed fee or a percentage of the amount you transfer.

To figure out if a balance transfer is a good idea for you, check whether you’ll pay more money on the interest payments on your current card than the cost of any balance transfer fees. And you should also try to pay the balance off before the card’s promotional period expires to avoid paying interest on your balance.

3. Seek nonprofit credit counseling

Nonprofit organizations may provide credit counseling services that offer free or low-cost advice on budgeting and debt management. Credit counseling agencies don’t typically negotiate to reduce debt. But a credit counselor may work with creditors on payment plans or to stop late fees or efforts like collection calls.


Next steps if you want to go ahead with debt settlement

Do your research. The Federal Trade Commission helps protect consumers by trying to prevent unfair business practices in the marketplace. The FTC has useful information on debt settlement that’s worth reading as you consider debt settlement options.

Pick a reputable debt settlement service provider. Before you enroll in any debt settlement program, the Consumer Financial Protection Bureau recommends contacting your state attorney general and local consumer protection agency to check whether there are any complaints on file. The state attorney general’s office can also check if the company is required to be licensed and whether it meets your state’s requirements.

The Better Business Bureau has consumer reviews of businesses that could help you as you research a debt settlement service provider.


About the author: Deb Hipp is a freelance writer with a bachelor’s degree in English and creative writing from the University of Missouri-Kansas City. When she’s not writing about personal finance and new… Read more.

Christy Rakoczy Bieber

Line of credit vs. loan: Which is best for you?

A line of credit works differently than a loan but may be a great alternative when you need funds on an ongoing basis.

You’re probably familiar with how a loan works: Once your loan application is approved, you receive your loan money as a lump sum. You’re typically required to start making at least minimum payments and will pay interest on the money you’ve borrowed right away.

Lines of credit share some common qualities with loans but offer a different way to access cash and repay balances. If you’re deciding between a line of credit and a loan, whether for your personal finances or business, those differences are important to understand.


  • What is a line of credit?
  • Personal line of credit vs. personal loan
  • Business line of credit vs. business loan

What is a line of credit?

A line of credit is essentially a reusable loan. You can borrow up to a certain limit, make minimum payments, pay interest, pay off your balance, and borrow again. You can repeat this process as many times as you like as long as your line of credit is open and in good standing.

You may be able to use funds from a line of credit by writing checks, using a card tied to the account, or requesting a transfer to your checking account. Even though the line gives you access to money up to a certain limit, you won’t be charged any interest until you borrow, or “draw,” from the available funds.

For unsecured lines of credit, you can only draw from the line of credit for a limited period of time, usually a few years, after which there is a repayment period in which you must pay off any remaining balance (typically, around three to five years).

Personal line of credit vs. personal loan

With a personal loan, you’ll begin accruing interest on the full loan balance right away and will be responsible for making fixed payments over a set period of time. With a line of credit, however, you won’t have to pay interest until you draw on the line, and you’ll only be charged interest on the outstanding balance you carry.

Having a line of credit means having access to funds you can use and repay over and over again within a certain time frame. This can be handy when it comes to big projects like a home remodel, where expected costs can shift. It could rid you of the hassle of having to find an extra source of cash when costs come up down the line.

You may, however, find it difficult to qualify for a line of credit if you don’t have the best credit, since approval usually requires that your credit be in good condition. If your credit is less than stellar, you may be able to find a personal loan you qualify for — just know that lower scores could mean higher interest rates.

Loans may be a better alternative for a number of other reasons too. They allow you to limit what you borrow to the amount you need upfront, rather than have an open balance you can draw on. And they offer the predictability of required regular monthly payments that you can budget for.

But debt could build up for lines of credit and loans if you are tempted to make just the minimum required payments while letting interest build. So before considering either option, make sure you’ll be able to repay the funds according to the terms.

plupdateloansvslinesofcreditImage: plupdateloansvslinesofcredit

Times when you may consider applying for a personal line of credit

  • You’re not sure how much money you’ll need
  • Your expenses may be spread out over a period of years
  • Your credit is in good condition

Times when you may consider applying for a personal loan

  • You know how much you need to borrow
  • You want to limit the amount of debt you take on

Business line of credit vs. business loan

Both lines of credit and loans can be useful options when managing a business, depending on your business’s financial situation and individual needs.

A line of credit, however, may offer some major advantages over a loan. It’s one of the ways to access cash on demand, which can be crucial to the success of a business.

Lines of credit can also offer flexibility when it comes to monthly payments. Typically, you can make the minimum payment, pay the full balance or pay an amount in between. But keep in mind that you’ll pay interest on any balance you carry.

But business loans can still serve an important purpose. Loans can potentially be more cost-effective than lines of credit if you know exactly how much cash you need for a project or repair. With all your loan costs known up front, a business loan offers the ability to budget for both your total repayment cost and monthly payments. And if you make those planned payments responsibly, you can avoid allowing unexpected interest to build beyond your ability to pay.

Gerri Detweiler is the education director at Nav, a company that helps businesses build their business credit and find financing. Detweiler says that business owners should be ready to shop around before choosing between a line of credit or a loan.

“Every program is different,” she says, “so just because you can’t qualify for one type of small-business financing doesn’t mean you can’t qualify for anything.”

Times when you may consider applying for a business line of credit

  • You need ongoing access to cash
  • You need payment flexibility

Learn about business credit scores

Times when you may consider applying for a business loan

  • You know how much you need to borrow
  • You want set repayment costs

Can I get a line of credit with bad credit?


Bottom line

“If you take out a loan when you really need a line of credit, or vice versa, you may wind up paying more than necessary,” Detweiler says. “That’s because you may pay interest on money you don’t use, or you may be at a higher interest rate than you could have qualified for otherwise.”

Before applying for a loan or a line of credit, it’s important to consider how much financing you’ll need in the long and short term, as well as the condition of your credit, to help you make the best decision for you.


About the author: Sarah C. Brady is a San Francisco–based financial consultant, workshop facilitator and writer. In addition to writing for Credit Karma, Sarah writes for Experian, LendingTree, Magnify Mo… Read more.

How can different types of credit affect your credit scores?

Your credit scores can feel a lot like grades from high school — and they kind of are.

Creditors use credit scores as a tool to assess your creditworthiness — i.e., whether you’re likely to pay credit issuers back if they give you money.

According to FICO, one of the major credit-scoring modelers, your FICO® credit scores are made up of five factors.

  • Payment history: 35%
  • Amount of debt owed: 30%
  • Age of credit history: 15%
  • New lines of credit: 10%
  • Credit mix: 10%

Let’s consider that last category, credit mix. The amount and types of credit you have help determine this factor.

So what are the different types of credit? And what implications can each type of credit have on your credit scores? We’ll help you figure it out.


  • The different types of credit
  • A variety of credit account types is best (but not necessary)
  • How to apply this to your credit

The different types of credit

There are three types of credit accounts: revolving, installment and open.

  • One of the most common types of credit accounts, revolving credit is a line of credit that you can borrow from freely but that has a cap, known as a credit limit, on how much can be used at any given time. It typically refers to credit cards and home equity lines of credit (HELOCs). And it usually requires monthly payments and interest charges if you carry a balance.
  • Installment credit refers to loan for a set amount of money with a fixed, regularly occurring repayment schedule. It includes a whole gamut of loans: student loans, mortgages, auto loans, personal loans, etc. This type of credit is also fairly common.
  • Open credit is rarer, and many people won’t ever see it on their credit reports. Open credit refers to accounts that you can borrow from up to a maximum amount (like a credit card) but which must also be paid back in full each month. Open credit is generally associated with charge cards — not to be confused with the credit cards used for revolving credit.

A variety of credit account types is best (but not necessary)

While it’s good to have a mix of different types of credit accounts, your credit mix likely won’t be the most important factor in determining your scores.

“Exactly how different types of credit are factored into credit scores is unknown,” according to financial blogger Lyn Alden of Lyn Alden Investment Strategy.

But there are a few common truths that we do know.

Having a mix of credit account types and paying them off as agreed can help show lenders that you’re responsible. Lenders may view you as less of a credit risk because you’re demonstrating an ability to successfully manage different types of credit and the payment systems associated with them.

This means that if you can open and maintain different kinds of credit — say, an installment loan like an auto loan and a revolving line of credit like a credit card — it may be able to help you build your credit scores.

It’s important to note that you should only apply for additional credit accounts if you plan on using the credit, not just to pad your credit reports. According to FICO, it’s “not a good idea to open credit accounts you don’t intend to use.”

FAST FACTS

Should I open a new type of credit to help my credit scores?

Not unless you actually need it. It’s generally not worth it if you don’t intend to use the account or it means you’ll end up paying extra interest or fees.

ShowHide

How to apply this to your credit

Maintaining good credit scores or building toward them isn’t just about credit mix; it’s also about managing your other credit-scoring factors, especially credit utilization ratio.

Installment loans are fairly easy to understand and manage. You generally make the same payment once a month, every month, until the loan is paid off. But revolving credit is a different beast — to a certain extent, you get to determine how much you want to borrow and pay off each month as long as you make the minimum payment. And though you have the option to pay only the minimum, it typically means you’ll end up paying interest on the unpaid amount. This allows many people to get into credit card debt traps, where their balance (the amount of money owed to the credit card company) gradually grows over time.

Increasing the amount owed to a credit issuer bumps up a user’s credit utilization ratio, the total amount of credit card debt owed compared to the total amount of available credit at a given time. The credit utilization ratio likely affects credit scores even more than credit mix. This one factor dictates about 30% of your FICO® credit score — way more than your credit mix alone.

That’s why it’s especially important to keep an eye on your revolving credit accounts. By paying off your credit card bills on time each month (another important credit-scoring factor) and keeping your credit card balances low, you can keep your credit utilization down and help your credit scores even more. Plus if you pay your balance on time and in full each month, you likely won’t have to pay any interest.


Bottom line

Keeping your debt levels low (especially credit card debt) and paying off your accounts on time are important steps you can take to help your credit scores.

Having a healthy mix of credit, such as revolving and installment credit, can also help your credit scores. Staying on top of your payments regardless of credit type can help show lenders that you can responsibly handle various types of credit.

But remember, if you don’t absolutely need to open a new type of credit account, it’s probably not worth it — just focus on maintaining good spending and paying habits on whatever existing credit you have. Your scores can still benefit from that.


About the author: Lindsay VanSomeren is a freelance writer living in Kirkland, Washington. She has been a professional dogsled racer, a wildlife researcher, and a participant in the National Spelling Bee.… Read more.

A guide to credit dispute letters

Have you ever wanted to buy a house or a car? Or open a rewards credit card?

In order to have the greatest chance at getting the lowest interest rates or best terms for any of these things, you’ll want to have the best credit scores possible.

Yet there may be a hidden obstacle that could harm your chances: errors on your credit reports. According to a 2013 report from the Federal Trade Commission, about 25% of consumers who participated in the FTC study identified errors on their credit reports that had the potential to affect their credit scores.

Credit reporting errors are surprisingly common. Unfortunately, it’s up to you to discover and report any inaccurate information in your files. Equifax, TransUnion and Experian, the three major credit bureaus, let you dispute inaccuracies on their respective consumer credit reports online or by mail. You can use your Credit Karma account to help you keep tabs on your TransUnion and Equifax credit reports, and make sure there aren’t any errors listed. You can also check for errors on your credit reports through annualcreditreport.com.

Fortunately, it is possible to get these errors removed. You’ll need to file a dispute online or write a credit dispute letter, which isn’t difficult.

There are no penalties for disputing errors on your credit reports. If you don’t agree with the outcome of a credit dispute, you can file a complaint with the Consumer Financial Protection Bureau.

Note that Credit Karma offers a Direct Dispute™ tool that can help you contest errors on your TransUnion® credit report. This tool eliminates the need to write a letter to TransUnion; however, you’ll still need to write credit dispute letters, or file a dispute online, to challenge errors with Experian and Equifax. We’ll show you how to write a credit dispute letter in this article.


  • What is a credit dispute letter?
  • What should I include in my credit dispute letter?
  • Sample credit dispute letter
  • Where can I send my credit dispute letter?
  • What does the credit dispute process look like?

What is a credit dispute letter?

A credit dispute letter is a document you can send to the credit bureaus to point out inaccuracies on your credit reports and to request the removal of the errors. In the letter, you can explain why you believe the items are inaccurate and provide any supporting documents. If your dispute is resolved in your favor, the credit reporting company should remove the erroneous items in your file and update your report.

Not all creditors report to each of the three major consumer credit bureaus, so it’s a good idea to check for errors on your credit report from each of the three bureaus.

What can I dispute on my credit report?

Here are just a few examples of items you can dispute.

  • Collections
  • Late payments
  • Bankruptcies that haven’t been removed after seven to 10 years
  • Foreclosures that haven’t been removed after seven years

Justin Chidester, owner and certified financial planner and accredited financial counselor with Wealth Mode Financial Planning, gives an example of how credit dispute letters can work.

“I had one client who had a misunderstanding around the time he obtained in-store financing for an engagement ring,” Chidester says. “He felt like they were unclear about when his payments would start, and he ended up having a 30- to 59-day late payment reported.”

Chidester wrote a letter to the credit bureau requesting that the information be deleted on the grounds that the store was “misleading about payment arrangements.” Fortunately, the credit bureau listened to him and his client’s credit report was soon squeaky clean.

What should I include in my credit dispute letter?

When you write a credit dispute letter to a credit bureau, you first need to identify your credit report — this can be a bigger task than it sounds, especially since the credit bureau in question may have information from almost everyone in the country who’s being reported on. After identifying your report, you’ll need to provide information on the error, as well as an explanation as to why you’re disputing the item. And finally, your credit dispute letter should include a request for the credit bureau to remove the item from your credit report.

By giving the bureau the necessary information, it should have what it needs to make a decision on your case.

Here’s what you should include.

  • Current date
  • Your information (name, contact info, date of birth and account number)
  • The credit bureau’s contact information
  • A brief description of the error (no need to regale them with a long and complicated story)
  • Any documents you may have that can help prove your point, such as payment records or court documents (make sure to mention that you’re sending these in the letter)
  • Instructions about what you want the credit bureau to do (reinvestigate and remove the item from your report)
  • A copy of your credit report with the error highlighted
  • A scanned copy of your government-issued ID (such as your driver’s license) and a bill or some other document to prove your address

Sample credit dispute letter

Bob Loblaw
123 First Lane
Anytown, FL 12345
DOB: 01/01/01
Account#: 1234-56789TransUnion
PO Box 2000
Chester, PA 19016

May 1, 2018

To whom it may concern:

I am writing to inform you about an error I noticed on my TransUnion credit report (account number 1234-56789).

  • Date of item being disputed: (add the date of the item here)
  • Description of dispute: (add a brief description of what is showing up on your credit report and why it’s wrong here)
  • Enclosure: (list any supporting evidence you’re sending along, such as a billing statement or a credit report with the highlighted error)

I am requesting that you remove this information from my credit report.

Thank you for your help.

Sincerely,

(sign your name here)

Where can I send my credit dispute letter?

Here are the addresses for the three major credit bureaus.

Equifax
PO Box 740256
Atlanta, GA 30374-0256

Experian
PO Box 9701
Allen, TX 75013

TransUnion
PO Box 2000
Chester, PA 19016

Make sure to keep copies of any records you send to the credit bureaus.

What does the credit dispute process look like?

Bureaucracies have a reputation for moving at a glacial pace. But credit bureaus are generally required to investigate the dispute within 30 days of receiving your letter. Better yet, each bureau is required to wrap up its investigation and notify you of its judgment within 90 days at the latest.

In some cases, the credit bureaus might ask for more information. They may also reject your claim.

“If you don’t get the answer you want the first time, don’t just give up,” says Jason Hamilton, a financial planner and author. “You may need to go back and forth multiple times. And if you know you are correct and can’t get the bureaus to agree with you, don’t be afraid to contact a lawyer.”

Chidester agrees.

“I often have my clients send in the same letter with slightly changed verbiage for a second, and sometimes third, round,” he says, going on to describe how it’s had some success with his clients. “Occasionally, on the second or third attempt, the dispute will be resolved as requested even if the first try was rejected.”


Bottom line

There’s no doubt about it — finding errors on your credit reports can be especially irksome. But the rewards of successfully disputing those errors could be well worth the trouble if it improves your credit health.


About the author: Lindsay VanSomeren is a freelance writer living in Kirkland, Washington. She has been a professional dogsled racer, a wildlife researcher, and a participant in the National Spelling Bee.… Read more.