Building Credit
LendingTree recently released an alarming study about Buy Now, Pay Later (BNPL) loans. Here are some key takeaways:
- 54% of respondents reported being late on their payments.
- 25% use these loans for groceries – up from 14% last year!
- 60% have more than one BNPL loan.
Credit Pro Tip:
FICO has announced that BNPL loans will start being included in their scoring model this fall. While it may take time for all lenders to report BNPL payment history, late payments will eventually hurt your score.
Since 35% of your FICO score is determined by payment history, it’s crucial to budget for these payments now – not when the bill comes due. The biggest trap of BNPL is convincing you that you’ll be in a better financial position later. In reality, your financial situation may be exactly the same when the payment is due.
If you can’t afford the payment today, either avoid taking on the loan or pay off an existing debt this month to free up cash flow.
On-time payments remain the single most important factor in achieving and keeping a prime credit score.
Using Credit
Mortgage rates have dropped to 6.61% for a 30-year loan – the lowest since October 2024 – fueling a 23% increase in refinance applications.
Is now the time to refinance?
With growing pressure on the Federal Reserve to lower rates even further, it’s possible we’ll see additional drops in the next six months. The best move is to get prepared now so you can move quickly when the opportunity arises.
Quick Inventory for a Smoother Mortgage Process:
- Is your credit score above 720? When did you last check it?
- Is your debt-to-income ratio below 28% for housing and 36% for all debts combined?
- Do you have liquid reserves?
- Do you know your home’s current market value? Do you have positive equity?
- Can you easily verify your income? Are your taxes filed on time?
Credit Pro Tip:
Lenders lend to those who look like they don’t need the money. If you’ve been waiting for lower rates, gather your documents now – income verification, tax returns, bank statements – so you’re ready to hand them to a loan officer immediately.
If you don’t currently qualify for prime rates, you still have time to make improvements.
Protecting Credit
Air France and KLM are the latest to report a data breach compromising consumer information, including names, contact details, and frequent flyer data.
Cybercriminals often combine data from multiple breaches to create complete consumer profiles.
This increases their chances of opening new credit accounts in your name – potentially wrecking your credit.
With breaches being reported almost weekly, it’s easy to become desensitized. But once you reach prime credit, the work doesn’t stop – it’s just beginning. Like your income or savings, your credit requires ongoing maintenance.
Questions to Ask Yourself:
- How often do you check your credit report?
- Do you have alerts set up for any changes to your credit profile?
Credit Pro Tip:
Review your credit regularly. You can get free reports from AnnualCreditReport.com or from many banks and credit unions as part of their customer perks.
