How Does Compound Interest Work to Grow Your Money?

Banking accounts, credit cards, student loans, mortgages, personal loans—each uses compound interest. To manage your finances successfully, it helps to have a basic understanding of compound interest and how it can work to grow your money.

So, how does compound interest work? It turns out it’s not that complicated―and you can use it to your advantage to make the most of the money you’ve got.

What is compound interest?

Let’s start with some important terms: The amount of money you put into an interest-bearing account or investment is called “principal.” So, if you deposit $1,000 of your own money into a savings account, that $1,000 is your principal. Any money you earn on top of that $1,000 is what’s known as “interest.”

Now, to understand compound interest, it helps to understand something called “simple interest.” Simple interest is interest earned only on your principal. So, if you earn simple interest on $1,000 at a rate of 5% per year, you’ll receive 5% interest (that’s $50 of extra money) every single year.

Compound interest works differently. Instead of earning interest on principal only, compound interest is earned on both the principal and the interest. Essentially, it’s interest that is perpetually earned on the full balance of your account, not just the original amount you put in.

How does compound interest work?

To further illustrate how compound interest works, suppose you put $1,000 principal into an account that earns 5% compound interest each year. So, one year from now, you’ll have $1,000 plus 5% of $1,000, which is $50. In total, you’ll have $1,050 after year one.

So far, this example is identical to our simple interest scenario, but here’s where the compounding comes into play. At the end of year two, you won’t simply earn another $50 in interest. Instead, your account will earn 5% of $1,050, which is $52.50. In total, you’ll have $1,102.50.

The table below shows how much money you’ll have after making that one-time deposit of $1000 after 10 years.

As you can see, compounding interest is a powerful tool. Your original deposit grows exponentially over time as the dollar amount that constitutes 5% grows.

Want to play around with your own interest calculations? Try using an interest calculator like this one from FinancialMentor.

How to take advantage of compounding

Obviously, stashing your money in an interest-bearing account earns you more money than you would get by stuffing it in your mattress. But what can you do to maximize the magic of compound interest?

1. Start saving early.

When it comes to interest, your greatest ally is time. In the example above, see how much more interest you earn if you’re willing to save for 10 years instead of just one? If you’re saving for long-term goals—like not having to work as much when you’re older—your best bet is to start saving as soon as possible. The earlier you start, the more time your money will have to grow.

2. Up your savings game.

If time is the most important factor in earning interest, then actual dollar bills are a close second. Simply put: the more money you save, the more interest you’ll get.

So, make saving a priority in your life, and keep it that way. Putting away a bit here and a bit there will add up over time, especially as your nest egg accumulates more interest.

3. Choose your accounts and investments wisely.

The interest rate you’re getting on your savings plays a huge role in how quickly your cash will grow over time. With this in mind, it pays to make sure you’re getting the best deal before you even start.

If you’ve been with your bank for a while, do some comparison shopping. What interest rates are other banks or credit unions offering on their savings accounts? If some or all of your money is sitting in a zero-interest checking account, look for a financial institution that offers checking with interest.

If your money is invested in the market, check in regularly to see how your assets are performing, and don’t get sucked in by the promise of sky-high returns. Make sure you’re striking a balance between your money’s potential growth and your tolerance for risk.

4. Knock down your debt.

Unfortunately, compound interest isn’t always your friend. When you have debt, compound interest works against you. Each month you carry a credit card, loan, or other unpaid balance, you’ll owe the amount you’ve charged and the unpaid interest you’ve accumulated, as well.

Your best bet is to get proactive about paying down debt faster. Pay more than your minimums and embrace a proven debt reduction strategy. Explore your options for reducing the interest rate on your debt. Jean Chatzky’s advice on negotiating with your creditors might be a good place to start. A lower rate means you’ll owe less money and get out of debt quicker.

When it comes to compound interest, there’s no financial sleight of hand. The magic happens when you make the effort to save what you can and reduce what you owe. Now that you understand what is compound interest and how it can work to grow your money, you’re on your way to taking control of your financial health.

The post How Does Compound Interest Work to Grow Your Money? appeared first on LendingClub Blog.

Source: lendingclub.com

Soft Credit Check vs. Hard Credit Check: What’s the Difference?

Despite what you may think, not all credit inquiries have a negative impact on your credit score. Do you know what is a soft credit check compared to a hard credit inquiry? Understanding the differences can help you protect your credit score and improve your financial well-being.

What’s the difference between a soft credit check and a hard credit check?

A soft inquiry to a credit reporting agency (e.g., Transunion, Equifax, Experian) means that the inquiry won’t affect your credit score because the credit bureau won’t disclose the inquiry to anyone other than you. On the other hand, a hard inquiry will show up on your credit report for others to see, and can negatively impact your credit score.

Let’s take a look at some examples of when each type of credit check is made.

Examples of soft credit inquiries

  • Checking your rate at LendingClub
    You can check your rate with us as many times as you’d like, with no impact to your credit score. No one except you will see the soft inquiries on your credit report. (Only when your loan is approved and money deposited into your account will we do a hard credit inquiry to indicate that you have officially accessed credit through LendingClub.)
  • Pre-screened offers of credit from credit card companies
    Under the federal Fair Credit Reporting Act (FCRA), credit inquiries in prescreened credit solicitations using your information from a credit bureau may not be disclosed to anyone but the consumer involved and therefore won’t affect your credit.
  • Checking your credit score with a credit monitoring site.
    Credit monitoring services such as Privacy Guard and CreditKarma are useful for keeping an eye on your finances. Just review the site first to make sure you understand how their credit check policy works—doing a soft inquiry is not a legal requirement.
  • Checking your rate with mortgage lenders to see what you qualify for before formally applying for a loan.
    A soft inquiry isn’t legally required for a mortgage “prequalification,” so make sure you ask if the credit check will be treated as a hard inquiry.
  • Credit report checks performed by prospective or current employers

Examples of hard credit inquiries

  • Completing a formal application for credit or a loan.
    Common examples include applications for a home mortgage loan, an auto loan, or a new credit card. Lesser known reasons a hard credit inquiry may appear, include:
  • New cell phone service
  • Placing residential utilities, i.e., water, gas, electricity, garbage, in your name
  • Applying for a student loan
  • Submitting a rental application for a home or apartment

How do credit inquiries affect my credit score?

Another difference between a soft and a hard credit check is that a hard inquiry on your credit may temporarily lower your score, although it will often go down by only a few points. Unlike a soft credit check, future inquiring parties will be able to see when a hard credit check is performed, as this information is part of your report. Credit bureaus will generally retain this information on your report for up to two years.

However, not all hard inquiries can hurt your credit. For example, major credit scoring company FICO says it treats all inquiries for a mortgage, an auto loan or a student loan within a 45-day period as a single credit inquiry, because this type of “bunching” of credit inquiries usually indicates that the consumer is shopping for credit to finance a major expense and, therefore, it does not reflect poorly on your credit.

While there are times when a hard credit check is necessary and unavoidable—such as for financing a car, or putting the water bill in your name—there are plenty of instances when you can (and should) avoid it. As Investopedia points out, “If you’re concerned about the impact of hard inquiries on your credit score, don’t apply for any loans or credit you don’t need. And if you want to open a new bank account or start a new cell phone contract, ask if it will result in a hard credit pull before you apply.”

The next time a sales clerk asks if you want to apply for an in-store credit card to get an extra 30 percent off your purchase—think twice. It may seem like no big deal at the time, but filling out that application may result in a lower credit score and make it harder to get a loan in the future.

> More: Read about more ways to improve your credit score.

Benefits of checking your own credit

When you check your own credit, either directly with a credit bureau or through a credit monitoring service, it should be treated as soft inquiry. A soft inquiry into your credit report won’t hurt your score and can help you identify suspicious activity before it gets out of hand.

Credit monitoring sites are useful, but obtaining your credit report directly from the source will give you all the information the credit bureau has in your file. Thanks to the Fair Credit Reporting Act, consumers are entitled to receive one free credit report from each of the three major credit reporting bureaus on an annual basis.

Regardless of whether you’re actively seeking a new loan or line of credit, you should regularly review your credit reports and pay careful attention to all new credit inquiries. An inquiry that you didn’t initiate—other than those related to prescreened solicitations—can be a sign of fraudulent activity or possible identity theft. Remember, keeping your credit on track is all about vigilance and smart spending. Checking in on your score (without it affecting your record) can help pave the way to a brighter financial future.

The post Soft Credit Check vs. Hard Credit Check: What’s the Difference? appeared first on LendingClub Blog.

Source: lendingclub.com

Do Your Future Self a Favor—Invest for Retirement

Will you outlive your retirement savings? According to the Social Security Administration, about one out of every four 65-year-olds will live past age 90,1 yet one-third of Americans have no retirement savings.2 Imagine working until you’re 90 because you don’t have the money to retire! What’s more, among millennials, the number of those who haven’t saved for retirement jumps to 66%.3

These statistics may shock you, but the good news is no matter your age, it’s never too late (or too early!) to start investing for retirement. Beyond well-known employer-sponsored retirement plans like 401(k)s, you can also invest for your future through an Individual Retirement Account (IRA).4

Consider making a LendingClub IRA part of your retirement strategy

By investing through a LendingClub IRA, you can diversify your retirement portfolio with consumer credit, combining the potential to earn competitive returns5 with the potential tax advantages of an IRA.

Diversify your portfolio beyond stocks and bonds

You’ve heard it before, “don’t put all your eggs in one basket.” By spreading your retirement funds across various asset classes, you may reduce the risk any one asset class poses to your entire portfolio.

Through a LendingClub IRA, you’ll have investment exposure to consumer credit. The most common examples of consumer credit are credit card debt and personal loans. With your LendingClub IRA, you’ll be investing in securities called LendingClub Notes, which correspond to portions of personal loans facilitated by LendingClub. The Notes are graded A-E based on the borrower’s credit profile, with A being the least risky and E being the most. Notes come with 3-or 5-year terms, and you receive payments each month as borrowers repay their loans. As an investor in Notes, you can choose the grades (A-E) and terms (3 or 5 years) you’re comfortable with.

Investing at LendingClub—how it works

Make your money work for you through reinvestment

You may be familiar with compound interest within a savings account, or dividend reinvesting when you invest in stocks. Here at LendingClub, we also offer a way to reinvest your returns, as well as your principal.  Unlike other securities, such as certain bonds where you may need to wait until maturity to get your principal back, Notes are paid off as borrowers make monthly payments of principal and interest. As these payments accrue in your account, you can reinvest both your principal and interest to potentially keep earning more. To easily reinvest, turn on LendingClub’s automated investment feature within your LendingClub account. With automated investing, every time $25 or more accrues in your account (the minimum Note investment), LendingClub will automatically invest that cash for you in a new Note according to your grade and term settings. The earlier you start investing, the more potential benefit you’ll have since any returns can be reinvested over and over until and into retirement.

An opportunity for growth by reinvesting with LendingClub’s automated investing feature

The graph above compares two hypothetical portfolios investing $10,000 over a 3-year period, in the same Note quantities, terms, and grades. The only difference is Portfolio A didn’t reinvest their principal and interest, and portfolio B did.6

Invest for your future

Whether you’re just starting to save for retirement or looking to diversifiy your holdings, LendingClub Notes could be a viable option for earning competitive returns while you prepare for your next chapter.

 

Interested in a different account type or have questions about investing with LendingClub? We’re here to help. Contact us at [email protected] or 888-596-3159.

 

 

2. Source: Go Banking Rates
3. Source: nirsonline.org
4. Contact your tax professional regarding your personal financial circumstances to determine your eligibility.
5. 3.77% - 8.03% average historical returns for loan grades A through E originated from January 2008 through March 2017. Because the likelihood of a loan charging off increases over time, historical returns include only those loans that were issued 18 months or more before the last day of the most recently completed quarter. The range in returns represents 10th and 90th percentile performance as illustrated here, for the period January 2008 through September 2018. The return is weighted based on platform issuance by grade. Historical Returns are LendingClub’s adjusted net annualized returns (“ANAR”). ANAR is calculated using the formula described here.
6. Hypothetical portfolio performance is based on assuming investment in 36-month term C-grade loans using our loss/pre-pay forecasts to project cash flows and calculate returns. Projected Returns are not a promise of future results and may not accurately reflect actual returns. Actual returns experienced by any individual portfolio may be impacted by, among other things, the size and diversity of the portfolio, the exposure to any single loan, borrower or group of loans or borrowers, as well as macroeconomic conditions. Individual results may vary and projections are subject to change. The information presented is not intended to be investment advice, guidance, or a guarantee of the performance of any loan. Past performance is no guarantee of future results.

The post Do Your Future Self a Favor—Invest for Retirement appeared first on LendingClub Blog.

Source: lendingclub.com

Doing What’s Right: Gender Diversity at LendingClub

We at LendingClub are a team of smart, dedicated people from a diverse set of backgrounds and experiences, including race, ethnicity, culture, gender identity and much more. We work hard to maintain a culture where everyone is accepted and different perspectives are heard.

That’s why we’re proud to announce that LendingClub has been selected to be part of Bloomberg’s 2019 Gender-Equality Index, which recognizes 230 companies, of which 96 are financial firms, for their commitment to transparency in gender reporting and advancing women’s equality. The index includes companies from 10 sectors, headquartered across 36 countries and regions. Collectively, these companies have a combined market capitalization of USD 9 trillion and globally employ more than 15 million people, of which 7 million are women.

While we’re always looking to do more, this recognition is a testament to our ongoing commitment to advancing women in the workplace and our belief that we perform at our best when our workforce reflects the broad diversity of customers we serve.

Leadership diversity

We’ve worked hard to make sure our executive team and board of directors are diverse in terms of gender, ethnicity, and industry backgrounds, and we currently have two women serving on our executive team and three women on our board of directors. We have an active internal women’s network led by our Chief Capital Officer and Chief People Officer that focuses on development, mentoring, and recognition programs. In 2018, we piloted a women’s leadership development program to ensure our high-potential female employees have the tools and support they need to advance their careers with LendingClub.

Unconscious bias

Foundational to our diversity and inclusion strategy is raising individual awareness on unconscious bias and provide tools and resources to help our people proactively manage those biases. To that end, we provide online training and live workshops to provide opportunities for discussion and skill building.

Leadership commitment

We launched a cross-functional Diversity & Inclusion Steering Committee dedicated to setting strategy and adopting best practices to drive inclusion, diversity, and belonging. In addition, each member of our executive team receives a biannual scorecard that helps them monitor race and gender representation within their teams. Furthermore, each of our six employee resource groups has an executive-level sponsor who provides support and champions key initiatives and speaks at employee events.

Hiring diverse talent

For our open roles, we strive for a 50% diverse candidate and interview slate. We also provide training and resources for hiring managers and interviewers on ways to mitigate unconscious bias during the interview process, which can help provide a consistent candidate experience.

Start your career with us

We are helping millions of Americans take control of their financial lives. We strive to treat people with respect and fairness, and that ideal shapes how we work, how we treat each other, and how we invest in our employees and our community. Join us in using data, bold thinking, and a commitment to innovation to help put millions of Americans on a path to financial success. Search for available openings in our Careers page.

The post Doing What’s Right: Gender Diversity at LendingClub appeared first on LendingClub Blog.

Source: lendingclub.com

How to Stick to a Budget: 6 Fixes for Common Problems

Determined to stick to your money goals? Having a budget is your first line of defense. A good budgeting plan can help you set your priorities, manage your debts, and focus your money where it matters most.

There are six major obstacles that budgeters routinely face when trying to plan for their financial future. Ready to troubleshoot your pain points? If you’re struggling to figure out how to stick to a budget, we’ve broken down the easiest ways to jump those hurdles and stay on track.

Problem #1: You don’t have a budget.

Getting started is the hardest part. We get it. If you’ve been putting off actually making your plan, you’re not alone. Maybe you’re unmotivated because you think it’s too difficult a task. Maybe you’re convinced that a budget needs to be super detailed and complex. Or maybe you just don’t know where to start. Whatever the reason, here are some ways to solve for it.

Solution: Make it simple.

There’s no such thing as a perfect budget. The fact is: any budget is better than no budget at all. Not to mention, it’s easier than you think to create a budget specifically tailored to your situation. Don’t want to start from scratch? Grab a done-for-you budgeting worksheet created by financial experts. (Try one of these easy budget templates from the makers of Mint.)

Problem #2: You can’t remember your budget.

So, you created a budget…and then you dropped it in a drawer. Now, when you’re shopping, you can’t remember how much you allocated for groceries or entertainment which leads right to overspending.

Solution: Put it front and center.

Unless you plan to memorize your entire budget, take it with you wherever you go. Keep a printout in your wallet or store it on your phone. Having it in your pocket will be a subtle reminder to pause before spending. At first it might feel restrictive to consult your budget before spending. But it’s a lot smarter than realizing there’s not enough money in your bank account to cover your bills at the end of the month.

Problem #3: Your budget doesn’t work with your life.

Are you finding your budget doesn’t have enough money allocated to the areas where you seem to need it most? Are you feeling completely deprived? If you’ve tried sticking to a budget and are ready to fall off the budgeting wagon, it probably means you created a budget that doesn’t fit your lifestyle.

Solution: Make it realistic.

Your budget needs to be tailored to your life, or you’ll never be able to stick with it. If that’s not the case at the moment, there’s no time like the present to tweak your plan accordingly.

Did you allocate only $50 a week to feed your family of four? Did you overestimate your ability to go cold turkey on your caffeine addiction by eliminating your entire coffee budget? If so, it’s time to rework the numbers. Alternatively, you might have had a budget that used to work, but your habits changed and now it doesn’t.

Give yourself some time for trial and error to get your budget working for you again. And making adjustments along the way is totally okay. It helps to do a quick review every few months or so to ensure your plan still aligns with the way you’re actually living your life.

Problem #4: You’re addicted to plastic.

Credit cards can make money seem unlimited. It’s easy to swipe your card, easy to enjoy a purchase, and easy to forget about the cost until the bill comes. Whether it’s a trip to the grocery store or an online shopping spree, credit cards can be an absolute killer when it comes to sticking to a budget.

Solution: Switch to all-cash.

If you’re a self-admitted cardaholic, give the envelope method a try. It’s a super-simple system where you designate one envelope for each spending category in your life—food, clothes, gas, entertainment, etc. Then you stuff each envelope with cash equal to the amount you’ve budgeted for that category. It’s simple: You can’t spend what you don’t have in your envelope.
What if you need a credit card to pay an unexpected bill or purchase an airline ticket? Just transfer the amount you’ve budgeted to a card that’s linked directly to cash. Try a debit card that’s connected to your checking account or a prepaid card.

Problem #5: You’re an impulse spender.

Even if you stick with all-cash spending, there’s no guarantee you won’t spend it too quickly. That can leave you with next to nothing to get you through the month.

Solution: Plan purchases in advance.

Grabbing the nearest take-out whenever it’s time to eat? Instead, get real serious about meal planning, so you always have at your fingertips the ingredients you need to make a simple, cost-effective breakfast, lunch, or dinner. (Rosemarie Groner, founder of The Busy Budgeter, offers a brilliant, step-by-step approach to meal planning.)

What if you can’t resist online shopping? Put the item in your cart—then wait at least 72 hours. You will likely change your mind about making the purchase. Maybe you will realize the cost isn’t worth the hit to your budget. Or, you don’t like those pants anymore. Sometimes, you’ll just forget about wanting the item altogether.

Problem #6: You feel isolated.

Plenty of Americans live on a budget, but most people don’t talk openly about money. Many people on a budget feel that they’re struggling on their own without any help or encouragement. That’s not a good feeling.

Solution: Find a budgeting community.

A finance-focused friend or, even better, an online budgeting club like And Then We Saved—Where Saving Doesn’t Suck can be a crucial step toward mastering your budget and your money. Others with a budgeting mindset will share what’s worked for them, let you see their missteps, lift you up, and gently hold you accountable when you aren’t doing your best. Finding others who are in the same boat can be a lifesaver—especially when in-person get-togethers aren’t an option.

Sticking with your budget is not too difficult once you put your mind to it. And by keeping these tips in mind, you’ll side-step some of the biggest obstacles.

The post How to Stick to a Budget: 6 Fixes for Common Problems appeared first on LendingClub Blog.

Source: lendingclub.com

Budgeting 101: Tips for Financial Success

It doesn’t matter if you earn a little or a lot. Understanding and putting basic budgeting techniques into practice can take you from where you are today, to where you want your finances to go in the future. So, gather around—it’s time for Budgeting 101.

Do I need a budget?

If you’re someone who spends or makes money—you need a budget. It’s a simple fact. We all need to understand how much money is coming in, and how much is going out. It sounds tedious, but before you dismiss it, take a look at these perks:

  • Know where your money is going
  • Get a better handle on your overall finances
  • Uncover hidden cash flow problems
  • Set and reach your financial goals
  • Save money for the future
  • Get out of debt faster
  • Create financial peace of mind

If these benefits sound good to you, it’s time to create a plan—one that is simple and actionable. Here are our most basic budget tips so you can start enjoying the perks of budget-friendly living.

Budgeting 101: Easing into budget-friendly living

Creating and following a basic budget is one of the most beneficial things you can do for your current and future self. And like any other lifestyle change, it will take time to get used to living on a budget.

To improve your odds of success, ease into it by following these budgeting 101 tips:

1. Start simple.

A basic budget doesn’t have to be super detailed or fancy, and it shouldn’t take hours or days to create.

Start by keeping track of how much you spend over one month in basic categories like rent/mortgage, utilities, vehicle, food, household expenses, personal items, and entertainment. The more accurate you are in tracking current expenses, the more accurate your budget will be.

2. Save receipts.

Your credit card and bank statements will tell you how much you spent at a store but won’t break down an itemized list of your purchases. Trent Hamm, founder of The Simple Dollar, drives home this point with the following budgeting 101 advice:

“If you spend money in any way, record it in some fashion by saving the bill statement, a copy of the check, a receipt from the shopping trip, or even by simply writing it down on a sheet of paper. Every single penny should be accounted for.”

Using this method will help you track spending habits more accurately and provide insight into which spending categories are most relevant to you.

3. Know how much you’re bringing in.

Among other things, a budget will help you make the best use of your income. It’s absolutely integral to know what your income is and how much money you have coming in every month. Add up your wages, money from side gigs, spousal support, child support, business income, and investment income. If your monthly income varies, make a close estimate based on an average of the past few months.

4. Use online budgeting tools.

There are dozens of credible websites offering free, interactive online budgeting tools and basic budgeting worksheets. Find one you like and use it.

5. Cut spending.

Now that you’re tracking your expenses, try to identify places where you can cut back. Maybe you aren’t using your gym membership as much as you used to or, maybe you have other monthly recurring subscriptions you’ve neglected to cancel. At least once a year, look into lowering other bills such as cable, insurance, and cell phone service.

6. Don’t give up.

According to Phillippa Lally, health psychology researcher at University College London, it takes the average person 66 days to form a new habit. In the beginning, following your budget will be difficult. Stick with it. Pushing through the initial few months will be well worth the effort, especially when budgeting becomes second-nature. If you get stuck, check out these tips on how to stick to your budget.

Improve your financial health with a basic budget

Whether you know it or not, your financial health is affecting your quality of life. Creating and following a basic budget can help improve your financial health and positively impact other areas of your life. Try scoring your financial health to see where you stand, then set goals to keep your budget and personal finances on the right track.

The post Budgeting 101: Tips for Financial Success appeared first on LendingClub Blog.

Source: lendingclub.com

How to Improve Your Credit Score: Our Favorite Hacks

An awesome credit score can give you access to the best credit cards, the best personal loan terms, and ultra-low interest rates on auto and home loans. A bad score? It will severely limit your lending options, force you to pay sky-high interest, and may even prevent you from qualifying for that home or apartment rental.

Developing healthy credit habits can help you feel in control of your finances—and feel more satisfied in other areas of your life. And fortunately, the power to get back on track is in your hands. If you’re wondering how to improve your credit score and credit history as quickly as possible, these easy steps will help you get there.

1. Pay every bill on time.

More than a third of your credit score is based on how well you pay the bills that are reported to the credit bureaus. In fact, paying your monthly credit card or loan payments late even a few times can knock valuable points off your score. So, the single best thing you can do to beef up your creditworthiness is to ensure you pay at least the minimums owed.

Need some help sticking to a schedule? Try these hacks:

  • Alert yourself Use technology to your advantage. Log into your loan or credit card accounts and set up notifications. You can choose text or email notifications when a bill’s due date is approaching.
  • Set up automatic bill pay Have your credit card or lender automatically pull the payment owed from your bank account before the bill is due.
  • Align your payment dates Check with your lenders to see if they’ll allow you to change your monthly due dates. It’s much easier to remember one or two due dates a month than to keep tabs on 10.

2. Use less credit.

How much of your credit card limit are you currently using? That percentage is called your credit utilization ratio, and—if it’s more than 30%—you’re likely hurting your score. In fact, studies show that people with the highest credit scores routinely use well under 10% of their available credit.

Your credit utilization ratio weighs heavily in the calculation of your credit score—almost as much as your bill payment history. So, try these tips to minimize your ratio and improve your credit score:

  • Charge less If swiping your plastic too often is driving up your credit utilization ratio, try a different payment method whenever possible. Pay with a debit card, initiate a bank transfer, use PayPal, or use plain old cash for your transaction.
  • Pay down debt Any balance you carry on your cards adds to your utilization ratio. If you’re struggling with high-interest debt, try a proven strategy for paying off your debt faster. Maybe consider consolidating your credit card debt at a lower interest rate.
  • Pay more than once a month Even if you pay your card off every month, your usage throughout the period figures into your credit utilization ratio. If your ratio is too high, consider paying down your balance twice a month instead of just once. The additional payments will allow you to keep your utilization ratio extra low.

>> MORE: Score your financial health. Take our quiz and learn what steps you can take to get on track.

3. Request an increase to your credit limits.

Remember: Your credit utilization ratio is the portion of your credit that you’re actually using. For instance, if you charge $2,000 to a card whose limit is $5,000, your ratio is 40%.

As you’ve seen, you can reduce that $2,000 balance to decrease your utilization ratio. But you can also lower your ratio by increasing your credit limits.

Here’s an example: Suppose you’re still charging $2,000 to your card. Only now, your limit has increased to $8,000. So, your new credit utilization ratio is just 25%. Keep in mind that requesting an increase to your credit limit might initiate a hard inquiry to your credit reports. This might impact your credit score in the short term, but as long as you’re keeping your spending the same (or lower) and practicing good credit habits, it should bounce back quickly.

Check with each of your creditors to see if you’re eligible for an increase to your credit limits. (If you’re not, find out when you will be.) Acclaimed financial blogger Holly Johnson offers some excellent advice on The Simple Dollar for knowing how to time your request.

4. Leave your old cards open.

Great credit takes time to build. Potential lenders want to see that you have a long history of being responsible with debt. Credit cards that you’ve carried for years can offer some of that evidence.

As a result, think carefully before closing an old credit card. Even if you barely use it or have switched to a new card, the age of your old card actually contributes to a better credit score. Not to mention, shutting it down could make it seem as though you’re newer to the credit scene than you actually are. Whenever possible, leave that card open, but be mindful of any annual fees when considering your options.

5. Stay vigilant.

Once you’re on top of your financial game, building great credit is simply a matter of time and dedication. Over the years, responsible spending and repayment will do the work for you. Even so, it’s important to monitor your progress along the way.

Start by keeping tabs on your credit score. These days, most major credit card companies offer you a free look at your score every single month online and on your statement. Many will even alert you if there’s a significant change from one month to the next.

Second, check your credit report regularly. Each year, you’re legally entitled to view your free reports from each of the three credit reporting agencies—Equifax, Experian, and TransUnion.

Beware: mistakes on credit reports are common and can cost you valuable credit score points. Make sure to investigate and double-check that your information is accurate.

If you do find an error or suspect fraud, contact the credit bureau to dispute the data. Each agency is required by law to remove false information from your report. (If you need more details on the process, check out Clark Howard’s step-by-step explanation.)

Finally, hang in there. Even if you’ve made some credit-damaging mistakes in the past, their impact will fade over time. Even major black marks like foreclosures and bankruptcies affect your score less as the years pass. Within 10 years, they’re completely forgotten.

6. Be patient.

No matter where you’re starting from, applying these valuable steps now to increase your credit score will make a difference. Like anything that is worth doing, building your credit score takes time. So, the sooner you incorporate these practices into your everyday life, the sooner you’ll be on your way to an amazing score and a brighter financial future.

The post How to Improve Your Credit Score: Our Favorite Hacks appeared first on LendingClub Blog.

Source: lendingclub.com

5 Questions and Answers About the New Congress’s Impact on Fintech Lending

We sat down with Richard Neiman, Head of Regulatory and Government Affairs at LendingClub, and Armen Meyer, VP for Regulatory Strategy and Public Policy at LendingClub, in December to discuss the impact of the U.S. midterms on the fintech industry. Read on for their assessment of the post-election landscape.

The Democrats now control the House of Representatives for the first time in eight years. What can we expect?

In an uncommon twist, while Democrats took over the House, the Senate became more Republican, which will likely mean even more gridlock in Congress. We especially think the odds of getting a consensus on big-ticket items under consideration such as a middle-class tax cut and an infrastructure bill are pretty low.

What legislative impacts might we see?

Due to the divided legislature, Democrats’ impact will be felt more in launching investigations and holding hearings, not passing legislation. Within the financial services industry, we expect their focus to be on the Consumer Financial Protection Board (CFPB) and large customer-facing banks, given perceptions of customer mistreatment. Credit bureaus may also see more scrutiny.

Legislative optimism is limited to the IRS API bill that passed the House last year. We expect it to have momentum in the new Congress. Also, while Democrats and some Republicans will want to take up data privacy legislation, this is a wild card. With states (e.g. CA) acting on their own though, the two sides might be forced to agree on something despite the gridlock.

Maxine Waters is the new Chair of the House Financial Services Committee. What can we expect from her?

Waters is progressive. We expect her public statements to be more critical of the impact of deregulation, especially perceived rollbacks at the CFPB as well as on big banks and credit bureaus, rather than on marketplace lending specifically. While she has expressed the view that marketplace lending can expand access to credit to underserved populations, she and other progressives will keep an eye on applicants for the Office of the Comptroller of the Currency’s fintech charter and associated financial inclusion plans.

What changes should we anticipate from the shifting political landscape on marketplace lenders?

Despite the change in the House, the main action will remain at the regulatory agencies. In Congress, marketplace lenders are well-positioned for a Waters’ chairmanship. Waters is aware of our industry group, the Marketplace Lending Association (MLA), which distinguishes itself from the high-priced products and aggressive practices that concern progressives.

LendingClub and the other MLA members have committed to offer the most transparent products, including voluntary caps on APRs, no balloon payments, and fixed installments.

Additionally, in the small business lending segment, an area of focus for Waters and other Congressional progressives who appreciate its potential to revive communities, LendingClub has five times the representation of minority-owned firms, and four times the representation of women-owned firms versus bank conventional lending, by dollar amount1.

How do regulators view LendingClub and marketplace lending generally?

The U.S. Treasury issued a major report last summer that indicated that marketplace lending is good for the economy and helps expand access to credit. It also recognized the value of the industry’s model of partnering with originating banks. Since the report, key Treasury officials have often spoken about fintech’s benefits. These are all positive signs since Treasury helps set the tone among federal regulators.

Also, two new studies by Philadelphia Federal Reserve Bank researchers and one by a Philadelphia Fed researcher and Rutgers University, using LendingClub data as a proxy, find that marketplace lenders price risk better2,3 and expand access to credit4. Treasury, citing one of these studies, singled out LendingClub as an example of a marketplace lender expanding credit access and pricing risks better than credit card companies do.

1. LendingClub’s small business program from 2015 to 2017, demographics estimated using BISG analysis, compared by dollar with bank conventional loan programs cited in 21st Century Barriers to Women’s Entrepreneurship by the U.S. Senate Committee on Small Business and Entrepreneurship (July 2014) and Competitive and Special Competitive Opportunity Gap Analysis of the 7(a) and 504 Programs by Kenneth Temkin, et al, of the Urban Institute (January 2008).

2. Jagitani, J. and C. Lemieux, Federal Reserve Bank of Philadelphia, Working Paper 18-15. April 2018. https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2018/wp18-15.pdf

3. Hughes, Joseph P., Jagtiani, Julapa, and Moon, Choon-Geol, Consumer Lending Efficiency: Commercial Banks Versus A Fintech Lender, (October 2018). https://philadelphiafed.org/-/media/bank-resources/supervision-and-regulation/events/2018/fintech/resources/paper%203_hughes_jagtiani_moom_lending_club_and_bank_lending_efficiency.pdf?la=en

4. Jagitani, J. and C. Lemieux, Federal Reserve Bank of Philadelphia, Working Paper 18-13. March 2018. https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2018/wp18-13.pdf

The post 5 Questions and Answers About the New Congress’s Impact on Fintech Lending appeared first on LendingClub Blog.

Source: lendingclub.com

The State of Small Business in 2019

For the second year, LendingClub has partnered with Guidant Financial to conduct a State of Small Business survey to better understand the mindset of entrepreneurs across America. Over 2,700 current and aspiring business owners lent their voices to the survey, responding to questions ranging from their economic and political outlook for 2019 to challenges they faced as business owners. The infographic below is a snapshot of the key data that emerged from the survey.

Stay tuned throughout the year as we publish more granular findings, including emerging trends across demographics such as Millennials and women in business.

If you’re a business owner looking for capital to invest in your business, we encourage you to consider a business loan facilitated by LendingClub. It takes just a few minutes to get a quote, there’s no cost, and no impact to your credit score to apply.

The post The State of Small Business in 2019 appeared first on LendingClub Blog.

Source: lendingclub.com

How (and Why) to Make Money a Hot Topic this Holiday Season

With all the wonderful traditions associated with December holidays, one has become much more uncomfortable over the past few years: the almost inevitable occurrence of political debates and disputes. A survey conducted by Reuters last year illustrates the discomfort associated with the topic in a holiday setting: 31 percent of adults said they would deliberately avoid political conversations with family and friends over the holidays, while another 48 percent said they typically decline to participate in these discussions altogether.

Let’s take political talk off the table and discuss something else: money. Families often try to steer clear of awkward financial conversations. For example, Americans are twice as likely to share marital issues than credit card debt with others.

Money: The Last Taboo

Although it feels taboo to discuss, it’s an important conversation to have considering 60% of Americans have revolving credit card debt and two-thirds of Americans have no consistent savings plan or have abandoned savings altogether. That’s a big problem as we enter the highest spending months of the year!

While most Americans believe money discussions are important, few actually have them. As our recent financial health survey shows, the majority of Americans declared they prefer to keep issues about their financial decisions and debt to themselves. Wage stagnation, rising costs, and the changing nature of work have contributed to 138 million people in this country—more than half of Americans—being considered financially unhealthy

What this majority doesn’t realize is that sharing and talking about money is actually better for you and everyone around you. Our survey found:

  • Those who discuss money and debt with others are more likely to feel like they have better relationships with others and are not isolated.
  • They prioritize other aspects of their health and well-being.
  • The majority of Americans would gladly change their social plans and find less expensive options if they knew someone was struggling financially.

It is important to talk about money openly in your household. It is also a good way for your kids or other children at the table to learn about financial literacy. No matter what financial topic your family needs to tackle, here are some tips on how to open up the dialogue.

How to Open Up about Money this Holiday Season

Answer “How You’ve Been” with a money twist. A great way to launch a money conversation is by giving a life update to your relatives with a financial spin. For example, maybe you are saving towards something, working side jobs for extra cash or paying down debt. It may prompt some great money conversations and get your family members to open up about their recent money moments.

Spend time with your loved one without breaking the bank. In a recent study from CFSI, 30 percent of Americans said they have more debt than is manageable. Instead of shopping for those holiday deals, consider prioritizing experiences over gifts. Avoid high-interest credit card debt and talk about how to set a realistic budget for the holiday season.

(PS: If your family is part of the 65% that still has credit card debt from last holiday season, consider taking out a personal loan. It’s an easy and affordable way to refinance high-interest credit card debt into one low fixed-monthly payment.)

Stay goal oriented. 42 percent of respondents in the CFSI study said they have no retirement savings at all. Setting realistic money goals with a support system to hold you accountable, such as setting aside a small amount of money every month, could help you achieve your 2019 financial goals. Encourage each other to save for unexpected emergencies and consolidate debt to pay it off responsibly.

Whoever you’re spending the holidays with, take the opportunity to listen to and support each other’s financial goals. It will bring you one step closer to kicking off 2019 with a healthy and happy financial mindset.

The post How (and Why) to Make Money a Hot Topic this Holiday Season appeared first on LendingClub Blog.

Source: lendingclub.com