Money Management

A personal loan could be a great way to borrow, but you’ll need decent credit to qualify. Read on to see why. 

U.S. personal loan balances have been growing. As of the first quarter of 2023, they came to $225 billion, which represents a 26.3% uptick from one year prior, says TransUnion.

You may be interested in a personal loan because these loans allow you to borrow money for any purpose. And their interest rates can be far more competitive than what a credit card will charge.

But it’s important to have a good credit score as a personal loan applicant. If you don’t, you might struggle to get approved — or get approved at an interest rate that’s affordable to you.

It’s all about mitigating risk

Personal loans are a type of unsecured loan. This means that these loans are not tied to a particular asset. It also means personal loan lenders take on their share of risk by not having any sort of collateral for the loans they write.

By contrast, mortgage loans are secured. If you don’t repay your mortgage, your lender can eventually force the sale of your home to get repaid. So in that regard, your lender has some recourse.

Since mortgage loans tend to be large (after all, they’re being used to finance the purchase of a home), lenders still impose certain standards when it comes to borrower credit scores. And if your credit score isn’t great, you might struggle to get approved for a mortgage, or get approved at a competitive rate.

But it’s easy to argue that personal loan lenders take on even more risk because there’s no specific asset to reclaim should a borrower fall behind on their payments. As such, if you don’t have good credit, you might struggle to get approved for a personal loan because your lender might worry that you’re not in a good position to repay that money.

Now, there are personal loans out there for borrowers whose credit isn’t the best. But if you fall into that category, you might end up with a higher interest rate on your loan than you want, thereby negating the affordability factor personal loans are known for.

Try to raise your credit score before applying for a personal loan

Your chances of getting approved for a personal loan — and qualifying for a good interest rate on one — are higher if you have strong credit. So it pays to do what you can to boost your credit score before applying for a personal loan. You can do that by:

Paying all incoming bills and debts on timePaying off a portion of your credit card balance, especially if you’re currently using more than 30% of your total credit limit at onceAvoiding applying for new credit cards for the time beingReviewing your credit report for errors, and correcting mistakes that paint you in an unfavorable light

A personal loan could be a great way to borrow money when you need to. And the higher your credit score at the time of your application, the greater your chances of getting approved and winding up reasonably happy with the interest rate you qualify for.

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A home could be the biggest purchase of your life. Read on to learn how to get your credit in the best shape possible before you apply for a mortgage. 

A house is likely to be the most expensive purchase you make, so it’s a stellar idea to do everything possible to reduce the cost. Since your mortgage rate has to do in large part with your credit score, focusing on it is a great place to start if you’re thinking about buying a home.

And lest you think that your credit score is “good enough,” have you looked at mortgage rates lately!? According to Freddie Mac, as of this writing, the average rate on a 30-year fixed-rate mortgage loan is 7.19%. Since that’s the average, it stands to reason that lower rates are out there — and if you’ve got a great credit score, you stand a better chance at them. So here are a few tips to get your credit score in good (or better) shape before you start house hunting.

1. Recommit to making on-time payments

Okay, so this tip is an excellent one for everyone, not just those of us who are planning to buy a house sooner rather than later. Your payment history makes up a whopping 35% of your FICO® Score, and ideally, you have control over when you make payments to your creditors. So right now, make a solid commitment to making on-time payments every single month.

If you struggle with keeping your bills on a schedule, try my admittedly old-school technique. Buy a fun wall calendar, hang it where you can see it, and write all your bill due dates on it. Check them off as you pay them. Voila — over time, you will become the owner of a stronger credit score that tells lenders you’re great at making on-time payments. You could also try autopaying bills, as this takes the risk of forgetting out of the equation.

2. Check your credit report — before a lender does

As part of you qualifying for and obtaining a mortgage loan, a mortgage lender is going to get very up close and personal with your finances, including your credit report. Since knowledge is power, why don’t you beat that lender to the punch?

You can get your credit report for free every week until the end of the year, so order your copies and see what’s up. If you find errors (like accounts that were never yours), you can have them removed. If you see black marks that should’ve fallen off your report by now, same deal. These little fixes can improve your credit score.

3. Pay down debt, if possible

I know, I know — you’re about to take on a mortgage loan, so you think a little credit card debt is the least of your problems. However, cutting down your existing debt will improve your credit score, and again, you want that to be in the best shape possible ahead of applying with a mortgage lender. Plus, having fewer (or smaller) bills to cope with can really help when you’re making a new homeowner budget and learning to live with your new financial reality.

If you can take on a side hustle, it might be a good move ahead of buying a home. And it might change your life in another way. When I originally started freelancing over a year ago, it was for two reasons: to pay down debt and save money for a home. Now, I’m a full-time freelancer and I love it.

4. Avoid changes to your finances once you’ve applied

Finally, try to keep things just as they already are with your finances if you’re already in the buying process and waiting for a loan to close. This means no applying for new credit cards, no financing a bunch of furniture to fill your new home, and ideally, no changing jobs. You don’t want to do anything that will change your existing debt-to-income ratio or give your lender any reason to be nervous about you as a borrower. If you want new furniture for your new digs (I get it; I’m hoping there’s a cozy new wingback chair in my future), wait until your mortgage has closed officially.

Buying a home is a stressful experience, for many reasons — and doubly so in this difficult market. I’ll be joining the fray myself next year, and I’m already feeling anxious about it. But one thing I feel good about is my credit score. Do yourself a favor and remove credit score worries from your home-buying experience by following the above tips.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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If you’re trying to reduce your spending, a creative approach could be just the thing you need. Read on for a tip to try. 

Trying to cut spending can seem like a real drag. Obviously, you know you want more money in your checking account. But, actually reducing what you spend on purchases may seem like a constant sacrifice with no immediate upside.

The good news is there’s a creative approach you could try that just might help you make a meaningful difference in the amount you put on your credit cards each month.

Try out guilt-free spending when you save

If you want to meaningfully cut your spending, you may want to do something a little counterintuitive. You may want to keep a little bit of the amount you can cut. Specifically, you may want to “reward” yourself by allowing yourself guilt-free spending of around 10% to 20% of what you manage to save when you come in under budget.

Say, for example, that your grocery budget is $800 a month and you’re able to clip coupons, make a meal plan, and shop the sale flyers so you only spend $650 during a month. You’d have $150 in savings to do other things with. To reward yourself, you could allow yourself to enjoy guilt-free spending of 10% to 20% of that amount, so have $15 or $30 to enjoy a little indulgence. Then, you could put the remaining $135 or $120 into a savings account or brokerage account or toward whatever long- or short-term goals you’re working on.

This approach could work well if you have a hard time motivating yourself to save for long-term goals like retirement or something else decades in the future. You’ll get an immediate, tangible reward when you’re able to come in under budget so may be a lot more incentivized to make some sacrifices or do a little extra work to find that savings now.

Find an approach that works for you

Rewarding yourself with some of what you save is one way to make cutting spending a lot more fun. But there are others too.

For example, you could challenge your spouse to see who can have the most no-spend days in a month. Those are days when you don’t buy anything, or don’t buy anything except for absolute essentials. Or you could print out a picture of your long-term goals, like a photo of a lake house you want to buy, and tape it to your credit cards so you must see it every time you pull them out to purchase anything at all.

The key is, if you don’t find it really motivating to reduce spending for big goals (and many people don’t), you need to find some technique to get you motivated and excited about slashing your costs. That way, you won’t feel as if you’re depriving yourself or being forced to make unsustainable cuts. Just like deprivation diets don’t work, setting up your financial life to feel like you’re constantly deprived is likely to lead to failure in the long run.

Why not try out one of these techniques today to see if they work for you? You may just find the approach that can make cutting spending actually seem like a more fun prospect, so you can make a meaningful difference in how big your expenditures are — and how much you have left for important things.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Making a $10,000 withdrawal triggers your bank to file a report to the Financial Crimes Enforcement Unit. Learn how you can avoid problems here. 

Withdrawing money from your checking or savings account may not seem like a suspicious activity. After all, it’s your money. Even if it’s a large amount, like $10,000, who’s to say withdrawing it would call for an investigation?

Turns out, withdrawing $10,000 or more from your checking or savings will prompt your bank to file a report with the Financial Crimes Enforcement Unit (FinCEN). It sounds more serious than it actually is, but if you withdraw $10,000 frequently enough — or worse: break up $10,000 into smaller withdrawals — you could find yourself under legal scrutiny. To avoid any problems with FinCEN, here’s what you should know.

Why banks report withdrawals of $10,000 or more

Ever since the Bank Secrecy Act of 1970, banks have been required to report any transaction involving $10,000 or more to the federal government, whether it’s a cash deposit or a withdrawal. Often, a bank’s software will automatically file a Currency Transaction Report (CTR) electronically for transactions that exceed $10,000, even if you’re not aware of it.

Though it might seem like a violation of your privacy, the Bank Secrecy Act helps the federal government track and prevent financial crimes, like money laundering. When banks fail to report large cash transactions, criminal and suspicious activities can fly under the radar. For instance, between 2004 and 2007, the bank Wachovia — now a part of Wells Fargo — allowed about $400 billion in drug cartel money to flow through its banks largely because it failed to report transactions to the federal government.

When a $10,000 withdrawal can become a problem

To be clear, a $10,000 withdrawal isn’t a criminal activity per se. In fact, FINCen likely receives so many uninteresting CTRs a day, you won’t trigger suspicion through a large withdrawal alone. But there are some activities that will put greater vigilance on your bank account. The most common is called structuring.

Structuring involves breaking up a large cash transaction, like a $10,000 withdrawal, into smaller parts specifically to evade the Bank Secrecy Act’s reporting requirements. For instance, if you withdraw $12,000 in total from your checking account, but break it into three $4,000 withdrawals, the transaction might be seen as structuring.

Of course, you could have good reasons for making a series of withdrawals totaling $10,000 or more. But if you do it frequently enough, your bank could report it as suspicious activity. Once flagged, structuring can embroil you in a legal investigation. At that point, if you’re caught intentionally evading a bank’s reporting requirements — even if you’re just a private person who doesn’t want the government keeping tabs on your life — you could face criminal or financial charges.

How to safely (and legally) withdraw $10,000 or more

The best way to withdraw $10,000 or more is to simply do it. Don’t try to break it into smaller installments, or get smart and Venmo your friend half and have them withdraw it for you. If you don’t want your activities tracked, don’t do anything suspicious that will make your bank report it to FINCen.

Truthfully, unless you are engaging in something illegal, you have nothing to worry about. FINCen knows large withdrawals and deposits happen everyday, and it’s not concerned with legal cash flows. It’s only when you behave suspiciously that you could find yourself under investigation.

If you’re concerned, you can always talk to your bank. Otherwise, just keep withdrawing as you normally would, and you won’t run into any serious financial problems.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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