If you have ever received credit or have applied for credit, then you realize the importance that your credit score can have on the decision of the lender who is evaluating your credit application.
When the economy is in a downturn, having a good credit score is very important because lenders become more strict when evaluating credit applications and granting loans to consumers. This is just one reason that you should make sure that you have acted appropriately and completed any bad credit repair.
A credit repair service is one option that many consumers are investigating when looking to repair bad credit. These organizations specialize in correcting errors in credit reports and, for a fee; many will even stand behind their work with a 100% satisfaction guarantee.
Credit repair services that are efficient and effective can remove discrepancies from your credit report and will pull credit reports, review for errors and send out dispute letters along with documentation to the reporting agencies.
They cannot, however, remove any accurate information from your credit report. If they do promise to remove accurate information, please seek a different credit repair agency as accurate information must remain on your credit report in accordance with The Fair Credit Reporting Act.
Negative credit information such as judgments or liens will remain on your credit report for 7 years, while a bankruptcy will last for 10 years. If this negative information is accurate, no credit repair service will be able to have it removed prior to the time limit required by law.
There is no magic formula for credit repair and there is certainly no quick fix. Through contacting credit bureaus, making your own corrections, consolidating your debts and budgeting, you can improve your own score.
However, if you can’t or don’t want to do these things, then you need to pay someone to fix your credit report for you.
A good credit repair agency will follow the consumer protection guidelines and standards wet forth by the Credit Repair Organizations Act. Formidable companies will explain the rights contained within the act and offer you a contract that outlines the terms and conditions of their services.
These conditions should include the following:
- Cost of the service provided
- Guarantees offered (if any)
- Official name and business address of the company
- Details of the credit repair
- Time period before results are expected
Just as with any other service, there are great companies and there are some suspect ones. Be sure to educate yourself on your credit issues and remember that if it sounds too good to be true it probably is.
References:
Suze Orman’s FICO® Kit Platinum – Suze Orman’s Credit Repair Guide
Get Your 3 Credit Scores Online Free! – From freecreditreport.com
As consumers become more and more reliant on credit to help pay bills and get by from paycheck to paycheck, they’re being hit with a double whammy! Credit card companies are starting to reduce borrowing limits for thousands of card holders nationwide – inadvertently leading to lower credit scores.
Consumers in this situation may not even be aware of it until they apply for a mortgage or another credit card, and then get denied because their previously good credit score has plunged.
This is an unintended consequence of the unraveling of the credit market in the United States as every financial company is now trying to reduce as much risk as possible. Banks and other card lenders are trying to better protect themselves from the massive losses like those from the recent subprime mortgage meltdown.
Card Companies Reducing Their Risk
As a result, they are looking for ways to reduce their exposure to cardholders more likely to default. That’s why they are lowering credit limits, which means they are reducing the maximum amount of credit extended to an individual, along with boosting card interest rates and allowing fewer balance transfers.
“This is what they have to do at this time,” said John Hall, a spokesman for the American Bankers Association, a Washington-based trade group.
At the same time, revolving credit usage — which includes credit cards — accelerated sharply to a year-over-year growth rate of about 8 percent in recent months. That’s the fastest rate in seven years and well ahead of the 2 to 3 percent rate of growth from 2004 through 2006 when home equity lines of credit were a bigger source of cash for consumers, according to Merrill.
But as credit cards are used more frequently, bigger balances outstanding on the cards. What’s troubling is that card holders, who are faced with a number of ugly economic scenarios hitting at once, like falling home prices, sky rocketing commodities costs and a bleak employment forecast, may not be able to pay their bills.
American Express has indicated that many of its customers are falling behind on monthly payments. Some Wall Street analysts have suggested that the stock forecast that the card company in 2008 will head lower on this information.
With the unstable US Economy, card companies like American Express, Capital One and Wells Fargo are reducing credit limits on their customer’s cards.
“In the purest sense, it is the better way to manage the risk of a cardholder,” said Linda Sherry, director of national priorities for Consumer Action, a national non-profit consumer rights and education group. “But a low credit limit can also unknowingly hurt a credit score.”
Here’s how that happens: Let’s say a cardholder has a credit limit of $10,000 and a balance on the card of $4,000. The card company worries that large balance may increase the prospects for default, so it lowers the credit line to $5,000.
But in doing that, it completely changes what is known as the credit utilization rate, raising it from 40 percent to 80 percent. Credit utilization is factored into the calculation of a person’s FICO credit score, which measures creditworthiness.
Consumers Left With Lower Credit Scores
A lower FICO score makes borrowing money much more expensive. For example, someone taking out a $25,000 36-month auto loan might receive an interest rate of about 6.4 percent, making the monthly payment $765 assuming they were in the highest range of FICO scores (720 to 850) according to myFICO.com.
For those with lower scored, we can see the drastic increase when the interest rate jumps to 7.3 percent and a monthly payment of $776 with a score of 690 to 719 and as much as 15 percent or $866 a month for those in the bottom FICO range of 500 to 589.
One of the government agencies that regulates U.S. banks mandates that companies must notify cardholders at least 15 days in advance before making changes in the terms of their account, such as lowering the credit limit. However, are not required to explain how those changes could affect a person’s credit score.
That puts the burden on consumers to watch their credit score for lower credit limits and increased credit utilization. Consumers are urged to get their free annual credit report so they don’t get blindsided with a lower credit score.
Where to Get Your Credit Report?
Experian – You can get a copy of your credit report for no fee.
Credit Score Review – Free Trial! – A free trial offer that provides all 3 nationally recognized credit scores.
AnnualCreditReport.com – A government sponsored agency that provides credit reports to consumers.
All Scores Instantly FREE – Includes Credit, Auto, Insurance,and Employment Scores.
Credit Score Facts and Fiction
Raising your FICO credit score is not an overnight process. In order to get a good credit score, it takes time and commitment to follow a proven plan. There is no quick fix for bad credit, but increasing your credit score can be done.
In fact, most of the advertisements that promise quick-fix credit solutions will not work – at least over the long term. The best advice in building a good credit score is to manage credit responsibly over time. A better credit score will allow you to access the best possible rates on loans and mortgages, saving you thousands of dollars over your lifetime!
Following just a few simple tips can help to raise your credit score.
Ways of Using Credit
- Only open as many credit lines as you need.
It doesn’t usually help to open random multiple accounts to develop a better credit “mix”.
- Own and use credit cards in a responsible manner.
It is a good idea to have credit cards and use them in order to build initial credit. Using credit cards and having personal loans (assuming you make payments on time) is a proven way to build credit and raise your credit score. Lenders view a person with no credit cards and no previous credit as a higher risk than someone who has managed previous credit obligations successfully.
- Simply closing an account doesn’t make it disappear.
A closed credit account will still be identified on your credit report, and can be considered by the score.
The Importance of Payment History
- Just pay your bills – period.
Past-due payments and balances sent to collections can have a significant negative bearing on your FICO score.
- Make your payments on time – all the time.
The more often you pay your bills on time, the better your credit score will be.
- Collection accounts can linger on your credit report.
A delinquent account, even when paid in full, will stay on your report for seven years. If you have had a bankruptcy, it will stay on your report for 10 years!
- If you are having trouble making ends meet, contact your creditors directly.
Simply contacting your creditors and discussing your situation will not directly improve your credit score. However, if you work out a payment program with your creditors and pay on time, it will certainly help to increase your score in the future.
Importance of Credit History
- If you have started getting credit, only open a few new accounts.
Creditors look at the length of time that a certain line of credit has been open when assessing credit worthiness. Therefore, opening many new accounts will lower your average account age. Average account age has a more significant effect on your credit score when you don’t have a lot of other credit information.
Managing Credit Use
- Keep balances on credit cards and lines of credit in check.
Maintain outstanding debt at 50% or less of available credit for the maximum benefit to your credit score.
- Instead of transferring debt, just pay it off.
If we remember in the previous section, the percentage of total credit used that is available has an impact on your credit score. Therefore, owing the same amount of money on fewer open accounts can lower your score.
- Opening several new credit cards simply to increase your available credit doesn’t work.
This strategy may seem like it would work given that you would be using a smaller percentage of your total available credit. However, it may backfire because at some point you will have more available credit than you have the capacity to pay back with your income. This is a big red flag for creditors because if you happen to decide to use all of your credit, you will not be able to pay it all back.
Obtaining New Credit
- Shopping for new loans and mortgages in a short period of time.
The length of time between credit inquiries is a major factor in determining if a person is looking for the best rate on a new loan, or if they are trying to open several new credit accounts. FICO scores can easily identify a search for a single loan versus many new credit lines using this measurement.
- If you have had problems in the past, build your credit slowly.
Opening just a few new accounts and paying them off responsibly and on time will raise your credit score for the long term.
- Everyone should request and check their own credit report.
As long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports, getting a copy of your own credit report will not hurt your credit score. Furthermore, understanding the items on your credit report can help you to to build a good credit score.
Where to Get Your Credit Report?
Experian – You can get a copy of your credit report for no fee.
Credit Score Review – Free Trial! – A free trial offer that provides all 3 nationally recognized credit scores.
AnnualCreditReport.com – A government sponsored agency that provides credit reports to consumers.
All Scores Instantly FREE – Includes Credit, Auto, Insurance,and Employment Scores.
Do you ever wonder what the banks and other creditors are actually looking at when they pull your “credit score”? Are you at all curious as to what is actually on those credit reports and what it tells the person that you are asking for credit from? Well, It’s your right to know what credit scoring agencies are saying about you.
Finding out this information is doesn’t cost a lot and takes only minutes to do – which is a small amount of time and money very well spent. In fact, you can get your own no-cost credit report from Experian by clicking here.
What exactly is a credit score?
Simply put, credit scoring is a method of assessing the credit risk of a loan applicant. It uses mathematical models to evaluate a person’s credit worthiness based on their credit history and current credit accounts. The system was first developed in the 1950s, but has come into widespread use in just the last couple of decades.
In the early ’80s, the three major credit bureaus (Experian, Equifax and Trans Union) each developed scoring models that allowed them to offer a score based solely on the data of one individual. Creditors, especially those in the home mortgage industry, frequently use these scores when deciding who gets a loan and at what rate. However, it’s worth remembering that creditors also consider other information, such as your salary or employment history, when making loan decisions.
What are the components of a credit score?
Credit scores are reported as a number, usually in the 300-900 range. Simply put, the higher the number the better the credit score. Creditors see the credit score number as an indicator as to the likelihood that a borrower will repay the loan.
Credit scores are developed by a formula that uses the following information:
- The history of late payments
- Number of non-payments
- Current level of debt (Percentage of total credit being used)
- Types of credit lines
- Length of credit history
- Number of credit inquiries
- History of credit applications
- Poor credit behavior, such as writing bad checks
One major factor about credit scores is that they do not factor in any personal details such as race, gender and religion when determining your score. Although it is important to get a credit report from all three major credit bureaus because each one has its own method for calculating credit scores, the scoring models have been fairly well standardized so that a “600″ score at one bureau is roughly the equivalent to the same score at another.
What Is A Good Credit Score?
Generally speaking, a score of 650 or higher is indicative of very good credit, and represents a very good credit score. Individuals with a score of 650 and above will, more than likely, have the best opportunity to obtain high quality loans at the most competitive interest rates.
A credit score between 620 and 650 indicates good credit, but also raises red flags that indicate potential areas that creditors will want review before granting credit. Many lenders may request additional documentation before a loan will be approved.
Credit scores below 620 indicate previous problems with credit. A lower credit score is not the be-all and end-all as borrowers with scores below this level may find they can still obtain a loan. However, the loan application process may be lengthier and more involved as lenders identify scores below this threshold to be an indicator of greater credit risk and as such, the lender must do more due diligence to try to reduce or mitigate their risk.
Remember, it is your right to find out what your credit score is and what your credit report says about you. The ability to borrow money is very important for those of you who want to be homeowners, or would like to purchase that new car you have always dreamed about. Managing your credit score and building a good credit score is very important in borrowing money for those dreams and getting the best interest rates possible.
Additional Credit Score Resources:
The Use of Credit Scores Give More Credit Opportunities
Lenders who use credit scoring are likely to approve more loans. They can identify borrowers who, even with past problems, may perform well in the future. The use of credit scores gives lenders confidence to offer credit to more people since they have a better understanding of the risk they are taking on
Credit Problems From The Distant Past Are Mitigated
The Credit score system that is used today reduces the impact of old credit problems. According to FICO, the new scoring system balances all credit information, good and bad, in developing a credit score. This new credit scoring system allows individuals with preceding credit problems to purge those issues from their credit score more quickly.
FICO’s own information, however, shows us that a good credit history can turn bad much faster than a bad one recovers, no matter how limited the time period. Most bad credit stays on record for at least seven years, a bankruptcy for ten. There is some evidence that lenders do not even assess information from before a bankruptcy – good or bad.
The Current System of Credit Scoring Makes Lending Quicker
Mortgage brokers and lenders now often seen meeting clients in more convenient locations to produce business and originate more loans. Many lenders will now come to your home carrying laptops loaded with loan origination software, allowing them to write loans in minutes. Credit scores have become integral in aiding lenders to make these quick credit decisions. This same credit scoring technology is utilized online loan sites such as the ING DIRECT Orange Mortgage that offers great rates and easiest application process I have ever seen.
Credit Scoring Levels The Loan Playing Field
Credit scores are immune to bias due to gender, race, religion, marital status, or national origin. In addition, credit scoring aids in screening out any other subjective lending factors based on these or other biases that a lender may have.
Scoring Makes Rates Lower
It’s True!
Automated credit rating programs make lending decisions more cost efficient and many companies pass these cost savings on to borrowers to make the loan products more price competitive. This process often results in lower mortgage rates (for example) in the U.S. than in Europe.
Quick Steps To Develop A Good Credit Score
That brings us to the topic of how a good credit score can do for you and what a bad credit score can do to you.
FICO, on its website, www.myfico.com, provides a table, updated daily, of mortgage rates that one might expect based on a FICO score. This table provides a good visual example of the rate spread that one might see when applying for a mortgage or another type of personal loan – a car loan or a new credit card for instance.
Back in March, FICO provided rate estimates for a 30 year-fixed $150,000 home mortgage:
FICO
Score |
Interest
Rate |
Monthly
Payment |
| 720-850 |
5.59 % |
$860 |
| 700-719 |
5.71 % |
$872 |
| 675-699 |
6.25 % |
$924 |
| 620-674 |
7.40 % |
$1,039 |
| 560-619 |
8.53 % |
$1,157 |
| 500-559 |
9.29 % |
$1,238 |
The Value of A Good Credit Score
As we can see, there is tangible value in a person’s credit score. A $378 spread between good credit and poorer credit is a serious motivator to maintain a good credit score. It is a monthly payment difference that can make the dream of owning a home unattainable for some or, it can make the difference between owning your dream home or settling for a house that will do for now.
Essential Tips Credit Rehabilitation
First things first; if you don’t have credit then you can’t have a good credit score.
In order to establish some credit the most efficient process to go through it to Apply for an easy-to-get credit card that is great for beginners like the Discover® Open Road Card and use it – wisely. Use your new credit card for a few purchases each month, gas and groceries are common items for credit purchases, and pay off the bill immediately.
If you do not have any credit you may have to pay an annual fee to the credit card company, but this is the cost of building a good credit score. If you continue the cycle of charging a little and paying off the full balance each month, you will likely be able to have the annual fee lowered or removed. If not, apply for a new credit card with no annual fee.
How To Keep A Good Credit Score
If you have established credit, it is essential to continue to pay every single bill on time.
If you find yourself behind in payments, catch up immediately or contact the creditor and make arrangements to do so then be diligent in keeping that account current. There is some evidence that late payments as short as 30 days can leave a mark on your credit report.
Maintain Low Balances
Any time a borrower has used the entire line of credit, especially on more than one credit account, it puts the borrower’s financial stability under scrutiny and this extreme use of credit is often reflected in a lower credit score.
The Impact of Credit Inquiries
If you are shopping for a loan or mortgage, do so in a short time period. The method in which a credit score is calculated can identify someone searching for a single loan (over a short time period) and someone who is always searching for more credit. This is based solely on the time frame in which creditor make inquiries regarding your credit.
Check Your Credit Report Often
It is vitally important to check your credit history report as many as several times a year to make sure the information being reported is correct. Often there are mistakes on ones credit report that may be able to be remedied with a simple phone call. It is very difficult to correct a credit problem and build a good credit score, if you do not know the reasoning for a poor credit score.
Everyone should get a report from each of the three reporting agencies every year.
Where To Get Your Credit Report:
Credit Scores Are Important
A good credit score plays a vital role in your ability to obtain credit and maintain cashflow in the realm of your personal finances. A credit score higher than 680 should be considered a good score and would prompt banks and other credit granting institutions to offer their best rates because you are considered a low credit risk and not likely to default on the loan.
With a good score, you can receive favorable treatment from not just lenders, but also insurance companies and even landlords who choose to run credit reports on potential tenants. The advantage of having a good credit score also provides you advantages in situations that you may not even realize a credit score would be evaluated. Your credit score also plays a role in how you are evaluated for employment, investments, certain social clubs and even utility services.
Advantages of Having a Good Credit Score
In all likelihood there are many things that you will require in your life where a good credit score will come in handy. For instance, you may need to buy a car, rent a home, qualify for insurance policies and other financial matters. You must however have good credit to obtain these desires and negotiate a competitive interest rate with your financial institution. If you do have a good credit score, lenders will be more apt to grant credit to you because your credit score identifies you as a prime candidate for making timely payments. Furthermore, negotiating a fantastic interest rate is more likely the better your credit score is.
A good score is increasingly important now when finding a home to rent. You see, with the housing crisis in full swing, many people’s credit has been ruined and the landlord makes his living by getting his rent paid on time and in full. In order to make sure that he maintains his business, he prefers to rent the home to a tenant that has the capacity to pay for it. The only means available to the landlord to make this determination is look at the person’s credit history and assess the timeliness of the previous payments the tenant has been required to make. With a good credit score, the proof of the excellent payment history is determined and the landlord can be satisfied that he will receive his rent payments on time.
A solid credit history can also enhance your chances of obtaining a new job and building a career. In today’s day and age, many employers believe that the best way to judge future performance is by judging past performance. That being said, an employee who has developed a good credit score is looked favorably upon as a responsible and trustworthy individual. It also portrays you as being concise, sensible, capable of handling financial matters, and not likely to stray from work because of financial problems. Obviously, a bad credit score can send the potential employer the opposite message.
A lot of utility providers are successful because those who use their service pay for the services on time. With a good score, your telephone and internet company is likely to extend service to you on the strength of your good score. This strength will allow you to be perceived as a customer who will make payments in a diligent fashion. The power company will not hesitate to provide services to new customers who provide evidence of a good credit score. Of course, many other service providers will determine their ability to grant you access to their products and services on the basis of your credit score as well.
Additional Credit Resources:
Click Here For Your Complimentary Credit Report From Experian
