In North America it seems as though if one were asked ‘how much is enough to lead a comfortable life’ the answer will always be ‘enough is a relative term or enough is never enough’.  Across North America, more people are choosing to rely on credit to live a ‘comfortable’ life. And, if people are going to rely on credit, it is even more important to have a good credit score.

This is exactly how and why the credit card and bank loan industry has been growing and thriving over the years. The booming economy, which had taken a serious dip for a period, and is now heating up again is coupled with people’s desire for a better life, a bigger house and more material goods.

We all, at some point of time, have been hounded by tele-callers who have tried to hard sell a credit card or a personal, education, or home loan to us. A large part of the population actually relies and makes good use of these available financial facilities, but many do not and it is mostly because they don’t have a good understanding of how credit works.

Explaning Credit Scores

A simplified Credit score explanation is nothing but the ability of a person to pay back a loan or a credit payment and is based on a numerical credit score range. It is normal to go through apprehensions when applying for a loan, being unsure whether a loan will get approved or what rate they will be granted. The banks that issue loans or credit cards also have to be sure of the payment capability of their customer. And, with a good understanding of credit scoring, some of the apprehension and nervousness of applying for credit will be relieved.

Based on credit scores, banks decide how much is credit is enough to be given to their client and at what interest rate. In simple terms, many banks and credit card companies determine their lending decision based solely on the credit score of an individual.

If you receive a proper credit score explanation, you will learn that a credit score is rarely constant and can change from day to day. The credit score is directly proportional to one’s payment behavior, earning capacity and credit history. The higher the credit score, the more exceptional one’s payment history and credit management ability. If one falters to make a payment, makes a late payment, or uses too much credit, it may significantly bring down their credit score.

One can easily say that scores of above 750 are considered the best where one can enjoy high credit limits, great interest rates, and the best terms and conditions. Those of 700 are considered good, yet not the absolute best. One can benefit by getting low interest rates at least with this kind of a score. 650 is a credit score that American consumers average, and with this kind of a score one can get bogged down by high interest rates. Below 600 spells trouble as people with a credit score this low tend not be eligible for a loan or a credit card, or they are approved with very high rates.

Procrastination in any form is harmful, and proves worst in the case of a late loan payment. Late payments are directly related in a negative way to one’s credit score. Delaying payments only adds to the burden of one’s debt, and can eventually lead to the scale tipping, cracking, and ending in a personal financial crisis. Developing healthy payment habits is a fantastic way to improve a credit score.

It is much easier to understand credit and work toward building a better credit score when you have received a proper credit score explanation, don’t you think?

It is true that you can also get a complete credit report, but there are certain pitfalls that you have to be aware of. Firstly, you will likely have to pay for it – the fee can be monthly or it could be a one-time fee. You could incur an even higher cost if you want to take advantage of a professional credit monitoring service.

Moreover, with some services you might not be able to get your report at any time, even though you are promised an unlimited number of them. This can occur because the information might not always be available or updated frequently to the agencies that process and calculate your credit score.

Also, even though the companies providing this type of service have taken high level security measures, you are never totally safe from identity theft.

So, instead of signing up for such a service, you can opt for a credit score estimate to get a relative idea of what your credit score is before applying for a loan or mortgage. All you need to do is to use a tool from Bankrate, which includes 10 questions that you need to answer. These are readily available online for free and they are totally safe as you are not required to fill in any personal or financial information. In fact, you can also use such a service provided by a credit score agency. After completing the survey you will be presented with an estimate of the range of your credit score. You have to take into consideration the fact that you will not be given an exact number.

Furthermore, the ranges actually differ since the different systems use different mathematical models for calculating it. In any case, it is best for you to rely on the FICO score which is the most widely used and accepted of the credit scoring models.

This number is calculated by having different weights for these different financial factors. These are your payment history (how you make your bill payments and loan repayments), credit utilization (the ratio between revolving debt and revolving credit), length of credit history and the types of credit that you use. The number of enquiries for your credit score by third parties is also accounted for. These determine your credibility as a borrower. Thus, you can expect your credit score estimate to be based on this information. This means that you have to do some calculations and check a number of your financial circumstances in order to complete the survey accurately. This is essential because even though it is just a credit score estimate, you want to get as precise as possible with the result..

Get Your Free Credit Score Estimate from Bankrate ]]> http://dividendmoney.com/credit-score/credit-score-estimate-how-to-get-it/feed/ 0 http://dividendmoney.com/credit-score/how-to-find-a-quality-credit-repair-service/ http://dividendmoney.com/credit-score/how-to-find-a-quality-credit-repair-service/#comments Sun, 19 Oct 2008 21:30:00 +0000 Tyler http://dividendmoney.com/credit-score/?p=10

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

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.

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.

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:

• See All 3 National Credit Scores & 3 Reports Instantly, Online & Free!
• Credit Score Secrets
• Why You Need A Good Credit Score
• Credit Score Review – Free Trial!