What’s Your Credit Score?

When you apply for a homeowner loan, mortgage or credit card, the lender will check your credit record as part of processing your application. A poor credit score means ‘high risk’ in the mind of the lender and can make it difficult to obtain a loan, lenders who lend in these circumstances tend to be more expensive because of the high interest charged.

It is common for lenders to request credit reports from the three main credit reference agencies, Experian, Equifax and TransUnion and use the mean score (average). Credit reference agencies are not responsible for assessing the information they hold, nor do they maintain a ‘credit blacklist’. It’s the job of the lender to assess the information and decide whether to lend or not. Although different lenders might work from the same credit report their scoring systems may be different, so you could be refused credit by one company and accepted by another.

The files that credit reference agencies maintain on all of us contain a variety of financial information; for example, a missed payment on your credit card will be visible on your credit report for 3 years, while a CCJ will be visible for six years. They also maintain details of bankruptcies, IVAs and information from the electoral roll.

However, that these credit reports can contain account histories that are incorrect, outdated and incomplete. Credit reference agencies do not verify information they receive from your creditors, the simply log it. Believe it or not, it is your responsibility to ensure your credit report is accurate and up to date.

An adverse credit rating can be expensive. Most loans and around 25% of credit cards charge a higher interest rate if you’re credit rating isn’t exactly perfect. So, it’s in your interest to ensure the details on your files are up to date and correct.  Read more...

Tags: Credit, Score, What's

Six Proven Methods of How to Build Credit and Improve Your Credit Score

When it comes to how to build credit, it’s hard to know which ways work and which ways aren’t effective. The credit bureaus are always changing the way they formulate credit scores, and nobody really knows the exact formula that FICO uses to apply a credit score to a persons file. We do however have enough information that FICO has released that lets us put together, very accurately, proven strategies to start increasing your credit score.

 

Depending on your current situation (if you’re starting with a clean slate or have had some credit related blemishes in the past) the time it will take for your credit score to increase will vary some. It’s obviously going to be much easier and quicker to build credit if there is no harmful credit marks in the past, but if there are that just means that it may take a little while longer to improve your credit score.

 

The proven strategies on how to build credit:

 

1. How to Build Credit Tip 1: Get a Secured Credit Card: It may be hard to get an unsecured credit card when you have bad credit or no credit, so you may need to get a secured credit card. These are great because they’ll report to all three of the credit bureaus, and if managed right (keeping the balances low and payments on time) you’re credit score will raise over time and create enough of a credit file to be able to get a more traditional unsecured credit card. There is a very slim chance of being turned down for a secured credit card because they will require you to give a deposit up front to secure your credit line. Ideally you’ll be able to convert these to an unsecured credit card after 12-18 months of a good payment history.  Read more...

Tags: Build, Credit, Improve, Methods, Proven, Score

What is Your Credit Score Made Of?

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When discussing about credit and finances, we often hear the term credit score. A high credit score means quick approval, access to better rates, and more opportunities. But what really is a credit score? How do credit reporting agencies calculate a person’s credit score?

You and Your Credit Score

A credit score is a three digit number that is based upon an individual’s credit report. Credit scores range from a low 300 to 850 where 300 to 600 is considered to be a low score and 650 upwards is considered as a high score. Of course, a low score makes a person a “high-risk” borrower and most lenders are not willing to approve applications from people who have a poor credit rating.

There are lenders who grant approval for people with poor credit but these transactions usually require some form of security from the borrower such as a property or an amount of money deposited and held by the lender. These deals are also often accompanied by higher interest rates, lower credit limits, and higher penalty costs to make up for the risks.

What is FICO Score?
FICO stands for Fair Isaac Company, which is the company that came up with the formula used in calculating credit scores. Although other methods are used in the past, the FICO score is the one that is widely used today.

Several factors make up a credit score. These are your payment history, level of debt, length of credit, inquiries, and types of credit contained in your credit report. Let’s take a look at each of these factors and how they influence your total credit score.

Tags: Credit, Made, Score

Home Loan Modifications and Your Credit Score

A Home Loan Modification can help you stop foreclosure and stay in your home. But if you’re like most homeowners, you’re probably wondering how it will affect your credit, and whether in a good or bad way. Unfortunately, there’s no single answer—it all depends on how far behind you are and the kind of mortgage loan modification you’ll be granted.

Best-case scenarios

Technically, since you’re not borrowing any money, a home loan modification won’t hurt your credit score. If you’re paying less in interest, you have a smaller debt burden. And since most lenders prefer an interest rate reduction, there’s a pretty good chance that a Home loan modification will improve your credit score.

The implications are even better if your lender forgives part of the principal, although this is less common. If they write off $50,000 from your loan amount, it will show up on your report as a smaller loan, which can increase your credit score.

The lender factor

Unfortunately, it doesn’t always happen that way. It also depends on how your lender reports the home loan modification to the credit bureaus. Many of them will consider it paid for less than the original amount owed, which will count against your score. If you’re already in foreclosure, the impact on your credit can be substantial. Of course, compared to a short sale or a foreclosure, a Mortgage Loan Modification is still the best way to maintain your credit standing.

Tax implications

One of the early problems with Loan modification is that the amount forgiven is usually taxable. That means if your debt is reduced by $50,000, the IRS views it as income and imposes the corresponding tax. This can catch homeowners off guard during tax season, as many of them don’t know the tax implications at the time of the modification.

Tags: Credit, Home, Loan, Modifications, Score

How to Improve Your Credit Score

To improve your credit score can seem like an impossible task. The scoring model seems to factor in tons of information and makes it seem as if you have no control over your score.

This is incorrect. If you take a few steps you can positively influence your credit score.

1. Remove bad credit items on your report. You must dispute the credit bureaus directly with either a dispute letter or by hiring a service to dispute them on your behalf.

2. Pay off any verified bad credit item on your report. In exchange for your payment have the lender remove the item from your credit report.

3. On time bill payment. It is rumored that missing a payment can damage your score up to 50 points.

4. Open a new credit line. This is best if it is a revolving line of credit, for example an unsecured credit card.

This will also help you build a positive payment history by paying your monthly bill. However if you can not qualify for an unsecured credit card then open a secured card, but make sure it reports to all 3 bureaus.

In addition try to keep your monthly balance at 10% of your available credit. Doing this shows the bureaus that you do in fact use your credit and you use it responsibly.

5. Pay off large debt. Your score will get a bump if you have high available credit to debt. The bureaus want to make sure you are not overextended and by showing them you have available credit your score will get a bump.

These are the only factors you should focus on when improving your credit score. There is one last tip that is surrounded in controversy.  Read more...

Tags: Credit, Improve, Score