Credit Score

What is credit scoring? Credit scoring is a system creditors use to help determine whether to give you credit. It also may be used to help decide the terms you are offered or the rate you will pay for the loan. Information about you and your credit experiences,Guest Posting like your bill-paying history, the number and type of accounts you have, whether you pay your bills by the date theyre due, collection actions, outstanding debt, and the age of your accounts, is collected from your credit report. Using a statistical program, creditors compare this information to the loan repayment history of consumers with similar profiles. For example, a credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points  a credit score  helps predict how creditworthy you are  how likely it is that you will repay a loan and make the payments when theyre due.

Some insurance companies also use credit report information, along with other factors, to help predict your likelihood of filing an insurance claim and the amount of the claim. They may consider these factors when they decide whether to grant you insurance and the amount of the premium they charge. The credit scores insurance companies use sometimes are called insurance scores or credit-based insurance scores. Credit scores and credit reports

Your credit report is a key part of many credit scoring systems. Thats why it is critical to make sure your credit report is accurate. Federal law gives you the right to get a free copy of your credit reports from each of the three national consumer reporting companies once every 12 months. The Fair Credit Reporting Act (FCRA) also gives you the right to get your credit score from the national consumer reporting companies. They are allowed to charge a reasonable fee, generally around $15, for the scores. When you buy your scores, often you get information on how you can improve it. How is a credit scoring system developed?

To develop a credit scoring system or model, a creditor or insurance company selects a random sample of its customers, or a sample of similar customers, and analyzes it statistically to identify characteristics that relate to risk. Each of the characteristics then is assigned a weight based on how strong a predictor it is of who would be a good risk. Each company may use its own scoring model, different scoring models for different types of credit or insurance, or a generic model developed by a scoring company. Under the Equal Credit Opportunity Act (ECOA), a creditors scoring system may not use certain characteristics  for example, race, sex, marital status, national origin, or religion  as factors. The law allows creditors to use age in properly designed scoring systems. But any credit scoring system that includes age must give equal treatment to elderly applicants.

What can I do to improve my score? Credit scoring systems are complex and vary among creditors or insurance companies and for different types of credit or insurance. If one factor changes, your score may change  but improvement generally depends on how that factor relates to others the system considers. Only the business using the scoring knows what might improve your score under the particular model they use to evaluate your application. Nevertheless, scoring models usually consider the following types of information in your credit report to help compute your credit score: Have you paid your bills on time? You can count on payment history to be a significant factor. If your credit report indicates that you have paid bills late, had an account referred to collections, or declared bankruptcy, it is likely to affect your score negatively. Are you maxed out? Many scoring systems evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, its likely to have a negative effect on your score.

How long have you had credit? Generally, scoring systems consider the length of your credit track record. An insufficient credit history may affect your score negatively, but factors like timely payments and low balances can offset that. Have you applied for new credit lately? Many scoring systems consider whether you have applied for credit recently by looking at inquiries on your credit report. If you have applied for too many new accounts recently, it could have a negative effect on your score. Every inquiry isnt counted: for example, inquiries by creditors who are monitoring your account or looking at credit reports to make prescreened credit offers are not considered liabilities. How many credit accounts do you have and what kinds of accounts are they? Although it is generally considered a plus to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many scoring systems consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may have a negative effect on your credit score. Scoring models may be based on more than the information in your credit report. When you are applying for a mortgage loan, for example, the system may consider the amount of your down payment, your total debt, and your income, among other things. Improving your score significantly is likely to take some time, but it can be done. To improve your credit score under most systems, focus on paying your bills in a timely way, paying down any outstanding balances, and staying away from new debt.

Are credit scoring systems reliable? Credit scoring systems enable creditors or insurance companies to evaluate millions of applicants consistently on many different characteristics. To be statistically valid, these systems must be based on a big enough sample. They generally vary among businesses that use them. Properly designed, credit scoring systems generally enable faster, more accurate, and more impartial decisions than individual people can make. And some creditors design their systems so that some applicants  those with scores not high enough to pass easily or low enough to fail absolutely  are referred to a credit manager who decides whether the company or lender will extend credit. Referrals can result in discussion and negotiation between the credit manager and the would-be borrower.

What if I am denied credit or insurance, or dont get the terms I want? If you are denied credit, the ECOA requires that the creditor give you a notice with the specific reasons your application was rejected or the news that you have the right to learn the reasons if you ask within 60 days. Ask the creditor to be specific: Indefinite and vague reasons for denial are illegal. Acceptable reasons might be your income was low or you havent been employed long enough. Unacceptable reasons include you didnt meet our minimum standards or you didnt receive enough points on our credit scoring system. Sometimes you can be denied credit or insurance  or initially be charged a higher premium  because of information in your credit report. In that case, the FCRA requires the creditor or insurance company to give you the name, address, and phone number of the consumer reporting company that supplied the information. Contact the company to find out what your report said. This information is free if you ask for it within 60 days of being turned down for credit or insurance. The consumer reporting company can tell you whats in your report; only the creditor or insurance company can tell you why your application was denied. If a creditor or insurance company says you were denied credit or insurance because you are too near your credit limits on your credit cards, you may want to reapply after paying down your balances. Because credit scores are based on credit report information, a score often changes when the information in the credit report changes.

If youve been denied credit or insurance or didnt get the rate or terms you want, ask questions: Ask the creditor or insurance company if a credit scoring system was used. If it was, ask what characteristics or factors were used in the system, and how you can improve your application. If you get the credit or insurance, ask the creditor or insurance company whether you are getting the best rate and terms available. If youre not, ask why. If you are denied credit or not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information with the consumer reporting company.

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15 Tips to Rebuild Credit and Improve Scores

Credit can be a sore subject with many Americans. Rebuilding and increasing credit scores does not have to be a difficult task. Here are some quick tips that you can do yourself to start rebuilding your credit.

Millions of consumers have less than perfect credit and it can be frustrating. Credit has permeated our society and having low credit scores costs you money. Credit scores are the No. 1 determinant in a bank’s decision to approve or decline credit. You may be approved for credit even though your scores are low but you will undoubtedly pay higher interest rates. The following are tips to begin rebuilding your credit:

(1) Authorized Buyer or Piggyback Credit. Becoming an authorized buyer also known as piggyback credit can be an instant way to boost your credit score. If you know someone who has a good credit history and score and is willing to add you to their account,Guest Posting this can immediately raise your credit score. There are companies that provide authorized buyer accounts for a fee. The credit card company will report to your credit files as well as the card holders’. The downfall of becoming an authorized buyer is that if the person ever becomes delinquent, it will also reflect on your credit report. However, if this happens, you can always dispute the account and the credit bureaus will have to remove it because an authorized buyer is not financially responsible for the account.

(2) Retain Old Credit. Maintaining older credit gives you a longer credit history. This is important because credit history constitutes 15% of your overall credit score.

(3) Apply for Easy Credit. There are many companies that do not require strict credit guidelines. These companies extend credit to consumers with little to no credit history and less than perfect credit. You may have to pay higher interests rates but if you pay on time and keep your balances to less than 30% of your available credit limit, you will build positive credit. Seek credit at your local appliance, furniture, jewelry and tire stores. In addition Radioshack, Fingerhut and Chevron Gas extend easy credit.

(4) Balance Transfer. Do not transfer all your balances to one low interest rate card. You may get many offers for the best credit cards with low and even zero percent interest rates, but if you transfer all of your balances to the one card then you run the risk of increasing your balance to limit ratio. A high balance to limit ratio lowers your credit scores. You should always maintain a balance less than thirty percent of your credit limit in order to have good scores. (Amount Owed is 30% of credit score)

(5) Decrease Your Credit Card Balance. Pay down your credit card and decrease your balance to thirty percent (30%) or less than your credit limit. Your credit score will increase. The great thing about this technique is that it works whether it is a $5000 limit credit card or a $500 limit credit card, your credit scores will instantly improve.

(6) Get a Credit Line Increase. In the alternative, if you do not have the cash on hand to pay down your credit card account, request a credit line increase but don’t spend it! Many credit card issuers can increase your limit without running a credit report. Make sure you inquire before you request the credit line increase if you do not want to create inquiries.

(7) Get a Bank Loan Secured by a Savings Account. If you have at least $500 cash on hand obtain a savings account secured bank loan. Most banks and credit unions do not run credit reports when you apply for a secured loan. However, they do report these loans to the major credit bureaus, Experian, Equifax and Transunion. Bank loans rank high in credit scoring. But don’t stop at just one secured loan. Once you obtain the first secured loan, take those funds, go to another bank and repeat the process. Now you have two bank loans that will report to the credit bureaus. Make sure these loans are small enough that you can handle making at least two payments per secured loan before the actual due dates. When the banks report to the credit bureaus they will show these payments and you will have established an excellent payment history within (30) days of obtaining the loans.

(8) Get a Secured Credit Card. Secured credit is a good option for those who cannot qualify for regular credit. Not only will you have the benefits of a regular credit card but you will also get an opportunity down the line to convert that secured credit card into a regular one. The same rules apply with a secured card in that you must pay your credit card bill on time and you should keep your balances low. When seeking secured credit make sure the bank reports to all three major credit card agencies, Experian, Equifax and Transunion.

(9) Limit Hard inquiries. Hard inquiries can take up to five (5) points off your credit score. Applying for new credit will lower your credit score. Keep inquiries at a minimum. Additionally, any company that pulls your credit report without your authorization is in violation of the Fair Credit Reporting Act which allows only authorized inquiries to appear on your credit report. According to FCRA rules you are entitled to $1,000 for each unauthorized hard inquiry. (New Credit Applications is 10% of your credit score)

(10) Know the Information reported by Credit Card Companies. Make sure your credit card companies report your limit and balance. Some may only report your balance and not your credit limit. Lenders who engage in this practice may actually be causing your credit score to be lower. The scoring system will plug in your highest balance as your credit limit and if you are currently at a high balance this can be detrimental to your scores. Capital One was notorious for this practice however; in August 2007, they changed their policy and will be reporting credit limits. This means many consumers who hold a Capital One credit card may see a boost in their credit scores.

(11) Pay Obligations by the Due Date. Pay your obligations by the due date. A late or missed payment can drop a good credit score by 100 points or more. It may not make sense but if you already have negative entries on your credit report adding more will not hurt you as much as if you don’t have any negative entries. Regardless, paying on time can raise your credit score. (Payment History is 35% of your credit score)

(12) Zero Balances may Hurt Your Credit Score. Strange but true. If you have many credit card accounts with zero balances your credit score may be lower. Credit scores can be raised by maintaining a small balance (at least $10) on your credit cards.

(13) Keep Balances to Thirty Percent (30%) of Credit Limit. Do not use over thirty percent (30%) of your available credit. Keep those balances low and your credit scores will rise. Definitely do not go over your credit limit. This hurts your credit score tremendously.

(14) Request a Deletion. If you pay a collection or settle a debt make sure you obtain a deletion and not a “paid collection” entry. This also applies to paying a debt directly to the creditor. Your creditors have the power to delete the entries they put on your credit report. A paid collection and an unpaid collection hold the same negative weight because it is still a collection entry. Your credit score will not improve once you pay a collection. Always request a deletion; in fact, some collection agencies have a “deletion fee”. Basically you pay an extra fee to have the item deleted. When you negotiate a deletion always get it in writing. This is your proof and once you have a deletion letter you do not have to wait for the creditor to submit a request for the item to be removed from your credit report. You can submit it directly to the credit bureaus and they will remove the item.

(15) Re-Aging to Improve Your Credit Scores. Re-Aging is a technique used by creditors to get rid of your past-due account. You are no longer delinquent and your account status changes to “current” which increases your credit score. Request Re-Aging from your creditors. Re-Aging is a quick and free method to raise your credit scores, it gives you a fresh start. Federal guidelines dictate how creditors can re-age accounts but essentially here is how it works:

• The borrower has to demonstrate renewed commitment and ability to pay the account on time.

• The account should be at least nine (9) months old.

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