The Credit Camp

FICO Credit Score Explained

It is a common misconception that you will be approved for a car loan as long as you have a good job so that you can afford the payments and if you have money for a down payment. Automobile finance companies and other lenders consider other factors when deciding whether or not to grant you a loan. One of those other criteria that they consider is your FICO or credit score.

Credit Rating

So having money and having a high salary does not guarantee that you will get the car loan you want. Your average credit score play a significant role when adjudicating credit and it is reviewed by everyone from banks to credit card companies. They use this numerical representation of your previous borrowing history to try to determine how likely you are to pay back a new loan, on time as agreed. This number is also sometimes referred to as your credit rating.

If you were late on payments in the past or you have missed any completely, this will negatively impact your credit score. The more serious the infraction the greater the effect it will have and the lower your score will be. If you have defaulted on any loans, had a vehicle repossessed, or declared bankruptcy then you will consequently have a very low credit score. The lower your score the more difficulty you will have when you go to apply for credit in the future.

Credit Bureau Reports

Each month, banks, credit card companies, automobile finance companies, and other lenders send a report to the credit reporting agencies such as Equifax, Trans Union and Experian, to advise them whether or not you paid your loan or credit card as agreed. These credit reporting companies consolidate the data and maintain a single record on all borrowers. That way when a new loan application is received by a lender, they can ask for a copy of this report. While past behavior is not a guarantee of how one will behave in the future, it is the best the creditors have to go on.

In addition to affecting your likelihood of approval, your credit score will also impact what interest rate you will be given. If you have honored all of your loan agreements and made your payments on time then you will have a high FICO score and you will be rewarded with a very low interest rate. Of course the opposite holds true as well. If you have a low score, but manage to still get approved for a loan (perhaps with a co-signer), then you can expect to pay a very high interest rate.

Other companies may use your credit score before approving you for their product or service as well. These can include utility companies, cell phone carriers, landlords and property managers.

How to Boost Your Credit Score

The average credit score ranges from 350 to 850. Having a score in the high 600’s to the low 700’s would be the least acceptable to be considered “credit worthy” by lenders. Of course you want to do everything in your power to boost your credit score and keep it as high as possible.

The first step to boosting your credit rating is to pay all of your monthly bills and debts on time. This means that when you receive a credit card statement and it has a “due by” date on it, then you must have your payment in their hands by this date. This is not the date that you can put your check in the mail, but the date by which the must have received it. Don’t wait until the last minute and risk your payment being considered late.

Make your payment even if the amount seems small or insignificant. I have seen clients who would receive a credit card statement with a $100 balance. The minimum payment would be $10. They would not bother making the $10 payment because they planned to pay off the whole amount the following month. While this may appear to make sense, the reality is that they credit card company would report that the borrower failed to make their monthly payment that month. Even though the payment was so small, it still counted and the customer’s credit score took a hit. All for 10 bucks.

Your credit score determines how easily you will be approved for credit and what interest rate you get if you are. It is a numerical summary of all of your past credit behaviors. If you want to get the best credit score possible or simply give your credit score a boost, make your monthly payments on time and do not overuse your available credit by maxing out the available balances.

Getting a copy of your online credit report is the first step in taking responsibility for your personal financial circumstances. Whenever you apply for a loan, mortgage or student credit card the lender will do a hard or soft inquiry with one of the three credit bureaus: Equifax, Trans Union or Experion. They will review how long you have had your various accounts open and whether or not there have been any late payments. They also consider how close your balances are to their respective limits.

This information is tabulated and converted to a number known as your FICO score. They then use this rating to determine first of all if you can be approved at all and then secondly how high your interest rate should be set. With so much riding on the information held by the bureaus, it is critical that it be as accurate as possible. Ordering a copy of your credit report online is the first step in ensuring that it is.

Banks love strong borrowers with a clean credit history. They will practically throw money at them with favorable terms and low interest rates. Knowing for certain what has been reported about you gives you a chance to correct any mistakes or other inaccurate information. It does happen that two individuals with the same name in a small town will inadvertently have there credit reports mixed up. The sooner these types of problems are identified the easier they are to fix.

As you sit here reading this picture in your mind what you think your FICO score is. Then when you review your online credit report compare how close you were. If your credit rating is higher than you thought, you are obviously doing the right things, like making you payments on time and not over utilizing your available credit. If you score is lower than you expected, take some time to really understand why. Then make the necessary changes in your behavior to raise your score and start reaping the rewards that go along with it. If you do find a mistake when you check your credit report online, be sure to get it corrected as quickly as possible.

The average family is buried under an overwhelming amount of credit card debt. While the minimum monthly payments may be affordable, at 18-28% interest it is like running on a perpetual treadmill. It is extremely difficult to crawl out from underneath this, once you find yourself trapped in the cycle. However there are ways to fight back and beat credit card debt.

The first thing you need to do is draw up a plan of the most efficient and cost effective way to pay down your credit card debt. This will ensure that you pay off the accounts in a specific order, thus saving you the most in interest charges.

You should begin by determining how much you can afford to pay towards your credit card debt each month. The assumes there is anything available to allocate beyond the minimum payment. If you can only afford the minimum payment or can not even afford that then we will discuss some other alternatives a little later on.

Once you have established your monthly credit card payment budget then you can set up a schedule where you are will make only the minimum payments on the cards with the lowest interest and throw the remaining amount against the most expensive card. This will result in the card that costs you the most to carry a credit card balance to get paid off first.

Once this first and most costly card is paid off, you then take the amount that you had been paying monthly towards it and divert it to the account with the next highest interest rate. The may or may not be the account with the highest balance owing. That doesn’t matter. What matters is getting the high interest rate accounts paid down as quickly as possible.

You then continue to repeat this process until you have retired all the accounts.

What if you flat out can’t afford the minimum monthly payments?

Credit card debt consolidation

Consolidating you credit card balances means taking out one new larger term loan and using the proceeds to pay out your credit card balances. This loan is then amortized over a specific period of time and instead of having to satisfy several lenders who each want a monthly payment, you will just have to make one payment. This single payment is often lower than the sum of all the individual payments which frees up monthly cash flow so that you are not forced to rely on your revolving credit to make ends meet. Additionally as the loan is not revolving, you will not be able to re-advance on it as you pay it down, so you will truly be getting ahead by reducing your overall borrowings.

Debt Settlement and Debt Workout

Two terms that essentially mean the same thing: coming to an agreement with your credit card company to accept a payout in an amount that it is lower than the total amount outstanding. A lender will consider this proposal if they truly believe that you are likely to declare bankruptcy. In most cases if you declare bankruptcy they will get nothing, so it is in their best interest to accept a reduced payout and at least collect a portion of the loan.

If misery loves company you can rest assured you are by no means alone in your struggle to beat credit card debt. There are many options available to you once you make the commitment to do something about it. You need to be realistic about your circumstances and resolve to make a change for the better. The rest will fall into place on its own.

It’s true; highlimit credit cards can boost your credit score!

There are more reasons to get a highlimit credit card than simply being able to rack up a ridiculous amount of debt. In fact the limit of your credit card can have a significant impact on your average fico score. This is because the ratio of your outstanding balances to your available credit is one of the factors used by the credit bureaus to determine your credit score. Therefore if there are two individuals with the same amount owing on their credit card but one has a higher limit than the other, all other things being equal, that person will have a higher fico score.

No one knows for sure what the tipping point is for balance owing vs. credit limit, but obviously the smaller the percentage owing the better. This is a good reason to apply for the highest limit credit card you can get. This assumes that you possess the self control to be responsible with that much borrowing power readily available. If you feel that you would tend to spend beyond your means, then this strategy for lowering your fico score would definitely not be a good idea.

As a reminder, the higher credit score you have the lower interest rates you will be eligible for. Anyone looking for debt relief will want ensure they are paying as little in interest as possible so that they can have the majority of their monthly payment go to the principal.

Of course having highlimit credit cards has its own rewards, including the ability to purchase big ticket items on the spot, without first having to go to your bank to apply for a loan. See the perfect deal on a vehicle you have been looking for? You can pay for it in full on the credit card and then determine afterwards, the most cost-effective way to structure the financing.

Also be aware that some lenders take into account the maximum credit that you have available when you are applying for a loan, so if you have a credit card with a really high limit it could inhibit the amount that you can qualify to borrow later on. So you want to find the right balance between a high enough limit that you won’t like utilize a large percentage of it, but low enough that it won’t get in the way of being approve for other loans later on.

Student credit cards are a great way to be introduced to borrowing and the responsibility that goes along with it. They help students take advantage of all the benefits that go with owning a credit card. For example convenience, rewards, safety etc. Additionally the can experience these much sooner in life. Student credit cards allow the holders to learn hands-on how this product work and the pitfalls that can accompany it, if not used carefully.

Most credit card issuers will also provide a guide that assists students in obtaining a good understanding of appropriate use. The students continue to learn every time the make a transaction and as they begin to take advantage of the associated benefits. They learn the time ordering things online can save them. Also certain items such as airline tickets to visit home for the holidays, can best be purchased for them on a student credit card.

Many students’ income is supplemented by funds from parents or other facilities. If there is a delay in receiving this money the student can use their card as a short term loan that can be repaid when it arrives. Also by using their rewards credit card to make their book purchases they can accumulate considerable points which can be turned in for other retail goods or in some cases even cash.

As these students use their credit cards they acquire a wealth of knowledge and experience that will last a lifetime. These life lessons will come in handy when they have graduated and are looking for a full featured credit card; one with less restrictions, a higher limit etc. If they have made their payments as agreed and have not been late, then they will have no problem in getting approved for one.

What is most important is that they learn and appreciate the dangers of spending beyond your means. Credit cards can be a powerful tool, but they regularly lead to problems for their holders that can take years and thousands of dollars in interest to overcome. By learning how to do things right the first time, applying for a student credit card really can be an essential first step into borrowing.

Credit card debt relief is the ultimate goal for an individual that finds him or herself in over their head. This is not simply about getting rid of outstanding balances, but also getting rid of the tremendous amount of stress that goes along with carrying them. It is about having money left over from your paycheck for yourself and not working forty hours a week to pay VISA or MasterCard. So many times we hear the echo of “If only I had a better job I could get out from under these high balances, and pay down my credit card debt faster.” Reflief from this is about getting yourself in a better place both financially and psychologically.

It is a fine line between the temporary high that comes with the instant gratification of making a large purchase and charging it to our credit card. But it is just that: temporary. The novelty of the new toy wears off and we are left with the stress that comes with seeing the balance on our statement take an even greater leap higher. A simple lifestyle change where we don’t give in to the temptation of making that purchase can help to bring about credit card debt relief.

I hesitate to flat out recommend creating a budget. The stress that comes with trying to follow a rigid spending budget can rival that of the credit card debt to begin with. But without question you need to set limits for yourself.

Sometimes simply starting over is the best course of action. If your circumstance allows it you may want to consider an interest only home equity line of credit or home equity loan. This will allow you to tap into the equity that you have built up in your home and use it to bring credit card debt relief. Many folks hesitate to remortgage for this purpose, but it is important that you realize that you already owe this money. You are not borrowing against your home for another frivolous purchase, you are simply acknowledging that if you are going to be paying interest on these funds you may as well pay the lowest interest rate possible.

There are many debt counselling services that can be found online or in the yellow pages. Please use caution with these companies and understand what they are offering and what you are signing on for. The fact is that the services these companies offer can often be carried out by the individual. The difference when deciding what to do comes back to stress and simplifying your life. If your situation has gotten that bad, it might just be worth it to hand over all of the “leg work” to a company that won’t feel the same pressure you would feel when contact your creditors to seek credit card debt relief.

Are you spending more than you are making and tired of keeping up with all your payments? You are not alone. It is a fact of life that most of us want immediate gratification and make purchases in excess of the funds we have in our checking accounts. Buying on credit is the way most of us do this. We take out loans or use credit cards to compensate for the the lack of cash on hand to pay for what we want to own right away. If it is a given that we do this, then the saying “if you can’t beat ‘em, join ‘em” applies and we might as well borrow this money as cheaply as possible. This is where having a better than average FICO score really helps you out.

When applying for credit your FICO score is very important. In fact this is often the deciding factor in whether or not you will be approved as well as whether or not you will get a low interest rate.

You should never ingore your FICO score or underestimate it’s significance. Right from the beginning it is very important to pay all of your bills on time and ensure your are meeting all of your agreed upon obligations. Nothing will lower your credit rating faster than being late or missing payments. The more responsible you are with the credit you have then the higher your rating will be and the easier it will be for you to get additional loans in the future at the best possible rates.

A high FICO credit score means that you are a low risk, and that your past behavior indicates that you are most likely to pay your accounts as agreed.

Credit scores have different ranges. If you have a score in the the low 500’s then you need to take immediate action to reverse your current behavior. You will have difficulty obtaining credit at low rates. If your score is above 700 then you should have no trouble obtaining loans and/or credit cards at very favorable pricing. If your cedit score falls somewhere in between your success will fluctuate accordingly.

Aside from the different ranges, the FICO credit score is split into five categories: payment history, length, amounts owed, new credit, and the credit type. These categories and how you measure within them have a direct correlation to your credit score.

Your credit report will have data such as what accounts, how many credit cards, whether or not you have a mortgage, term loans, unpaid accounts, collections and whether or not you have filed for bankruptcy.

However there are times when your credit report will contain errors. For this reason it is important to regularly get a copy from one of the three major credit bureaus and check for any inaccurate information. You then must take the required steps to have this information removed as soon as possible. Because if you do have a low FICO score, the sooner you know, the better. The longer it sits on there then the more difficult it will be to clear up.

The three major credit bureaus are Equifax, Experion and TransUnion.

Don’t settle for an average FICO score. This is your credit rating we are talking about and with so much depending on it you must take responsibility for it. No one else will do this for you.

Collection agencies are businesses that collect past-due bills and accounts receivable for other persons or businesses in exchange for a fee.  Collection agencies are referred to as third party agencies since they are not a part of the original contract between the merchant and the customer.  Debt collection agencies are utilized for collection of debt, collect nsf checks, collect past due invoices, collect medical bills, collect judgments and locate hidden assets including bank account searches.

Creditors typically hire a collection agency only after they have made efforts to collect the debt themselves, typically through letters and telephone calls.  Creditors typically send debts to a collection agency in order to remove them from their accounts receivable records; the difference between the amount collected and the full value of the debt is then written off as a loss.  Creditors may be able to garnish your wages in some states.

Debt collection agencies have a reputation for engaging in threatening behavior, harassment, and coercion.  Debt collectors who work on commission may be highly motivated to convince debtors to pay the debt, often to the point that they sound threatening to the debtors.   Collection agencies are required to provide a phone number which is free for the debtor to call.

Debt collectors have laws which control their activities.  Debt collection laws prohibit collectors from engaging in abusive behavior, and help open up the lines of communication between debtors and collection agencies.  Debt collection laws give you thirty days to dispute a debt.  

People may become debtors because of a lack of financial planning on their part or careless over-commitment.  Other people become debtors because of an unforeseen and uncontrollable event that disrupted their life.  Collection calls rely on repetition to motivate the debtor to pay.  As a debtor, remember you have the right to speak to the collector when it is more favorable for you.

I am back from an extended break, so stay tuned for more great Credit content coming soon.

There have been numerous questions regarding the impact of credit bureau inquiries on your credit score. Let me set the record straight.

Inquiries can be broken down into two types: hard inquiries and soft inquiries. Hard inquiries are made when you apply for a loan, mortgage or any other credit. These count against yourFICO score and remain on your record for up to two years. Too many hard inquiries will negatively impact your credit score. If you have a lots of hard inquiries on your report you appear to be a credit seeker to prospective lenders. The exception is when you may be rate shopping. All the hard inquiries within a two week period are counted as a single inquiry. This grace period allows for the times when you may be shopping for the best rate for a new loan or mortgage renewal. Multiple inquiries are generally not aproblem for someone with a high credit score, but if you are borderline it could have a serious impact on your ability to borrow or the rates that you are able to get.

The other type of credit bureau inquiry is called a soft inquiry. Soft inquiries are not factored into your FICO score. They are made when a company checks your credit report as part of a review or for the purposes of offering you a pre-approval. Also, when you check your own credit report it is considered a soft inquiry. There are various legitimate reasons why a business or even your employer my request a credit check and all of these do not lower your credit score.

Be aware of the differences between a hard and soft inquiry. When a company indicates they will be doing a credit check determine which type they will be doing. It is becoming more common for some banks to do a hard inquiry when you are simply opening a bank account. Others will do a soft inquiry. If your credit is borderline you may wish to avoid these institutions in favor those that will not do a hard inquiry.

The next time you get a copy of your credit report , which I recommend you do regularly, take note of the hard inquiries and soft inquiries you find. Have any companies pulled a hard inquiry needlessly? If they have take action on it right away. It is your score that is being affected.