What You Don’t Know About Your Credit

If you’re like many people, you may not know exactly what a credit score is or understand how it affects you. Does this description apply to you? Then this article is for you! Your credit worthiness is determined by your credit scores. “What is my credit score?” is an important question you should ask yourself if you want a line of credit or a loan.

By doing a bit of research, you can discover where you stand when it comes to your credit score.You can find out which of two categories you fall under. If you’re in the “bad” category, you won’t have an easy time getting a loan so that you can purchase a new car or a new home.

It is for this reason that it’s so important to keep tabs on your credit score.

Your credit score is one of the first things any company will look at before they give you a line of credit. Your buying power and buying future is largely determined by the state of your credit score. So, it’s absolutely essential to ask yourself “What is my credit score?”

You may discover that you’ve been placed on the “grey list” and that your credit is in not-so-good shape, but there’s still hope. What does it mean, then? Just that you are a potential risk because you defaulted in a few payments. It could take a year or more, but you can fix this situation with consecutive payments.

However, if your credit score is so poor and you are on the black list, you will not be able to get any type of credit from anywhere in the world for five years. This is why it is so important for you to wonder what your credit score is and obtain it yearly.

But how do you get your credit report? Credit reporting agencies issue them free of charge once a year. To better understand what your credit score is and how it works, you can also take advantage of the many accounts and knowledge of financial advisors. Another way they can help you maintain a good score is by giving you great tips.

So, that’s why the most important question you can ask when it comes to your financial well-being is, ‘What is my credit score?’

Before you are awarded of any recognition, you must comply with the requirements for such recognition. For instance, before you will be given an academic award, you must first satisfy the required general weighted average on each or all subjects. Other awards also follows particular criteria before it would be awarded to deserving students at the end of the school year. Getting a home loan is just like getting recognition at the end of each academic year in school.

The same thing also goes in securing a home loan. There are certain requirements that you must meet before you will be able to secure a home loan. One of which is that you must possess a good credit rating.

They are not fully aware that any delinquency in paying their outstanding loans caused the stain in their credit record. They are not fully aware that any delinquency in paying their outstanding loans caused the “stain” in their credit record, thus they would be having a hard time securing a good home loan.

Yet you will be given a financial burden if you insist on getting a home loan despite of your bad credit score. That would be a terrible situation for your part. In other words, possessing a bad credit score simply means you are giving the lender reason to get more money from you through giving you home loans with high interest payments. You want to secure a home loan because you do not have enough money to finance the purchase of your new home.

Thus, expect that they will charge you higher interest rate as an assurance that you will be able to repay your home loans in the agreed period of time. Fortunately, there are still loan options for you despite your possession of a bad credit score.There are commercial lenders who offer bad credit home loan for individuals who are having a hard time securing a loan to finance the purchase of their new home. However, bear in mind that because of your bad credit standing, you will automatically become a “great risk” to the lender.

Thus, you need to strongly convince your preferred lender that you are still worthy of another chance and not be a risk to them. How to do it? Have a look on the following guidelines and make sure that you will follow them. Bad credit score will really put you in a situation wherein it is you who is on the bottom of the wheel.

In addition, a personal contact inside these financial institutions could be of great help in your credit problem. Research for the best available bad credit home loan offer in the market. You may prefer visiting various commercial lenders and financial institutions in your local area to know their terms and conditions as well as their rate of interest for home loans with bad credit score.

You may also ask for some certification from your previous lenders clearing you of any financial obligations. In this way, the recovery of your credit rating will be in place before you can secure another loan. Cleanse your credit rating while there is still time for you to do so. If there are incorrect entries posted in your account, it is best that you call the attention of the authority with regards to this matter and have them clear your record of any incorrect rating.

It is important to understand how the three major credit bureaus, Equifax, Experian, and Transunion calculate your credit scores. This is not something that a lot of people know, and I am sure you have never been taught this information.

To explain what makes up your credit score in as simple terms possible, this is how it works

Payment History 35%: This is the largest contributing factor for your credit scores and represents your history of making payments with your creditors.

Credit Utilization 30%: This is the percentage of available credit used. We want to keep our balances below 50% of the limit ideally. This is where we will find the most room for improvement in most cases.

Credit History 15%: A more seasoned account carry more weight than one that was just opened.

Recent Inquiries 10%: Whenever you apply for any kind of credit, a credit inquiry is reported. Too many of these, and they can negatively effect your scores.

Types Of Credit In Use 10%: How many accounts and which types. Having too many loans from finance companies (Beneficial Finance, American General, etc.) can bring down your scores.

Ok, now we have some powerfull knowledge. It’s time to put it to use with 2 things we can do in about 30 minutes to increase our credit scores…

Get an increased credit limit. This is very simple to do, and I think you will be pleasantly suprised by the success rate if you just make a couple easy phone calls. Just pick up the phone and ask to raise your credit limit. Now you can also use my favorite strategy and say something like, “I am considering a balance transfer to another card with a higher limit and better interest rate, but thought I would see first if you would increase my limit and possibly lower my interest before I cancel this card.”. I have found this to be successfull nearly all the time, both personally as well as with my clients.

As an example scenario, let’s pretend that you have a credit card with a $5,000 limit, and a balance of $4,000 (80% utilized). You make a 10 minute call and get you limit increased to $6,500 which means now you are only 62% utilized. Much better, and immediately, your scores increase. Now we can do even better, which brings us to the next technique.

Bring your balances down! Let’s continue from the above example where you are now 62% utilized on your credit card. If you were to pay down $750 on this card, you could bring the balance down to $3,250 on a card with a limit of $6,500, and that would put your at 50% utilized. Now not everyone has the ability to pay more than the minimum payment on their cards, and that’s ok, you have already raised your scores. However, at 50% utilization, you will be able to maximize your scores. Now imagine if you did this on all your credit card accounts. Now, consider this… If you could raise your scores and get a better interest rate and lower monthly payments on a mortgage loan, or auto loan, you could save thousands over the life of that loan.

These are very powerful techniques. I have seen this work for clients time and time again. One client recently was able to raise the credit limits on 3 credit card accounts and raise their scores by 105 points immediately.

Bear in mind that these techniques are recommended to those with a clean credit history. Credit card companies are more willing to work with those that have an established history of making payments on time. If you have negative items on your credit, perhaps a more aggressive credit repair approach is more appropriate.