Credit

Many countries use a system of ‘credit’ in order to do business with the public. It is in fact, a very good method in order for merchants to minimize losses. The issue is when a person or business does not have an established credit, it is extremely hard to receive loans, and apply for other unsecured benefits. I have provided many tips and strategies which should help in establishing good credit. Please be advised that good credit takes time.

Getting your first line of credit:

1. One of the best methods of obtaining good credit is by having revolving accounts. Revolving accounts are type of loans that allow the borrower to keep spending as long as they have sufficient balance and continue to make regular payments on the already used balance. Credit card and line of credits are revolving accounts. Without good credit it is hard to obtain a revolving account. I think the best way to do this is by applying for secured credit cards. This means, a financial institution will take a specified amount of money from the borrower and place this in an interest bearing savings account in their name. In return, they will be granted a credit card with the same spending limit as the deposit. The credit card operates just the same as a regular credit card. The only difference is the financial institution has the deposit in case the borrower decides not to make any more payments. Please be ensured that as long as you have been given a secured credit card from a reputable institution your deposit should not be at risk. In order to build your credit it is important that you make all your payments on time. Only payments that are at least thirty days late are usually reported to the major credit bureaus, but be aware of late charges, that will usually be incurred by the financial institution.

2. If you are a college student you may be eligible to receive a ’student’ credit card. Many financial institutions offer unsecured credit cards to college students, but these cards will usually have higher interest rates as well as lower spending limits. Do not be discouraged by this, as a well managed credit card will only be of good to you in the future. The way to reduce the interest you pay is to make higher payments each month.

What’s next?

1. Ok, so you have your first revolving account, what comes next? Try to follow the same procedure above to receive two or three accounts. Make sure that you pay on time every month. After about six months try applying for other unsecured credit cards. Your credit would still be considered a ‘high risk’ but you would have established some degree of credibility. With a little luck you will receive offers. Never make too many applications as this does not help your credit and will create a red flag to potential lenders. Please remember, establishing credit is a gradual process, it takes time and plenty of it. Repeat this process every three months or so. Another strategy is to keep paying the credit cards you currently have, for a much longer period of time, and apply for other cards when you are ready. The longer you have an account the better it is for your credit. Also, maybe one of the worst things you could ever do is apply for store credit cards at every store you visit. Store credit cards are good at building your credit but it is very tempting to apply for them all, considering that they are usually offered along with a discount on your merchandise. Be wary of the fact that too many revolving accounts will do more harm than good.

These tips should prove very helpful in your search for good credit:

1. Do not make too many applications for credit.

2. Keep making payments on time, all the time-Missing payments hurts.

3. Do not keep a ‘no balance’ credit card (a credit card with none of the spending limit used) - You need your good paying habits to be constantly reported to the credit bureaus.

4. Do not have too may revolving accounts.

5. Try not to use too much of the available balance on your accounts.

6. Do not keep closing out accounts and reopening new ones.

7. Avoid unnecessary debt.

8. Avoid Financial Institutions that charge a fee to report your paying habits to the Credit Bureaus.

If these tips are followed then you are almost guaranteed that your credit ratings will be improved. The next thing you should do is properly discard of any documents with private information such as your name, address, date of birth and social security number. A wise investment is a shredder for your home, as identity theft is very rampant in our society. There are many credit watch programs out there which allows you to check on your credit at all times so you will be aware when any unknown inquiries or accounts are opened in your name.

Nicola Hall is passionate about helping deserving people to achieve their goals. She is the founder of 123estuff.com where she provides many self help ebooks at discounted prices. The store also provides free articles. She will continue to provide information to others that will help them in achieving success.

Share This

Fair Isaac Corporation uses 22 pieces of data collected from the three major credit bureaus to produce a FICO score (your credit score) with the lowest possible score of 300 and 850 as the highest possible score. There are 5 weighted categories used to determine your score.

• Payment history 35%
• Debt 30%
• Length of Credit history 15%
• New Credit 10%
• Types of Credit used 10%

The two largest factors in obtaining a high credit score is to make sure you pay on time and keep your debt load low. The sad reality is only 13% of all Americans have a FICO score above 800. This means most Americans are paying more money for the exact same items.

Let me make my point with this car purchase example:

Very Good Score (800)
Loan amount $35,000
Term: 48 months
Interest Rate: 3%
Payment: $775

Average score (700)
Loan amount $35,000
Term: 48 months
Interest Rate: 9%
Payment: $871

This means the customer with an average score will pay $96 more a month for the exact same car. Over the life of the loan that extra $96 equals $4608 extra! Imagine if this was a mortgage! The dollar amounts would in the hundreds of thousands.

So what’s next?

Get focused and realize the lower your FICO score the more you will pay for items bought with credit or loans. This is equivalent to being a second class citizen right here in the Untied States of America. It’s time to fight back and recapture your good credit.

• Pay on time!
• Take action to reduce your debt. (Don’t just pay the minimum on your credit cards.)
• Don’t close old accounts.
• Don’t open new lines of credit.

It takes time and discipline to increase or maintain a high credit score, but the cost of not doing so is dramatic. A higher FICO score is in reach. Begin with the four “next steps” listed above and over time your score should improve.

Robert Hill is a Staff writer for:
http://www.havegoodcredit.com
http://www.havegoodcredit.com/blog/

Share This

Thanks to a new federal law put into place in September of 2005, everyone is entitled to one free credit report each year. This is so that you can verify that your report does not contain any false information, and so you can see how your credit rates.

Getting your annual free report is as easy as going to the authorized source, http://www.annualcreditreport.com/ and requesting one.

Once you have your free report, what in the world do all those abbreviations, numbers and codes mean?! The most widely used system for scoring is the FICO score, developed by The Fair Isaac Corporation, and the number determines the risk to extend credit to an individual. Credit reports are usually divided into sections; identifying information, public records, credit history, and inquiries to your credit report from creditors looking to extend you credit based on your credit score.

The identifying information includes your name, address, and social security number. Make sure they are all correct. Usually this section will also include a list of your previous addresses, your date of birth, phone number, spouse’s name, employers information.

The public records section is the section you hope has no information. This is where a bankruptcy or judgment would show up on your report, and it will harm your rating more than anything else on the report, and take longer to repair.

The credit history section is the most confusing. It will list every creditor you’ve ever had business with, including accounts that have been closed and those that remain open with no balances, and accounts that you are currently making payments on. Depending on which credit reporting agency you get your report from, this section will actually be displayed differently on each report. Experian’s report displays it in “english”, and states everything in common sense terms, like “pays on time”, “pays 30 days late”, etc. Reports from other agencies might use numerical codes in a table that you have to refer to another page to find out what each code means. Either way, make sure you agree with each creditors reporting of you since this is how your score is determined. If you have accounts that you don’t have the credit cards for anymore, or a loan that has been paid off but remains on your report as a revolving credit (money available to you as you pay it down), call and write each company to ask them to close the account completely and report that to the credit agencies. Otherwise, it appears that you have all of that money available to you, and that goes against your debt to income ratio.

The section called “inquiries”, and it includes a list of everyone who has ever looked at your report. This will include credit companies you’ve contacted to request a credit card or loan, but it will also include what is considered “soft” inquiries. Soft inquiries are any promotional offers, such as a retail store checking into your credit history to determine whether or not to mail you an offer for their credit card. Soft inquiries do not harm your overall credit score.

You can also get a copy of a credit report any time you’ve been denied credit. This is because there is always the possibility that there are errors in your report, which prevented you from obtaining the credit you applied for. Regardless of how you get your report, take the time to look it over and find any discrepancies (immediately call the creditors in question and straighten it out) and close out any accounts that you no longer use but are showing open and available to you on your credit report. Having your report will show you where you stand if you’re considering going for a mortgage, new vehicle, or other loan.

This article has been provided courtesy of Creditor Web, http://www.creditorweb.com .

Share This