Your ability (or lack of) to borrow money or have credit extended on your behalf is one of the most important assets you have, especially in today’s economy. Your credit score is considered to be a very important factor, not just by potential lenders, but may be by potential employers and even landlords. If your credit score is low, you will have trouble not only borrowing money, but will also find difficulty getting a job or renting a decent apartment or home. You can learn the steps to becoming a better borrower to improve your score and qualify yourself for better loans and credit cards.

Your FICO Score Determines Creditworthiness

For those needing any type of credit now, the process and successful is bleaker now than ever before due to the recent credit crunch and global financial crisis. But the determining factor in whether or not you will receive the loan that you need – and how much the credit will cost you in terms of interest – is your FICO score.

Your FICO credit score repair forum is a number between 300 and 850, and is used to communicate your credit history and behavior to potential lenders before they decide to extend money to you. You could consider the FICO scale an index that gives the lender a glimpse at the risk he may or may not be taking if you are approved for the loan you want. The higher your FICO score – the higher your chances of getting approved for the credit you desire, and the lower your interest rate will be.

What Potential Creditors Look For

Your score is a tell-all when it comes to your credit. The biggest thing that potential lenders look at is your payment history – or more specifically, the timeliness of your payments. Paying on time is the easiest way to add points to your FICO score. Another thing that creditors look at is how much credit you use each month as compared to how much you have available for use. In general, this should be no more than thirty percent of your available credit lines, across the board, with all sources of credit considered. Overall the lower your outstanding balances the better, getting under 10% is best on individual credit cards. Creditors also look at the length of time that you have an account open – in this case, the older the better.

Having an account in good standing for several years is very appealing to potential creditors because it shows them that you are a responsible and trustworthy borrower. The number of credit inquiries that have recently been run when you apply is also looked at. Potential lenders do not like to see multiple attempts within just a six month or so period. Applying for too much credit is very detrimental to your credit score – it gives the impression that you are on the prowl to borrow from anyone and everyone.

Can You Rebuild Your Credit?

For those with damaged credit who are looking to rebuild their credit histories getting the services of a licensed legal professional is almost always the best route to take. If your time, return on investment, as well as results are important, the hiring of a professional is most always the best option.

Herschel

If you have recently come out of bankruptcy, you’ll find your credit score could no doubt use a quick boost. Getting your financial picture back in order once you have had a bankruptcy discharge can be a tricky task – but nevertheless, it can be done. Following these quick tips can get your score elevated to the point that you qualify for great loans and lines of credit offered at substantially reduced interest rates in a relatively short time.

Begin Adding Points Immediately

You can begin adding points to your credit score almost immediately upon having your bankruptcy discharged by taking on small and manageable amounts of credit. Before doing so, however, you should check your newly updated credit report. Since there are three major credit reporting bureaus operating in the country, you should retrieve your credit report from all three credit bureaus to determine if the accounts that you included in your bankruptcy proceedings have been noted as such. In addition, you’ll want to get your FICO credit scores to know your starting point.

Sometimes, a creditor will fail to report the change from collections to discharged in bankruptcy, and the item will remain on your credit report – making your credit score dip even lower. Contact the credit bureau and disputing these items that is holding the report immediately upon recognizing this error to have it corrected is a prudent start. .

The Most Important Accounts You Can Open Now

Almost all creditor applications ask where you do your banking and while there are many different accounts that you might consider opening to add points to your damaged credit score. Perhaps the most important two are not accounts that extend credit, but rather just make you look like a more responsible person, and therefore, a more appealing borrower – a checking account and a savings account.

Secured Credit Cards Add Points Fast

You should open up a secured credit card account as soon as possible when your bankruptcy has cleared the courts. A secured credit card is just like a regular credit card in that it reports either monthly or quarterly to the credit bureaus – the difference is that you will place a deposit equal to the amount of credit that you wish to have extended on your behalf with the card issuer.

Maintaining a good payment history with your new secured credit card is one of the fastest ways to add valuable points to your credit score. You might consider opening more than one account to maximize the number of points you can add – just make sure each card is with a separate bank. You can open a secured credit card account with as little as three hundred dollars, which is a very small investment to reap such great benefits. No, a three hundred dollar line of credit is not where you want to end up but it is a great start to turning things around.

Unsecured credit cards

There are several institutions that will extend you a small line of credit shortly after a bankruptcy. The reason is that these banks believe, what is a better time than now to help a person out right after they have come out of a bankruptcy and had all or most of their debts wiped out. This means more disposable income and a greater chance of repayment in their eyes. These cards will typically be granted at $300 to $500 credit lines to start.

You can find some great deals on secured and unsecured credit cards online via the Internet. There are many lenders who specialize in these types of cards for borrowers who are in your same situation. The interest you pay will be higher than going to your local bank and getting their platinum gold plated credit card but the benefits you’ll gain by rebuilding your credit far outweigh the extra few dollars the interest may cost.

Sound charging practices though are required… but I guess that’s another day!

Herschel

When you’re looking for a new mortgage, many lenders evaluate your credit based on the “Three C’s.”

Credit

Is it likely that you will repay the loan?  Are your payments on time and up-to-date?  Are you financially stable and reliable? What are your credit scores?  Today’s marketplace, most conventional lenders require your scores to be in the 700+ range and most FHA loans a 620 score or higher.

Capacity
Are you able to pay the loan?  What kind of outstanding personal debt do you have?  Do you have enough earning power and net worth to repay a mortgage or home equity line of credit?

Collateral
Do you own something of value that can be promised to the lender if you don’t repay the loan?  If you have home equity loans for less than perfect credit collateral may assist your loan request.

There are a few more factors mortgage lenders look into when evaluating your capability of obtaining a loan.  To confirm your responsibility and stability they may examine:

• Your monthly income
• Occupation and length of time with employer (two or more years is ideal)
• Home ownership status and history
• How often you move or have moved; patterns of behavior and the timing of that behavior

And there are other examples such as, if you had a charge-off (when the creditor sells your debt to a collection agency) in your credit file from several years ago and you’ve been able to maintain your credit over the years, you will be judged differently from someone who recently had a charge-off.

But whatever the case, it’s imperative to get off on the right foot when rebuilding your credit.. It is important to establish good credit behavior as early as you can in order to build a solid credit reputation.

Essentially, credit bureaus will look for five main characteristics when determining how high your credit score will be.

In descending order, they are:

1. Past delinquency.  If you have failed to make payments in the past, lenders fear you will repeat that behavior based on your bad credit history.
2. How your credit has been used.  Have you maxed out or spent close to the limit on a credit card?  If so, then you may be considered a greater risk than someone who is more conservative with his or her credit line.  Do you pay off your bill every month or a keep a revolving balance?
3. How long you’ve established your credit history.  The scoring models can judge each individual separately.  Credit reporting agencies may take into account the duration of a person’s credit history.
4. Frequency of credit inquiries.  It is recommended that you check your credit once a year to see if you have a good or bad credit rating.  Creditors requesting reports several times in a short period may send a signal that you are applying for a lot of credit due to financial difficulties, or that you are taking on too much debt and overextending yourself.
5. Your credit variety.  It is best to have a mix of installment and revolving loans (e.g., auto, credit cards, retail, etc).  On installment loans, a person borrows money once and makes fixed payments until the balance is gone, while revolving borrowers make regular payments, each of which frees up more money to access.

It is important to understand all the factors that determine if you have good or bad credit.  It is never too early to begin building a good credit history and avoid bad credit inconveniences in the lending process

Till next week…

Herschel

A mistake on your credit report can cost you literally thousands of dollars, especially in this economy. So what can you expect from a big credit bureau if you ask them to investigate and correct the error?

What a great question and one that Spence Wharton, an NCF consultant shot me recently. Smart Money magazine did an article and one that I thought merits your attention. Just click the link below?

http://www.smartmoney.com/Spending/Rip-offs/Why-The-Credit-Bureaus-Cannot-Get-it-Right/

People ask me all the time how can they, the credit bureaus, do this or that? Why would they not delete this right away? How can they get away with this?

You’ll read about when testifying before Congress, one CEO of an independent Arizona credit bureau likened the dispute process to “having an IRS audit, brain surgery, getting a tooth pulled or going to your own funeral.

So, take a few moments with a hot cup of coffee or perhaps over lunch today and find out some facts on how the credit bureaus basically snub their noses at the average Joe consumer. How they abuse folks just like you and I.

This is just a taste of the battles we fight every day for our members!

Be Bold!

Herschel