THE CREDIT SCORE

"A bank is a place that will lend you money if you can prove that you don't need it." ~Bob Hope

A bank usually gains this proof (above quotation) through your credit score. Do you know your credit score? A credit score is a three-digit number that determines your eligibility to borrow money. In addition, it could be responsible for your high insurance premiums and the reason you got passed up for a job or a promotion. Your credit history makes up this number and gives a value to the following questions and others. How many and what types of accounts do you have open? Closed? Have you had any late payments? Are any of your balances close to the limit or over the limit? How long have you had credit? How often do you apply for more credit?

Your past behavior spits out a number from 425 – 850, which places you in a particular category. The higher your credit score, the lower your interest rates can be.

A score in the mid-700s to 800s shows a good credit history of repayment and is a lower risk to the lender. This puts the borrower in the Prime category.

Scores in the 600s to high 500s are fair to good and puts borrowers in a Sub-prime category, where you are able to get the loan; however, the interest rate is usually somewhat higher.

Now, let’s pretend you are watching Jeopardy. Alex Trebek would say, “Answer: For consumers with credit scores of 560 or lower,” and the correct response would be “What are Astronomically High Interest Rates?” By the way, the contestant said, “I’ll take 'Shafted for $200,' Alex.”

Yes, a low credit score usually comes with a whopping 23% or higher interest rate. You pose a threat of non-repayment to the lender given your credit history, so you get hit with these borrowing “penalties.” Home and auto loans are much more difficult to get, and you could even be passed up for a job or promotion because of a low score if an employer chooses to review it.

The good news is that you can improve your credit score. Credit scores reflect a history, but have you ever had a “C” in Math that you raised to an “A minus?” It took hard work and extra studying, but it was worth the effort. Your parents probably un-grounded you, or perhaps you saw an increase in your allowance. Whatever it was, you were rewarded. Improving your credit score will come with its own rewards.

REAPAIRING YOUR CREDIT SCORE

Paying your bills on time, every time, helps. A day late hurts! Making late payments is a large percentage when factoring your credit score. Set a goal to be on time with all your bills and keep track of everything. It may come in handy during the credit repair process.

Pay down some of the credit cards. The more you can reduce those balances (as far away from the credit limit as possible) will cause your credit score to increase. Your debt to income ratio (owing more than you own) is another large portion of the credit score pie graph. Reduce the debt; increase the score.

Just having a history of credit is good. If you are behind on a credit card payment that is up to its limit or worse (over the limit), and it is your first credit card, you should concentrate on decreasing that balance. A history of bad credit right at the beginning of your credit journey is a bad sign and could really damage your financial future.

There is good debt and bad debt. Mortgages, student loans and even auto financing is considered good debt. Although automobiles depreciate quickly, they present more positively then credit cards, department store cards or gas cards. Home loans appreciate in value and interest rates are low. Student loans also have lower interest rates and are regarded as an investment toward a more secure future. Bad debt includes any items that decrease in value like clothing, groceries, vacations, dining out, electronics, etc. Having more bad debt than good debt listed reflects poorly and can keep your credit score low.

Applying for a lot of credit cards will hurt your score. This borders on desperation and each application gets reviewed by the lender, who has to request your personal credit history from a credit bureau. Seeing multiple requests for credit can result in a rejection letter due to the high risk factor. Every application you fill out gets added to your credit report.

CREDIT REPORTS

A credit report is simply a history of your personal financing. It reports how you manage credit currently and how you handled it in the past. Late payments, foreclosures, collections (always viewed as negative even if it was paid), charge-offs, bankruptcies, etc. all show up on this report. Lenders search for any negative information on this report and that puts you in a certain category.

Negative information remains on your report for an average of seven years (each state has its own timeline for which a debt is collectable). A bankruptcy will stay on your credit report for up to 10 years.

CREDIT REPORT REPAIR

You are able to receive a free credit report from each of the credit bureaus once a year. It is important to review your credit report and make sure everything on it is 100% part of your credit history. Inaccurate data is possible, and it could be costing you even if it wasn’t your doing. Equally important, there may be negative information on your credit report but should be removed because it has past the statute of limitations for collection. This is why you will need credit report repair.

Credit bureaus are agencies that supply lenders your credit history information. Your credit report contains your current as well as past record of credit events. Credit bureaus sell these lists of information to lenders to help make any loan decisions. Lenders keep an eye out for negative information and the extent of it. Late payments, delinquencies or bankruptcies can be an automatic rejection.

Your credit report is a listing of your financial practices, but errors may occur. Anything you know to be incorrect or questionable can be challenged. According to the Fair Credit Reporting Act (FCRA), you have the legal right to argue any inaccuracies. The reporting lenders have a limited time to prove the items you’ve questioned should be there. If they can not present this proof, they must remove it from your report. It is illegal, however, to challenge something dishonestly, knowing it is, in fact, supposed to be on your credit report.

It is not in a credit bureaus best interest to update your information and make sure everything on your credit report is accurate. They provide information for a profit and really pay more attention to your negative history rather than the positive.

CREDIT REPORT REPAIR SERVICES

There are credit repair service companies that will take over the time consuming, and often times frustrating, task of cleaning up your credit report. A team of professionals work diligently to remove any derogatory items to help you improve your credit score, which eventually improves your financial future.

Be sure to research a credit repair or credit restoration company thoroughly. Unfortunately, there are some companies out there that over-promise and under deliver and you may end up paying for something you didn’t get or could have done yourself for no cost.

• Accurate, although negative, information stays on your record for an average of seven years (each state has its own timeline for which a debt is collectable) and do not believe any company saying it can be removed prior to that time period. However, if the information is in error, it can and should be removed.
• Do not work with any company who suggests providing you with a new social security number to wipe your credit report clean. This is completely illegal and the company should be reported to the proper authorities.
• Consumers are protected by law to not pay for the service until progress has been made. There are some companies out there that will take your money and run with it. Be sure to get explanations in writing first.

Credit repair is worth the time spent on it. Some credit bureau reports are difficult to understand and hiring a company who specializes in reading these documents is worth the fees involved. You can improve your credit score and also earn a rather valuable financial education by knowing what hurts and what helps the most. Get yourself back on track and maintain that good credit.

Disclaimer:   Debt Consolidation Deals, Inc. does not provide legal, investment or Tax advice. If a client needs legal services or legal expertise, they must seek the advice of a licensed attorney. Individual program results may vary.