Best WAYS TO ESTABLISH PERSONAL CREDIT: What You Need to Know About personal Credit
Those who are about to venture into the world or credit and loans may not find it as easy as they think to get a foothold on the ladder. Gone are the days of easy lending to anyone who applied, and lenders are now more wary and exercise more caution when lending to someone unknown. Those who haven’t used credit before are impeded by the simple fact that they have no credit history and thus are an unknown risk. No longer able to piggy back along as a card holder on someone else’s account to establish credit, they must now find ways to establish their own credit reputation.
Young people new to credit are generally required to produce a willing co-signer to obtain either a credit card or a loan. Usually a parent will stand guarantor until a responsible way of handling credit has been established by the youngster. In order to obtain freedom from the need for guarantors and to have credit in your own right it is important to demonstrate sound financial sense. This means always paying the amount due on the due date.
Late or missed payments will not only cost you in fees but will be recorded on your credit report, thus sending your budding credit score straight into decline. Not only that but it will affect the good credit standing of the person who was willing to step in as your co-signer. When using any type of credit card the best practice to begin with and maintain is to always clear the balance in full each month and thus never pay interest. Simply put if you can’t afford to buy something don’t put it on credit, as there leads the slippery slope to debt.
Another way to establish credit is to opt for a secured credit card from a reputable lender who does not impose huge fees for letting you have one. You will need to pay a security deposit equal to the amount of credit advanced, but if you demonstrate good usage with the card you will most likely be able to move onto unsecured credit within the year. Even if you have no need to use the card use it at least once a month and pay the balance off in full in order to establish your credit record. Don’t be tempted to waste your time with pre paid credit cards as they are not in fact credit cards and their usage is rarely reported to the credit bureaus.
People who have always lived by the cash maxim and now wish to obtain credit should consider using the FICO expansion scheme to have their past record of non recorded bills logged with FICO. People who have been paying rent, utilities and other fixed monthly payments on time have proven they can handle finances but may have never utilized loans or credit before. The FICO expansion scheme is a step to help people in this category, establish their credit.
Whichever route you pursue to establish credit your aim should be to create a credit footprint which will reflect your financial reputation, and naturally you need this to be good in order to obtain the many benefits of having a high credit score. Sensible use of credit and loans, and keep your borrowing at an affordable level, will lead to offers of better interest rates once your credit becomes established.
Problems with Credit Score Ratings
Your credit score rating is an important one to potential creditors as they can give a good assessment of how likely you are to be responsible with your money. A lender will determine whether to extend credit to you or not, based on your score, and even the rate of interest you will be charged. It’s a fair system in that it is never discriminates against someone for any other reason than their financial dealings.
The main problem within the Fico credit score rating system is that one size really does fit all, so what may appear to be a perfectly sensible and positive financial decision can in fact end up as a liability, causing a decrease in your score.
It is perfectly right that your payment history should be reflected accurately so that a lender can determine what kind of risk you pose from your previous financial dealings, just as it is fair that if you act as a guarantor for someone else’s loan it will reduce your own credit to debt ratio, as you have a good chance of ending up responsible for that loan. However some of the aspects of the credit rating system, which are included for good reasons, do deter sensible moves by some borrowers.
If a person is struggling to do more than just keep pace with the minimum payments and interest charges over a number of credit cards, one of the most sensible things they can do is to transfer the current debts to a balance transfer card and take advantage of the initial free interest offer to try and get their debts into some sort of control before they become unmanageable. However the Fico score system works against this as you will likely be closing older lines of credit as well as applying for new credit, both of which negatively affect your credit score.
Likewise the most astute borrowers who are trying to keep their debts manageable but do still have interest payments to deal with are discouraged by the rating system from moving their borrowing around between cards with better offers to take advantage of much lower rates. This is actually the savviest way of reducing a current balance which carries interest charges, but if you do it your credit score will suffer. This is because this aspect of the Fico rating system was designed to monitor multiple credit applications yet penalizes those who are not trying to get more and more credit, but make the best interest rate choices and keep their payments at a manageable level.
Your first credit card may not have been your wisest choice and you want to just cut it up and bin it as you now have other cards which offer better deals, such as a cash reward card. However if you close the line of credit which you’ve held longest this is a detrimental score move, as the oldest card represents the length of time you have been managing credit, and the longer your history is the better for your score. Thus you have to hold onto a card you no longer wish to carry.
The other annoyance with the system is that you may well be an excellent and timely payer, aware of all the Fico guidelines to keep your score healthy, yet still feel the restrictions of following them. If you normally keep your debt ratio in the lower levels and always make your payments on time, it can still affect you if you make a one off high card payment which takes you near to the maximum available credit on your card.
A prime example is you have the cash in the bank to pay for a vacation, but know it is far more sensible to put it on a credit card for the insurance protection. Yet if you do so you make be using up a high part of your disposable credit and be penalized for it, even if you pay it all back in full.
On the whole the Fico credit rating score is a fair system which treats everyone in the same way. It doesn’t penalise you for skin color or weight, but only judges you on the scoring criteria it holds for all. However there are certain problems as outlined above which are a result of the one size fits all approach to scoring which can lead to a reduced score even though you are still being financially responsible.
Tips for Repairing Student Credit After Defaulting
Defaulting on student loans is not recommended and should be avoided at all costs. Talk to your lender long before your loans reach the default stage and try to negotiate forbearance or deferment rather than ignoring the problem and sliding into default. However many have not dealt with student loans in this recommended way and have ended up defaulting on their loans, with the subsequent result that their credit rating is ruined.
Not only are all late payments recorded on your credit report as a matter of course, but the default status will be registered too. A registered default is a serious matter which precludes the borrower from obtaining any future federal funding assistance and extends beyond further education loans to incorporate such programs as HUD’s assistance for home buyers.
Whilst all late payments will continue to show on your credit report for seven years it is possible to repair your credit after student loan default, by having the default status removed. The US Department of Education offers a one off rehabilitation program to those who have defaulted on federal student loans. Those who successfully complete the nine month rehabilitation program are entitled to have the default status of the loan removed under the Fair Credit Reporting Act. The rehabilitation program is the only way to have the default status erased from your credit report.
Those wishing to participate in the program should contact the Department of Education and apply. A monthly fixed payment can be negotiated and provided that nine consecutive monthly payments are then made on time the default status will be removed. Those who are in default may already be subject to employer garnishment of wages and may have the IRS intercepting tax refunds. This will continue whilst you are making payments under the rehabilitation program and any funds credited to the defaulted loans from this method will not count as payment under the rehabilitation program.
However if the program is completed then the IRS and employer garnishment will cease and the previously defaulted loan will be marked as “paid as agreed” by the Department of Education. Federal funding will once again be available. You will also regain your rights to apply for forbearance and deferment.
Those who complete the rehabilitation program and have the default status removed should expect to see around a one hundred point increase in their FICO score, but the payments recorded as being late will take time to filter down your credit report. If you use other methods to try and rebuild your credit then over time your credit score will improve.
One of the easiest ways to begin to repair your credit is to take a credit card and use it to re-establish your credit rating. It may be necessary to obtain a secured credit card at this stage, and use it sensibly by using it at least once a month and then repaying the full balance. Once you are engaged in repairing your credit score be sure to keep up to date on all payments and avoid future default on your student loans at all costs. It is not possible to go through the rehabilitation program more than once so be certain to deal with the loans responsibly.
Who Pulls Your Credit Report
Most people associate their credit report with the chance of obtaining new credit, and give no thought to the other reasons of how it may impact on their daily lives. The negative aspect of bad credit is more often considered with a poor report being detrimental. The other way to see it is that a good credit report is helpful in many areas, opening doors and saving money.
It is up to each individual to build and maintain a good credit score to work in ones favour. A bad credit report can be rectified through various means and once a favourable report is achieved it should be maintained, and checked regularly.
So who pulls your credit report and why? It is available upon request for a number of reasons. Banks and creditors have the right to the information held, as do insurance companies, mortgage lenders, landlords and employers. It is in your own interest to maintain a good credit score and not have detrimental information on your record, as you can’t hide it.
It is clear why landlords want to assess the information held. A landlord does not want to rent his property to an irresponsible tenant who may have a habit of paying bills late. A landlord does not know the person and a credit check is a good method of assessing a stranger’s risk of paying the rent on time.
An employer on the other hand will be looking to establish an actual relationship with an employee and there are many more determining factors in a person's suitability than a credit report. Obviously it is of prime importance for anyone looking for a job within the finance industry to have a top notch credit rating, but less necessary for other employers to see.
On the one hand a good credit report indicates responsibility, whilst a bad credit report can mean that a person just hasn’t built up a credit history, or a long history of good credit has been tarnished by one temporary blip. Nevertheless some employers do take a credit report into consideration before extending an offer of employment. Employers may turn down an applicant due to bad credit on the presumption they are irresponsible and less trustworthy.
Ninety percent of Insurance companies pull your credit report too, again looking for signs of responsible handling of finances Statistical analysis has shown that a person with a good credit report is less likely to be an insurance risk and make less claims.
Responsibility with credit is generally interpreted as responsibility in other areas of life, such as home security and maintenance, good car maintenance and safer driving habits. Thus insurance payments are influenced by credit scores and a good credit report can result in lower property and auto insurance premiums.
Potential creditors, be it mortgage companies, banks, loan companies or credit card issuers all have the right to pull your credit report as their first move to assess your suitability. They want to safeguard the money they advance you and what better way than to evaluate your credit report to get a full picture of your credit history.
They may turn you down flat, or they may offer you what you want subject to higher interest rates. Then again they may see a report with an excellent credit history and advance the mortgage or credit and consider you a valuable customer worth doing business with. A good report can work in your favour and lead to preferential rates and better deals. It could literally save you thousands of dollars in mortgage interest.
This information shows the merits of maintaining a good credit report and the downfalls of failing to do so. Always check your reports, which are free annually, and ensure any errors are rectified before someone pulls your report. As you are aware that it will be checked, make your credit report work to your advantage.
Problems in Credit Score Ratings
Your credit score rating is an important one to potential creditors as they can give a good assessment of how likely you are to be responsible with your money. A lender will determine whether to extend credit to you or not, based on your score, and even the rate of interest you will be charged. It’s a fair system in that it is never discriminates against someone for any other reason than their financial dealings.
The main problem within the Fico credit score rating system is that one size really does fit all, so what may appear to be a perfectly sensible and positive financial decision can in fact end up as a liability, causing a decrease in your score. It is perfectly right that your payment history should be reflected accurately so that a lender can determine what kind of risk you pose from your previous financial dealings, just as it is fair that if you act as a guarantor for someone else’s loan it will reduce your own credit to debt ratio, as you have a good chance of ending up responsible for that loan. However some of the aspects of the credit rating system, which are included for good reasons, do deter sensible moves by some borrowers.
If a person is struggling to do more than just keep pace with the minimum payments and interest charges over a number of credit cards, one of the most sensible things they can do is to transfer the current debts to a balance transfer card and take advantage of the initial free interest offer to try and get their debts into some sort of control before they become unmanageable. However the Fico score system works against this as you will likely be closing older lines of credit as well as applying for new credit, both of which negatively affect your credit score.
Likewise the most astute borrowers who are trying to keep their debts manageable but do still have interest payments to deal with are discouraged by the rating system from moving their borrowing around between cards with better offers to take advantage of much lower rates. This is actually the savviest way of reducing a current balance which carries interest charges, but if you do it your credit score will suffer. This is because this aspect of the Fico rating system was designed to monitor multiple credit applications yet penalises those who are not trying to get more and more credit, but make the best interest rate choices and keep their payments at a manageable level.
Your first credit card may not have been your wisest choice and you want to just cut it up and bin it as you now have other cards which offer better deals, such as a cash reward card. However if you close the line of credit which you’ve held longest this is a detrimental score move, as the oldest card represents the length of time you have been managing credit, and the longer your history is the better for your score. Thus you have to hold onto a card you no longer wish to carry.
The other annoyance with the system is that you may well be an excellent and timely payer, aware of all the Fico guidelines to keep your score healthy, yet still feel the restrictions of following them. If you normally keep your debt ratio in the lower levels and always make your payments on time, it can still affect you if you make a one off high card payment which takes you near to the maximum available credit on your card. A prime example is you have the cash in the bank to pay for a vacation, but know it is far more sensible to put it on a credit card for the insurance protection. Yet if you do so you make be using up a high part of your disposable credit and be penalized for it, even if you pay it all back in full.
On the whole the Fico credit rating score is a fair system which treats everyone in the same way. It doesn’t penalise you for skin color or weight, but only judges you on the scoring criteria it holds for all. However there are certain problems as outlined above which are a result of the one size fits all approach to scoring which can lead to a reduced score even though you are still being financially responsible.
10 ways to repair your credit so that you can qualify for a home mortgage
We would all like to own our home, but the process is not always so easy. Most lenders now require a large deposit, and on top of that, they would love you to have a perfect credit score. Not many of us have that perfect credit store, however, it is important to be familiar with the top 10 ways to repair your credit so that you can qualify for a home mortgage.
Step 1
Get real – find out what out your actual credit score. There are quite a few agencies that can help you with that, and it might be a good idea to ask a potential lender who they work with. This ensure that you are looking at the same information that you are.
Step 2
How well do you know your finances. Most people don't know their finances, and you may have a few surprises in store. Set up a spreadsheet and record EVERYTHING that you spend. Now you can see where you are spending the most money.
Step 3
Start saving some money. Once you have identified where you can save money, start by actually saving that money. Put it aside every month, and start a saving account. This can really impress a lender, it shows that you are taking an interest in your finances.
Step 3
Are you paying your bills on time? If you are not make sure that you start doing so, and keep the practice up. It will quickly improve your credit score.
Step 4
Don't close unused accounts. Once you have paid off a credit card, it can be tempting to close the account down. But, even unused accounts are useful, they will show a zero balance and will impress a future lender.
Step 5
Don't apply for too many credit cards or accounts. It often has a negative effect, and all of those searches will show up on your credit report.
Step 6
Have you been divorced? Tell the credit company as sometimes credit which your former spouse may have applied will show up.
Step 7
Are you having a credit problem? Don't ignore your lender, speak to them and communicate with them in writing. Once you have started to make regular payments.
Step 8
Student loans may be following your around for a long time. It is a big problem, but can you do something to help yourself? Negotiate with your lender and ask if you can pay a bit extra towards your student debt every month. The advantage is that many lenders are happy to reduce their interest rate a little bit. Even a small reduction will help you to pay off that loan quicker and cheaper.
Do you need a new car? Are you absolutely sure? You may be able to buy a second hand car for cash, instead out finance. After all, is it not about having a new car, it is about buying a home.
Step 9
It may seem odd, but a lot of people do not question the amount of tax they pay. Saving money on tax will allow you to save more money towards your home. Keep any paper work the process generates, it will prove that you are financially savvy.
Step 10
Keep your personal information to yourself. So many people these days make it their business to borrow your credit history or your personal details. You may have a nasty surprise when you go to try to get a home mortgage, it is all too easy to for some to use your personal information and take out loans in your name. This is more common than you might think, and the process of getting the details removed from your file can be complicated.
Above all, appreciate that credit agencies should be used to your advantage. Figuring out how you can make yourself look good to a potential lender. The top 10 ways to repair your credit so that you can qualify for a hoe mortgage, is all about getting financially savvy.