With a new baby coming or already here, one big adjustment that will need to be made is to your financial situation. There are several steps you can take to insure that debt problems don't accumulate and your credit report remains sound. From a home equity line of credit or refinancing to credit counseling, taking the right credit management steps now will help insure that you remain financially stable.
Top 5 Credit
Misconceptions
We have all heard the rumors...from neighbors, relatives or friends. There are a wide variety of myths floating around about what you should and shouldn't do to improve your credit reports and credit scores. The buck stops here! TrueCredit has exposed these urban legends to provide you and your informers with the truth about credit: Your score will drop if you check your credit- Fortunately, this one is definitely not true. Checking your own report and score is counted as a "soft inquiry" and doesn't harm your credit at all. Only "hard inquiries" from a lender or creditor, made when you apply for credit, can bring your credit score down a few points. Worried about damaging your credit while shopping around for a loan? Multiple inquiries for the same purpose within a short amount of time (a few weeks) are grouped together into a less damaging period of inquiry. Closing old accounts will improve your credit score- To close or not to close, that is the question. Many people advocate closing old and inactive accounts as a way for improving your credit. In most cases, closing accounts will actually have the opposite effect. Canceling old credit accounts can lower your credit score by making your credit history appear shorter. Think twice before closing the oldest account on your credit report. If you want to reduce your levels of available credit, ask for your credit limits to be reduced or close newer accounts instead. Once you pay off a negative record, it is removed from your credit report- Negative records such as collection accounts, bankruptcies and charge-offs will remain on your credit report for 7-10 years after they are first posted. Paying off the account before the end of the set term doesn't remove it from your credit report, but will cause the account to be marked as "paid." It is still a good idea to pay your debts, it can improve your credit score, but the major improvement will come when the record expires. Being a co-signer doesn't make you responsible for the account- When you open a joint account, co-sign on a loan or become an authorized user on someone's credit card, you are taking on legal responsibility for the account. Any activity on these shared accounts, good or bad, will show up on both people's credit reports. If you co-sign for a friend's auto loan and they don't make the payments, your credit profile will be hurt by their actions and visa versa. The only way to stop this double reporting is to refinance the loan or to have the creditor officially remove you from the account. Paying off a debt will add 50 points to your credit score- Your credit score is calculated using a complex algorithm that takes into account hundreds of factors and values. It is very hard to predict how many points you can gain by changing one factor. For a person with a highcredit score, just one late payment can cause a significant drop. If a person has a low credit score, it may not cause a large drop at all. There is no magical way to improve your credit score, just keep paying your bills on time, reducing your debts and removing negative inaccuracies from yourcredit report. Good financial behavior and time are the two most important factors on your credit score.
What’s Your FICO Score? Not Knowing Could Cost You Money When Melissa, a 24-year-old marketing manager from Manassas Park, Va., applied for a loan to buy her first condo, the news from her loan officer wasn't good. "He told me my FICO score was in the low 600s, too low to qualify for a mortgage," she said. Like many first-time borrowers, Melissa was unfamiliar with the power of her own credit history. "I had some random store credit cards I had taken out in college. When I moved, I forgot to forward my address and so I had overdue balances that weren't paid." FICO Score is Key Lenders look at several factors - your income, employment record and savings when granting credit. But as Melissa found out, when applying for a loan, your credit score can make or break the deal. Your credit score measures your credit worthiness - the likelihood you will repay your debts. Credit scores are based on a numeric computation of the data contained in your credit report. There isn't one universal credit scoring system - credit reporting agencies and lenders also have their own credit score models - but when you're applying for credit, a good FICO score is big. FICO is short for the credit score system offered by Fair Isaac Corporation, the company that invented the credit risk score model most widely used by the financial industry. Peter Bielagus, author of Getting Loaded: A Complete Personal Finance Guide for Students and Young Professionals, says, "FICO isn't the end-all number, but it is a quick fix, much in the way a GPA doesn't describe the whole student but carries enough weight to make you study harder." Calculating Risk FICO scores range between 300 and 850. The higher the number, the better risk you represent to lenders. Your credit score not only determines whether you get credit, but under what terms. With a lousy credit score, you might not qualify for the best credit card or auto rate. You may have to pay extra points on a mortgage or, like Melissa, not qualify for credit at all. According to Bielagus, "A good FICO score of 750+ can mean your interest rate on a home loan will be 4 percentage points lower than someone with a 500 score. This can mean over $200,000 in saved interest on a house." While the exact mathematical formula for determining FICO is a closely guarded trade secret, in terms of broad categories, approximately 35 percent is based on your payment history and 30 percent is based on your level of outstanding debt. So paying bills on time and not overextending yourself go a long way in improving your credit score. Length of credit history, new credit, and type of credit - a healthy, modest mix of credit cards and installment debt is good - are the other categories. And as new information is added to your credit report, your credit score changes. Know Your FICO Score You need to know your score to improve it. For Melissa, that meant pulling her credit reports, contacting her creditors and paying off her overdue balances. Working with her loan officer, she eventually did get her mortgage. Consumers actually have three FICO scores, and each FICO score is based on the data from one of the three national credit reporting agencies: TransUnion, Equifax, and Experian. You can buy one or all of your FICO scores along with the corresponding credit report and view it online at www.myfico.com for $13 each. For $15, you can also order your credit report and a credit score directly from the credit agencies at transunion.com, equifax.com and experian.com. (Note: you can get a 3-in-1 report for all three agengies at TrueCredit.com) Credit control is cool. And knowing your FICO score is a powerful financial tool that will help you develop good money habits and manage your credit responsibly.
Get a copy of your credit report from each of the three major credit reporting agencies - once a year to make sure the information is accurate. Each agency charges a service fee that varies from company to company.
Experian (www.experian.com) To obtain a copy of your credit report, you must provide the following in writing:
1) Full name, including any previous names Free Credit Reports If you have been denied credit because of negative information in your credit report, you may ask which agency provided your credit history and then obtain a copy of your report from that agency within 60 days at no charge . In addition, you are entitled to one free report if:
1) You are unemployed and plan to seek
employment within 60 days Negative Information on Your Credit Report If you find negative information in your credit report that is correct, you can:
1) Pay any balances so that creditors can
update your file. Accurate information cannot be removed from your credit report. If you have any questions with regard to these topics, visit the Federal Trade Commission's Web site at www.ftc.gov. Incorrect Information on Your Credit Report If you find there is incorrect information in your credit report, you can:
1) request, in writing, an investigation
that will be made within 30 days.
A credit score is a sum used by lenders as an indicator of how likely you are to repay your loans. Your credit score is generated by a mathematical formula utilizing the data from your TransUnion, Equifax or Experian credit reports. Lenders have been using credit scores as part of the lending decision for over than 20 years. What factors influence my credit score? Various factors determine your credit score, including the following:
Payment History How does my credit score affect me? Your credit score is an important indicator of your financial health. Lenders use your credit score to determine:
Whether or not you are a good candidate
for a loan While your credit score is a key determinant of your creditworthiness, lenders also examine the information on your credit report and your loan application. Regularly checking your credit report enables you to:
Be informed of the most up-to-date information
in your credit history. What is a "good" credit score? There are several types of credit scores available. Typically, the higher the score, the better. Each lender decides what credit score range it considers to be a good credit risk or a poor credit risk. For this reason, the lender is the best source to explain what your credit score means in relation to the final credit decision. After all, they determine the criteria used to extend credit. The credit score is only one component of information evaluated by lenders. What is credit scoring? Credit scoring is a method used by lenders to help decide whether or not you are a good candidate for a loan. Lenders employ a credit scoring system to determine your credit score: Compares information in your credit report to the performance of consumers who have similar credit characteristics Examines many credit characteristics including your payment history, the number and kind of accounts you have, the number and frequency of late payments, and any collections or bankruptcies Generally speaking, positive credit characteristics make your score higher and help you to qualify for better loans. Negative characteristics make your score lower and may interfere with your ability to qualify for the best loan terms. How is a credit scoring model developed? A lender creates a credit scoring model by using several criteria: Selecting a large sampling of customers Analyzing the data in their credit reports to determine which factors relate to creditworthiness Assigning a degree of importance to each of the factors, based on how accurate a predictor it is in determining who will repay their loan on time
5 Quick Steps to a Better Credit Score
Learn how to manage your credit score and improve your creditworthiness Think of your credit score as a picture of your credit risk. This picture reflects your risk at a specific point in time. A picture does not change; however, when you take another one, you will probably look a little different. Similarly, when your credit information changes, your score will also change to reflect the updated information. There are steps you can take to ensure that each time a new "credit picture" is taken, it shows your best side. By observing the following guidelines, you can influence your credit worthiness for the better: Be punctual- Pay all your bills on time. Late payments, collections, and bankruptcies have the greatest negative effect on your credit score. Check your credit report regularly and take the necessary steps to remove inaccuracies - Don't let your credit health suffer due to inaccurate information. If you find an inaccuracy on your credit report contact the creditor associated with the account or the credit reporting agencies to correct it immediately. Watch your debt - Keep your account balances below 50% of your available credit. For instance, if you have a credit card with a $1,000 limit, you should try to keep the balance owed below $500. Give yourself time - Time is one of the most significant factors that can improve your credit score. Establish a long history of paying your bills on time and using credit responsibly. You may also want to keep the oldest account on your credit report open in order to lengthen your period of active credit use. Avoid excessive inquiries - A large number of inquiries occurred over a short period of time may be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties or overextending yourself by taking on more debt than you can easily repay. |
