credit card debt consolidation vs bankruptcy
Make Payments On Time And Get A Good Credit Score
When a person meets a banker or any lending institution for a loan, they scrutinize his credit history first. A good credit score is a good reflection of how regular, serious and punctual you are in dealing with the lenders or creditors. If you have a good credit score, your loan will be approved quickly and at lower rate of interest. Otherwise, your loan proposal may be rejected or you will be offered the loan at high interests rates.
So, knowing how to get a good credit score or if you do have a bad credit score, how to go about cleaning it up and improving it is vital. For this, you must know a little about how credit scoring is done. In the US, all credit history is maintained by ‘Fair Isaac Corporation’ or FICO as it is commonly known. FICO gathers together loan information from the three biggest credit bureaus namely:
• TransUnion
• Experion
• Equifax
Using the loan information, FICO will assess credit worthiness and transmits this information to lenders, banks and credit card companies.
If individual consumers so desire, they can get a complete listing of their credit history from FICO. Individuals can use the information thus provided to either apply for new loans based on their credit worthiness or to challenge a particular entry with a lender if they feel it has been wrongly represented. FICO credit scores vary from 300-850, with the lower score indicating bad credit history and therefore a high risk individual. A score of 850 will indicate perfect credit history. Usually the benchmark is kept at 600, with any score above that being considered favorable and below that being deemed poor.
FICO will make assessments based on:
• Payment history
• Amount owed
• Period of credit history
• New credit
• Type of credit
Each factor has its own weight with payment history accounting for 35% of credit score. You can find out further details about how the scoring is done at the dedicated website.
Having a good credit score means a potential borrower is viewed favorably by lenders and offered attractive rates of interest on new loans or higher credit card limits. Clients with good credit score are considered valuable customers and are treated with great respect. Borrowers can do their part to maintain good credit score by making all loan payments on time. If they default on loan payment or miss scheduled payments regularly, their credit score will go down and they will find it difficult to get new loans sanctioned.
Apart from late payment being the main reason for credit scores to go down, there are a few other factors that borrowers must be aware of. Length of credit history accounts for 15% of credit score hence, younger people with fewer loans will have a better credit score. To boost credit score, avoid periodically closing old accounts. For example, if you have more than one credit card and one is hardly used, do not close it so that lenders can view it as a longstanding credit history. The more the credit inquiries, the lower the credit score, for lenders may then consider you plan to spend indiscriminately.
Make sure that there are no discrepancies or identity theft, which is a common problem for credit card users by making frequent request for credit card history. People with major debt problems file for bankruptcy, hoping to have a fresh start. This is not good as it can lower credit scores by as much as 220 points besides being on your credit history for at least 10 years. You don’t have to panic even if you find your credit report is unfavorable. FICO scoring recognizes and rewards good behavior – i.e. recent timely loan repayments – and will offset bad previous history.
Apart from timely loan repayments, there are a few other ways to clean up and improve poor credit scores. One is to contest wrong information by appealing to the credit bureau. They in turn will ask for proof from the credit company and if they cannot provide this in 30 days, the entry will be removed from your credit history. Credit reports are automatically updated every 7 years. Cleaning it up with perseverance and penance can get you a good credit score and therefore secure you new loans at attractive terms.
Article by David Livingston of EQuote, who is a specialist in everything life insurance. For more information on instant term life insurance and cheap life insurance, visit his site today.
Debt Settlement vs Bankruptcy
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