A Snapshot of American Credit

Americans have become increasingly dependent on credit cards and loans to purchase items both large and small. Credit cards and consumer loans have allowed Americans to make purchases that are well outside of their means, which leads to a vicious cycle as we try to borrow more money to pay our existing debts. Studies show that 43% of Americans spend more money each year than they earn, and that the average household carries more than $8,000 in credit card debt. This has led personal bankruptcy cases to double in the last ten years.

Revolving credit accounts, such as credit cards, can actually help your credit score, as long as you can keep the balances low enough to pay off each month. Unusually low interest rates have prompted more Americans to apply for extra credit cards, however, which then prompt a higher level of spending. Add to the whole mix the advent of Internet shopping, which usually requires the use of a credit card, and we suddenly find ourselves in trouble with no way out.

The average American has approximately three bank credit cards, four retail credit cards, and one debit card in his or her wallet. Unfortunately, we don’t see our income as a limit for our spending, because Americans average $1.22 in spending for every dollar earned. To put it in business terms, we end each fiscal year in the red.

There are ways to counteract these numbers, however. By taking responsibility for the purchases that we make, we can begin to lower the amount of consumer debt in our own households. It is important to create a household budget, and then to stick to it implicitly. If there are large purchases that you feel you need to make, begin a savings account so that you can make these purchases with cash. You will actually feel a sense of accomplishment when you hand over a debit card instead of a credit card, knowing that you have truly earned the big-screen television or the laptop of your dreams.

If you feel that you are in over your head with your credit card debt, then it is time to make some calls to your creditors. You can work out payment plans to lower the monthly requirements, or you can work with the creditors to get the debts paid sooner. The most important thing, however, is that you take the initiative to get your household debt under control.

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7 STEPS THAT CAN HELP YOU INCREASE YOUR CREDIT SCORE

1.Make Payments on Time.

The single most important thing you can do to keep your score high, or improve upon your score is to make your payments on time. Payment history is the largest factor used to determine your credit score. Payments that are 30 days or more past due will show up on your credit report and negatively impact your score. These negative items generally stay on your report for seven (7) years.

2.Dispute Errors and Inaccuracies.

According to recent studies as many as 80% of consumer credit files contain errors. That means that 80 out of every 100 Americans have inaccuracies on their credit report. Chances are you might be 1 of those 80. Inaccuracies, especially ones that are harmful to your credit scores, can lead to higher interest rates on loans and credit cards or denials for new credit.

After you've obtained a copy of your credit reports review them carefully to identify any items that are negatively impacting your credit score and highlight everything you believe to be incorrect, inaccurate, errors or obsolete, These could be inaccurate or outdated accounts, unauthorized inquiries, collection that are not yours, duplicate derogatory accounts and outdated or unknown public records and accounts listed as "settled," "paid derogatory","paid charge-off" or anything other than "current" or "paid as agreed" if you had in fact paid on time and in full.

3.Make Sure Proper Credit lines are Posted on Your Credit Reports.

Often, in an effort to make you less desirable to their competitors, some creditors will not post your proper credit line. Showing less available credit can negatively impact your credit score. If you see this happening on your credit report, you have the right to complain and bring this to their attention. If you have bankruptcies that should be showing a zero balance make sure to they show a zero balance! Very often the creditor will not report a "bankruptcy charge off as a zero balance until it's been disputed.

4.Pay Down Debt and Don't Max Out your Credit Cards.

The second largest factor impacting your credit score is how much you owe. This accounts for 30% of your score. The more you owe, the lower your score will be. Someone who owes $30,000 is riskier than someone who owes only $1000, all else being equal. So a great way to increase your credit score is to pay down as much debt as you can. Another factor in the credit score formula is whether you use most or all of the available credit on any given account. The theory is that if you max out an account, it may reflect some financial difficulties that could increase your risk of default.

5.Keep Old Positive Accounts Open.

Length of credit history is another important credit score factor, so it can be to your advantage to keep open older accounts that are in good standing. While it is important to keep the total number of open accounts manageable, it may be more hurtful to your score to close an old account than to keep it open even though it increases the number of open accounts.

6.Keep Revolving Accounts Open.

It is very helpful that you maintain a variety of credit accounts.If you do not have four active credit cards, you might want to open some. If you have poor credit and are not approved for a typical credit card, you might want to set up a "secured credit card" account. A secured credit card requires you to make a deposit that is equal to or more than your limit. This guarantees the bank that you will repay the loan and is an excellent way to establish credit.

7.Use Caution When Applying for New Credit.

Every time you apply for a credit card, line of credit, or other loan, an inquiry is made to your credit report. While new credit is the least important factor in your score, it is still an important issue to consider. When you are shopping for a new loan or credit card, do your shopping in a relatively short period of time. So to avoid these inquiries, apply for new credit only if you must.

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Educate Yourself on Credit Scores and Reports

Your entire spending history is detailed in credit reports. Potential lenders can obtain this credit report and have access to your payment habits with utilities companies, school loans, car loans, mortgage payments, lease payments, and credit card bills. Not only can these creditors see your payment history, but they can also see the amount of debt you have in relation to the amount of credit that you have available to you. All of these factors work together to determine your credit score. If you have been irresponsible with your bill payments, and you have spent well outside of your financial means, then your credit score will suffer. This lets potential lenders know that you are a credit risk, and you could suffer the sting of a rejection, or end up with interest payments that add thousands of dollars to the cost of a large purchase.

Your credit habits are reported to three major credit bureaus: Equifax, Experian, and TransUnion. For the most part, these three credit bureaus keep separate credit histories, and what you find reported there depends on which creditors use what credit bureau. For instance, a retail store may only check the Experian credit report, which means that you will only be reported to Experian for that particular creditor. Larger lenders, however, will check all three credit bureaus. This is true for car, mortgage, and education loans. By defaulting on any of these loans, you can expect your credit score for all three credit bureaus to suffer.

Be sure to check your credit reports regularly. By doing so, you can be sure to remove any errors from your credit history, which can drastically improve your scores almost immediately. If you see that there are derogatory reports on your credit report, it is a good idea to contact the lenders in question to negotiate payment terms or pay off the loan in order to remove the bad reports from your credit history as soon as possible.

Your credit score is definitely the most important part of your credit report. Don’t be fooled into thinking that a good credit score will gain you automatic approval, though. Potential lenders check everything on your credit report, and one missed payment on your record could mean the difference between a lower interest rate and an outright credit rejection. Take responsibility for your credit rating, and actively work to keep it healthy.

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How Credit Bureaus Calculate Your Credit Score

The three major credit reporting bureaus all use a similar formula based on the Fair Isaacs formula, a proprietary mathematical algorithm that spits out your credit score number based on a bunch of information about you. The math part isn’t really what you need to know, though. What you need to know is what information goes into making your score and what type of information is the most important for your score.

Basically, your credit score is based on information about your entire financial life, including your debt, payments, and open accounts. The information that goes into your score, though, is weighted. This means that some categories count for more than others. Here is a breakdown of how the credit bureaus weight information, in general, to obtain your credit score.

The largest chunk of your credit score is based on the way you pay your bills. About 35% of your score is based on this information. Recent information counts for more here, but older information counts, too, especially if it’s something like a bankruptcy. It takes some time for missed payments, collection’s notices, and bankruptcies to fall off of your credit report, so these things may take some living down if you’ve been through them.

Next most important on the list at 30% of your score is your debt to credit ratio. This is the amount of money you owe versus the amount of money you’re allowed to borrow based on things like credit cards and lines of credit. The lower your debt compared with your credit, the better off you’re going to be in this category.

15% of your credit score has to do with the length of your credit history. The longer you’ve had good credit, especially credit in good standing, the more you’re going to get in this category. This is why you don’t want to close your oldest account after you’ve paid it off, necessarily.

Next, 10% of your score goes to each of two categories: mix of credit and recent inquiries on your report. It’s a good thing to have credit from different things, such as a car, a credit card, and a mortgage. It’s also a good idea to keep inquiries for your credit report low. If a lot of people are asking for your score, lenders will assume you’re getting ready to take out more loans, which makes you a higher risk client.

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What Goes Into a Good Credit Score?

Do you have any idea how much a good credit score can impact your life? It can open up job opportunities, make getting a cell phone contract or a new apartment a piece of cake, and even reduce your monthly payments on a car loan or mortgage. If you want good credit, though, there are a few things you need to focus on. Each credit reporting company looks at credit slightly differently, but they all emphasize different points. Here is a picture of what a good credit score looks like.

First off, a good credit score is based on a low amount of debt overall. Stationary debt like student loans and mortgages count here, but they really only count against you if you fail to make regular monthly payments on time. The most important thing here, though, is your debt-to-credit ratio. This involves revolving debt such as credit cards and lines of credit.

Let’s say that you have a credit card with a $5,000 limit. If you use it only for gas and pay it off every month, you’ll be carrying a zero balance, which is great for your credit. If you’re carrying a $2,000 balance, less than 50% of your limit, that’s not too bad and won’t count against you too much. If you’re carrying a $4,000 balance, though, that will hurt your credit because you’ve almost maxed out your limit.

Debt-to-credit ratio is one of the most important pieces of a good credit score. This is why people who want good credit scores focus on paying down revolving debt and unsecured loans.

Another important piece of your score, too, is whether or not you make payments on time. Late payments on your cell phone, apartment, credit card, mortgage, car, or pretty much anything else can count against you here. Even one or two late payments can wreck a credit score, so most people with a high score have no late payments within the past few months or even years.

One other important aspect of the credit score is the age of your credit. The longer you’ve had at least one credit account, the more your score will improve. This is why it’s important not to close lines of credit even after you aren’t using them anymore. A person with good credit will generally leave these lines open, using them occasionally and paying them off immediately.

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How to Dispute Mistakes on Your Credit Report

Did you know that almost 80% of credit reports have a mistake on them? Many times, these mistakes can keep you from getting loans, apartments, or even job offers. Your credit report and score are a huge part of your life, and if your report isn't accurate, you could suffer serious financial damage. A poor credit score can cost you hundreds or even thousands of dollars a year! The problem is that many people don't even know there are mistakes on their credit reports. If you haven't checked your report in a while, order a copy of your credit report from all three major credit bureaus – Equifax, Experian, and TransUnion – today.

When you get your reports, which you can do instantly online, check them over carefully for errors. Sometimes they have clerical errors like incorrect or misspelled addresses or even names. Other times, the errors are with account information. Look for accounts you?ve closed, credit you never took out, or amounts that are reported inaccurately. Keep in mind that your scores are only updated once a month or so. If you've recently paid off a debt or closed an account, it may not yet be shown that way on your report, but this might not actually be inaccurate – just not up-to-date.

If you do see mistakes, which is likely considering the common nature of mistakes on these reports, you need to go about fixing it. Your first step is to contact the credit bureau. You can do this online. Basically, you'll just ask them to look at that particular mistake, conduct research as to its accuracy, and take it off your account. The bureaus are required to respond to your request within three months by either removing the inaccurate information or by telling you why they can?t do that.

Sometimes things get a little messier than this. You may actually have to call the creditor or send a letter to have them report the closed account, settled debt, etc. to the credit bureau. Sometimes this takes a process of phone calls and letters sent before you can get rid of mistakes. It's important that you keep going until the information is removed. Also, keep careful records of every single phone call or letter, along with what information you get back from the companies you?re communicating with. This will give you recourse in the case that the company tries to wiggle out of your claims of inaccuracy.

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Top Three Ways a Bad Credit Score Hurts You

Many people know that their credit scores have an effect on their lives, but they don?t realize the actual ramifications of that score. Your credit score invades every single portion of your life, and it can hold you back or push you forward in a lot of ways. If you don?t have a good credit score, you might be wondering what, exactly, that is going to affect. The truth is that a bad credit score can affect all sorts of things in your life. Here are just the top three ways a poor score can affect you.

First, a bad credit score can obviously affect your chances of getting credit. This is what it?s primarily used for. Your score helps potential lenders assess how responsible you are with money and how much extra debt you can afford to take on. If you already have a lot of debt or a history of failing to make payments on time, you are much less likely to get a mortgage, car loan, or credit card than if you had a good score.

Not only can a bad score keep you from getting the loan you need, though, but it can also keep you from getting good rates on a loan you do receive. It may not seem like much, but a difference of even one or two percent can make a big difference on your payments and overall interest payments over the life of your loan.

Second, a bad credit score can actually keep you from getting a job. That?s right. Many people are totally unaware of this fact. Basically, when you are applying for a job, your potential employer will assess your character in every way possible. Many will pull your credit score, which is a measure of overall responsibility and lifestyle. If your score is terrible, you may get turned down for a job that you are otherwise qualified for!

Third, a bad credit score can keep you from getting things like a cell phone contract or a rental home. These things, too, rely on your credit score as a measure of your responsibility. If you?re notorious for missing or making late payments, you?ll be less likely to get a contract with landlords and other companies.

As you can see, having a poor credit score can really leave you with some poor life options. This is why it?s vital to take every possible step you can to repair your credit score.


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