If your likely to need a loan, credit card, store credit or even insurance then your access to these products and the rates you pay will be determined by your credit rating. There are many factors used to calculate the rating but as most banks and issuers are now using these score it pays to know the system and keep on the banks good side.
In the United States, credit scores are calculated by three major credit reporting agencies: Experian, Equifax, and TransUnion. The range of scores possible is 300-850 although it's very unlikely you'll be at either end of that range. If your in the 640-650 range that is considered below average so you will need to find ways to raise it. Most people fall into the 'average' range of 650-720. Over 720 is a good credit score.
If your credit score is in need of a boost then you need to know where to focus your energy to make a difference. About 35% of your score is calculated on repayment timeliness, 30% on the amount of outstanding debt, 15% on the length of time you've had credit, and a final 10% each for the types of credit you have and amount of new credit opened.
Obviously, the easiest thing to tackle and the one that has the highest impact on your credit score is repayment timeliness. There are some easy things you can do to improve this portion of your credit score. Set up monthly automatic payments for your credit accounts. Ensure that the monthly transfer is set at least as high as the minimum payment. You can always make another payment manually to get you balance down farther, but at least you know the monthly transfer will keep the account from a late payment.
Since about 30% of your score is based on the amount of your outstanding debt, you'll want to pay down your balances. Allow the automatic payments to be posted, transfer any extra money you can, and don't use your credit cards for any new purchases! Write down the balance in a location where you can see it, and watch it go down.
Sometimes people have a low credit score because they have little or no credit. If you're just starting out, one way to build credit and get a good score is to open a credit card, make a few purchases on it, and pay that card off every month. Using credit wisely and repaying on time will actually give you a better score than if you have no credit at all. That's because with no credit, the credit scoring agencies have no way to know if you'll repay on time or not.
Obtaining credit and demonstrating good repayment habits is important to do before you need a large loan, like an auto or mortgage. With a low credit rating from having little or no credit, you're not likely to be offered the best rates when you do seek out a loan. And getting a less-than-optimal interest rate on an auto or home loan can cost you thousands in extra interest—plus your disposable income will be lower each month due to the higher interest repayments.
So if you don't have any credit, consider getting one credit card, charging a small amount every few months, and repaying it each month. If you have too much debt, begin now to pay it off. Make at least the minimum monthly payment, and make it timely. Now it's time to sit back and watch your credit score improve.
Having a copy of your credit score can most often mean the difference between going deeper into debt and getting out of it. Because most people do not keep track of their credit score, they often go into deep debt without even realizing it. Every time you are late making payments to a creditor or skip one all together, you are subjected to loosing points on your credit score. Your credit score is used to show creditors and lenders how much they can trust you to pay back your loans and/or purchases when credit is being offered. If your credit score is low, creditors are less likely to offer you credit because it shows that you are a higher risk customer.
Creditors have access to computers that will report all of your credit habits and transactions such as: bill paying, credit card payments, missed and skipped payments, and debt. The more you miss payments, the lower your score gets. The average person usually starts with a credit score of about 800 and every time you skip or miss payments, that number gets lower.
Once that credit score gets to a certain low number, usually around 500 or so, is when a lot of people will file for bankruptcy. When they do this these creditors are automatically paid in full, but the bankruptcy stays on your credit report. There is one type of debt that bankruptcy will not clear and that is any money that is owed to the government from taxes or student loans etc. Filing for bankruptcy should not be used for this.
Keeping track of your credit score is necessary these days because that score can go down faster than you can imagine. When you keep up to date with your credit score you can prevent it from getting to the danger point which is 500 or less and you can save yourself a lot of trouble later on like when you want to buy a house. Ideally you should try to keep your credit score at 700 or higher but 650 is still decent. If you want to get a copy of your credit score, you can visit www.equifax.com and use the credit report to get your credit back to where it should be.
Your credit score is the best thing that you can do to avoid bankruptcy for all of the reason I mentioned above. Why wouldn't you get a copy of your credit score if that was an assured method for you to be able to avoid going bankrupt? When you correct all of your credit problems beforehand, you can be sure that bankruptcy will not be an option.
Both Richard Greenwood & Abbas Abedi are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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