Credit Rating

There is a relationship between credit rating and credit repair. If your credit rating is 600 or below, credit repair is needed so you will always be in good standing.

But what is a credit rating? This is an indicator that tells creditors if you are credit worthy. A simple way of doing this is to encode certain things about you in the computer and within seconds, they will see the results appear on their screen.

Credit rating ranges from 350 to 850 and as mentioned earlier, a score of 600 or below is bad because if you apply for a loan, you will be paying higher interest rates compared to someone who has a good rating of 700 or above and this is usually based on 5 factors.

First, the number of inquiries you have made in the past 2 years. Did you apply for a loan or a credit card? If you did and this was approved, then as long as you pay it on time, you will have a good credit rating.

Second, what types of credit you actually have? If you have funds, then that is good. If you don’t, well don’t expect to have a high credit rating.

Third, what is the length of your credit? People who have a line of credit for 5 years or more have a better credit rating compared to someone who just graduated from college.

Fourth, how much is your debt? It is okay to have debt once in a while as long as you are able to pay for it. If you don’t owe money to anyone, then good because this will be reflected on your high credit rating.

Lastly, what is your payment history? This is somehow connected with your length of credit because this will show if you have been able to make payments on time. If you missed a payment that could be bad but if you have not, then you should have a good credit rating.

All these five factors are equally important. So you can see if you have any problems, get a credit report from one of the three crediting agencies namely Equifax, Experian, and Trans Union.

You can get a copy from each one at the same time or do it at different times of the year. This report changes so you should obtain a copy annually.

One thing you might notice looking at the different reports is that they may not always reflect the same thing. When this happens, don’t be alarmed because each one uses a different set of protocols in coming up with those figures.

However, should something there be outdated or mistaken, this must be corrected. If you have the supporting documents, write a letter and send this to the credit agency.

If what the report says its true and you are in a lot of trouble, then steps have to be taken to initiate credit repair. You can do this by yourself or with the help of a counselor.

Regardless of who is involved, only one thing is certain and that paying off whatever outstanding debt you have is the only way to improve your score.

Don’t expect that your loan application will be approved if you credit rating is not very good. Do something about it because credit repair is your only option.

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With the current credit crunch, you may have over-utilized your credit cards. This can ultimately have a negative effect on your credit rating.

Here are five tips to improve your credit rating:

1. While credit reports can be obtained for free on an annual basis, you do have to pay a fee to view your credit scores at other times. Therefore, go to annualcreditreport.com which is the only site available for free credit reports. After you have printed out your credit reports, check to determine if there is any suspicious activity or anything on the report you do not recognize or wish to dispute.

2. In order to obtain your FICO score, you can check out myfico.com. Here you will receive the scores from all three credit agencies (Experian, Trans American, and Equifax). In addition, this site details the current interest rates for home mortgages and car loans based on your FICO score.

3. Pay down your credit card debt. High interest rate credit cards should be paid off first. Add additional money to the minimum payment to facilitate the reduction of the debt. Pay credit card bills on time.

4. During this economic crisis, you may find that using credit to pay for items you need is more than tempting. The problem is that if you max out your cards, this can not only cause financial difficulties but can lower your FICO score as well. The general rule is not to spend more than 30% of your total credit limit.

5. While consolidating credit cards may save money on interest payments, it does not bode well for the credit agencies. So if you have two or more credit cards, it is recommended that you avoid applying for additional credit. Both these actions can reduce your FICO score.

In these difficult times, some of you may have to make a mortgage payment, pay for expensive medication or utilize the credit card for an expense that, under normal conditions, you would pay with cash or check. Perhaps this is a one-time occurrence. If this is the case, try to pay off that specific charge immediately.

With the current bank lending freeze, it may be some time before you can secure a loan. Even if you could find a bank willing to give you a loan, your FICO score will have to be much higher than before.

Check your credit card reports and FICO scores and if you find low scores, it’s time to take action now so that if you need a loan in the near future, you will be in a better financial position to obtain one.

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