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More Tips to Improve Bad Credit Fast

Definition of Credit

Fundamentally, “credit” means buying now and paying later. Also, we have two lesser recognized types of consumer credit: installment credit and revolving credit accounts.

The former encompasses purchases that involve a contract (i.e., easy payment plan) that outlines the required down payment or trade deal, any finance charges and fees, and all subsequent payments.

The latter, however, deals with those accounts that have a preset limit, allowing the consumer to make any number of purchases up to the limit on credit and pay the balance off at their own pace, requiring only a minimum monthly payment and usually charging interest on the remaining balance (sometimes including previous interest).

The Five C’s of Creditworthiness

Now we can move on to the consumer’s creditworthiness. Any time you are considered for consumer credit, the lending company wants to make a thorough evaluation of your risk level. The exception is so-called bad credit loan lenders. So, if you have bad credit and are looking for loans, you better use Localcashhelp or similar website.

Most lenders tend to rely on the “five C’s” of credit to determine if you are creditworthy.

The first of these C’s is character, which essentially evaluates your sense of responsibility to your debts.

The second is capacity or your ratio of current income to current credit obligations.

Next, lenders also typically consider your capital (“the size of your financial holdings or investment portfolio”).

The fourth of these C’s is the amount of collateral you have available to secure a line of credit (i.e., a vehicle or tract of land).

Lastly, lenders normally also assess current economic conditions that could affect your ability to repay your debt, such as being laid off from your current job.

Calculation of Your Credit Score

credit score calculationOnce all of this data is gathered, lenders normally then convert this information into your credit score to easily measure your creditworthiness.

Credit scores are comprised of three digits, and companies set standards to determine the level of credit score require to obtain different levels and types of credit.

If your credit score is not high enough, your application for that particular credit account will be turned down. In the end, there are five factors that affect your credit score. Around thirty-five percent of your credit score involves your level of success in paying your past debts.

Then, the next thirty percent encompasses all your current debts owed and any credit available to you. Next, about fifteen percent of your credit score is affected by how long your accounts have been open. The longer they have been open the better.

Also, ten percent of your score is shaped by the types of credit accounts you currently have open. More variety ultimately shows lenders you are skilled in managing your money.

Finally, the last ten percent of your credit score is determined by the number of attempts you have recently made to set up new credit. Too many applications for new credit can be a sign of financial instability as the consumer tries to pay off past debts with new credit.

In conclusion, I would like to offer you some suggestions that will help you apply this information and begin improving your credit rating today:

Credit Rating DO’S:

  • DO make a strong effort to pay all of your current and future bills on time.
  • DO keep balances low on as many accounts as possible.
  • DO open new accounts as needed and manage them effectively, especially if you have had past problems with your credit history.
  • DO check and/or monitor your credit reports frequently (at least once a year).

Credit Rating DON’TS:

  • DON’T hesitate to seek help from your creditors and/or a credit counselor if you are having trouble meeting all of your obligations. That way you can make a better plan to repay your debts.
  • DON’T try to raise your score by closing accounts. This might actually lower your score.
  • DON’T apply for or open too many accounts. This could also lower your score even further.
  • DON’T be afraid to have credit cards and other lines of credit as long as you use them responsibly. This is how you can rebuild your credit history.
  • DON’T try to fix your credit score over night. It takes time and planning to effectively raise your credit rating.

What Credit Score Means and How to Improve It

Are you as confused as most people when it comes time to understand what your credit score means?

It can be a little difficult to figure out what the numbers mean, and more importantly, how the credit bureaus use these scores when you need credit.

Here is some help in understanding the process as well as some tips on improving your credit rating.

Credit scores, or FICO scores as they are also known as are numbers that are assigned to you based on your credit history. FICO is short for Fair Isaac and Company.

understanding credit scoresThe information that is used in determining your FICO score comes from a variety of places including the major credit bureaus, credit card companies that have issued you a credit card, banks and other financial institutions where you have loans, and other databases that have consumer data on them.

The numbers are added up and your score is the determining factor in whether you qualify for low-cost credit, higher-risk credit, or no credit at all.

The way the scoring range works, the higher your numbers are, the better your credit is. This translates into lower interest rates on loans or other credit items.

On the other hand, if you have a low score you will pay higher interest rates, or possibly be turned down completely.

Generally speaking, FICO scores run from the 300 point range all the way up to 850 points. These points are then separated into point groups as follows:

720 – 850
700 – 719
675 – 699
620 – 674
560 – 619
500 – 559

Anything below 500 will usually be declined credit, or be forced to pay extremely high interest rates. These six-point groups are used by all the major credit card issuers, auto finance companies, and mortgage companies.

Naturally, the very best interest rates and prime lending goes to those in the top category.

Although most consumers fall into the middle ranges, there is a lot of competition among credit card issuers, which means you can still get some very good deals.

So, how do you improve your credit score? First, let me be clear in saying that there is no overnight magic solution to adding 100 points to your credit score.

It will take a little time, but you can make some dramatic short term improvements:

1. Open up a savings account if you don’t already have one. Even if you can only begin at $100, it can add 30-40 points to your credit score.

2. Pay your bills on time. Did you know that 35% of your FICO score is base on payment history? The more frequent you pay your bills on time, the more your score will rise.

3. Don’t max out your credit cards. Having a 50% balance is optimum. It shows you’re responsible and able to handle credit cards.

4. Don’t open a lot of new credit card accounts. This may seem like a good idea, but financial institutions look at it differently. It sets off all sorts of red flags.

5. Check your credit report frequently and correct any errors. Many times people will have an error on their credit report that is adversely affecting their credit score.

Now, the next time you hear someone say their credit score is 605, you’ll better understand what they are talking about, and perhaps offer them some suggestions in being able to raise it.