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Credit Score - Understand it, raise it



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By : mike credit    99 or more times read


What is a credit score? Lenders and creditors use a credit scoring system to decide if you would be a good risk for their lending services. Your credit score is determined by an evaluation of your credit report which gives the details of your credit history and credit worthiness. This information is gathered and put through a statistical program which compares your history against the loan repayment history of others with a similar profile. In essence a credit score is a number assigned to you by a reporting agency to indicate your risk level. Or another way to define a credit score is "a numerical representation of your credit report." The higher your credit score, the less of a risk you are. Your score will vary from one reporting agency to another.

Your credit report is directly related to your credit score. Your credit score and credit report determines whether or not a creditor will give you credit or not. Your credit score is the main factor in deciding what terms you are offered or the rate you will pay for a loan. Therefore it is very important for a consumer to keep an eye on their credit report and make an effort to ensure a positive report. As consumers we are in control of what happens on our credit report. If you want to save money by receiving lower interest rates than you need to be in control of your credit report.

There are many factors considered when computing a credit score. Some of the things you have direct control of to ensure the safety of your credit score include the following:


Payment History

Paying your bills on time is a major factor when determining your credit score. If you have gotten into the habit of paying bills late, you will boost your credit score if you begin to consistently pay your bills on time.


Length of Credit History

People without credit history have a hard time getting a loan because they have nothing to base their credit worthiness on. The length of time you have had credit is a factor in calculating a credit score. This is also why you donít want to cancel those old credit cards that you do not use. A credit card that has been open for a long period of time is a good thing when it has a positive payment history.


Available Credit

While it is true that it is good to have established credit, too many open credit card accounts can have a negative effect on your credit score. This is another good reason to keep up on your credit report. If you are watching your credit report you will know what accounts are open and how many there are.


Amount of Debt

Try not to use all of your available credit. A maxed out credit card does not look as good as say, three credit cards with only 25% of the available credit used on each one. Of course this should be coupled with a solid payment history to enhance your credit score.


Inquiries

On your credit report you will see a section where it discloses recent inquiries. Applying for too many new accounts in the recent past may have a negative effect on your credit score. Also when you are thinking about purchasing a home or renting an apartment it seems that everyone wants to run a credit check for you. Be sure that you really are interested in living there before allowing them to run your credit.


Raise Your Credit Score

You can raise your credit score just like a credit repair company. One simple and totally free method to raise your credit score begins with getting your free credit report of course. Once you have your credit report or reports in hand look at them and look for obvious mistakes. If you find a collection account on your report that shouldn't be there because it is not yours or it has been on your credit report beyond the reporting period (typically 7 years) than you can dispute it with the credit reporting agency.

Look through the potentially negative items section and check that if anything is there that it is true, valid and within the reporting period. If all those things are true than you cannot have it removed unfortunately. Next go through the personal information section and make sure there aren't any social security numbers or other personal information that is not yours on your credit report. If you find any problems on your credit report and have them corrected you will raise your credit score.

If you are recovering from damaged credit, it is imperative that you begin by looking at your credit report and dealing with the negative items. Dispute them or work out payment arrangements. You can also try to offer them a "pay for deletion". Where you pay them some money and they have the item deleted.

Next You need to open some new accounts. Apply for a credit card use it and pay it off every month. If you do not qualify for a regular credit card, than get a secured credit card. That is a credit card that is backed by your own money. Try to open an account at a local store. Sometimes these credit cards are easier to get.

One sure fire way to boost your credit score is to have a family member with good credit add you as an authorized user on their account. When they add you as a user on an account that they have had open for a long time, you have the whole positive history of that account listed on your credit report. Obviously a credit line with a long history of on time payments on your credit report is something you need to boost your credit score.

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