1) What is
a 'Credit Score'?
A credit score is calculated using a mathematical algorithm that
takes into account certain aspects that affect your credit (see above
graph for a breakdown of the components of a credit score). Based
on previous data from billions of people over the years, these scores
are a rather accurate way of calculating whether or not you're likely
to pay your bills, credit card, loans, etc. That is why many
financial institutions and companies use credit scores to evaluate
you as a potential customer or client. The higher your credit
score is, the better, and the more likely you'll get that next mortgage
or loan for your car, or credit increase, and the lower your interest
rates will be.
The scale of a credit scores goes from 300 to 850, but most people
have scores between 600 and 800. Any score of 720 or above
will get you a stellar interest rate.
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2) What are the key components of my credit score?
If you look at the above graph, it shows exactly what goes into
making up your score. Here's a breakdown:
35% - Paying Your Bills: Paying
your bills late is bad, on time is good. Having
your bills sent to collections is really bad.
30% - Outstanding Debt
and Available Credit: How much money
you owe on credit cards, loans, mortgages, etc. and how much credit
is available on your current credit cards or loan applications
- the more of these factors, the worse it is for your score.
15% - Credit History: The longer you've had
credit, the better, especially if you've built up a long lasting
positive relationship with certain creditors.
10% - Credit Inquiries: An 'inquiry'
is when you apply for credit - i.e. credit cards, loans, etc. Having
alot of inquiries on your report is bad for your score because they
indicate that you may be in some kind of financial trouble or may
be taking on a lot of debt. The more recent these inquiries
are, the worse for your credit score.
10% - Credit Diversity: In general, the more different
types of credit you have, the better - for example, having a few
credit cards, a car loan, a mortgage, and a bank loan is much better
than having just 14 credit cards.
THE FOLLOWING ARE NOT COUNTED INTO YOUR CREDIT SCORE: age,
race, job, length of employment at your job, income, education, marital
status, whether you've been turned down for credit, length of time
at your current address, whether you own or rent a home.
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3) Who uses my credit score?
Just about everything we do in life involves credit scores. Everything
from renting an aparting, mortgaging a house, getting a cell phone,
turning utilities on at your house, insurance companies, and even
certain employers, all look up your credit score to determine your
viability as a customer.
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4) What are the drawbacks to credit scoring?
The main problems with credit scores is that they often contain
errors and incorrect information that can reduce your score and cause
problems for you. That's why its important for you as a consumer
to learn about credit scores and reports and take action if you feel
there are errors. That's where Evolution Credit comes in -
we'll help you check and clean up your credit report using our easy-to-use
online manager that submits and tracks your credit report disputes. It
is VITAL that you check your credit report at least once a year,
and always 3-6 months before any major loan request (thus giving
you time to clean up the report if there are errors found).
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5) How can I maintain a good credit score?
The first is the most obvious. Pay all your payments on time. The
second is, don't apply for any new credit unnecessarily. Every time
you sign and return a new credit card offering, or open that second
account at a department store because you get a 15% discount, an
inquiry will be generated and that will reduce your score. The third
is that if you must maintain credit card balances, try to keep them
at a level that is 35% - 40% of the maximum credit limit. In other
words, if the credit limit is $1,000, try to keep your running balance
below $400. Believe it or not, consolidating all your credit cards
onto one can hurt you, if the balance is at the credit limit. The
fourth is, if you get into a dispute with the phone company and it
isn't a huge amount, pay it and move on. Having one or more collections,
even if they are small amounts, can really hurt your score. (source:
americanloansearch.com)
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6) What is a 'Credit Bureau'?
Please see our page about Credit
Bureaus.
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7) What can I do to improve my credit scores?
- It is essential that you PAY YOUR BILLS ON TIME.
- Obtain your credit report and thoroughly review it, looking for
any errors and inaccurate information. Once you've located
the invalid information, you must files disputes with the creditor.
Following this process diligently and correctly can result
in major increases to your score. click
here to find out more...
- Your credit card balances should be reduced to 75% or less of
your available credit (25% is ideal).
- Only allow inquiries on your credit report if they are absolutely
necessary. Remember, The more inquiries, the lower your score.
- DO NOT open new credit card accounts for the sole purpose of
increasing your available credit hoping it will increase your credit
score.
- Nowadays, since the ratio of your debt to your
credit limit is becoming more of a credit score factor, it DOES
NOT benefit you to close old accounts or consolidate several cards
into one. In fact, doing so can even hurt your score because
creditors look at the debt-to-credit limit ratio.
So, DO NOT close old credit card accounts just because you don't
plan on using them.
- The average age of your accounts is also a key factor that creditors
consider, so definitely keep those old accounts open and active.
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8) What can I do if a creditor is misreporting my credit
information?
If the creditor is misreporting your information you could make
some money off of the creditor. Take them to Small Claims Court.
To do this call your county courthouse and ask about the proper
procedure to follow to get a court date. It's very easy and you
can do it all yourself. You'll be asked to fill out one or two
simple forms stating your complaint. Be specific in your complaint
and have proof of your claims. Within your complaint, always ask
for the creditor to remove the item from your credit file.
After you receive a court date, take note it in your calendar
and make sure to appear at the proper time, place and date. Bring
in any proof you have. Be sure to organize it before entering
the court room. Also bring receipts for the expenses you
incurred because of this complaint and incorrect information on
your report. You can also claim embarrassment and emotional stress. If
the creditor does not have proof that this is your account you
will win and the account will be removed from your credit file. Alternatively,
if the creditor is out of state or does not show in court, you
win by their default.
Creditors may be simply far too busy to waste time on one person
when they have thousands of other people to be concerned with.
However, if the creditor is putting up a fight, you may want to
contact an attorney in your area for a free consultation about
what your rights are concerning your particular situation. Remember,
a Credit Repair Company that is a law firm is not necessarily under
obligation to represent you. This will likely be much extra.
source: americanloansearch.com
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