Source: sxc.hu Photo: intuitives

Whenever you apply for a loan, your credit score is checked. You probably know this. But it’s not just lenders who are interested in your credit score. Insurance companies, landlords and employers now check credit scores in order to decide what sort of a risk you will be. Even utility companies, satellite TV providers and cell phone retailers might check your credit score. A great credit score also saves you lots of money over the years. If you want the best possible terms – or just to avoid being rejected – you will need a good credit score. Here is a brief guide on how to raise your credit score.

What Goes Into a Credit Score?

There are actually a number of factors that go into a credit score. Each major credit bureau has its own method of weighing different factors, and many banks and insurance companies have their own specific formulas. But most credit scoring formulas are based on the original breakdown put out by the Fair Issac Company (hence, your FICO score). You can get a good idea of what is important in your credit score by using the following as a guide:

• Payment history: 35%
• Outstanding debt: 30%
• Length of credit history: 15%
• New credit and hard inquiries: 10%
• Types of credit you have: 10%

As you can see, the most important factor related to your credit score is your payment history. Paying on time, and paying the full amount you should be paying, is the single most important thing you can do. After that, the most important thing you can do is to keep the amount of debt you have low. While other factors have some bearing on your credit score, you will find the most success in raising your credit score if you focus on making your payments on time, and reducing the amount of debt you have.

Raising Your Credit Score

The most effective way to improve your credit score, and keep it consistently high, is to cultivate good credit habits. This means that you should start making your payments on time, and start right now. You should also make sure that you are paying at least the minimum payment required. If you are over the limit on your credit cards, you need to do what you can to pay your fees and get your balances down.

Next, you should start paying down your debt. Outstanding debt also takes into account the percentage of the available debt that you are using. This means that if you have a credit card with a limit of $3,000, and you have $2,600 on it, you are dangerously close to your capacity. It is vital that you reduce your debt to a point where it looks more manageable, especially to creditors. You can see an improvement in your credit score even if you drop down to 50% of your capacity, and if you keep your utilized credit to 25% to 30% of what you have available, you are likely to even better results – and maintain a higher score overall.

After you are on track to pay down debt, and you are making all of your payments on time, you can fine tune with the other aspects of your credit score. Keep credit accounts that you have had a long time. I have one credit card that doesn’t have a rewards program, but it has a reasonably low interest rate, and I’ve had it for 12 years, since I was in college. The longer your credit history, the more accurate your score is likely to be, and it could bump you a little higher. So think twice before canceling that venerable credit card.

Finally, limit your credit opening activities to situations that you are really interested in, and take care to consider the types of credit you are getting. Creditors like to see revolving accounts (major credit cards) mixed with installment accounts (auto loans) and mortgages. However, too may payday loans and department store credit cards can weigh a little bit on your credit score.

Using Credit to Build Up Your Score

Because your credit score is based on your credit history, you need a credit history. It seems kind of obvious. This means that in order to build up your credit score, you will need to use credit. One of the fastest ways to do this is to use a credit card. You might be wary of credit cards, and with good reason. You will have to make a plan and show discipline. One way to do this is to buy one or two things with your credit card once a month, and then pay it off. If it is a small amount, you can even take two months to pay it off, in order to make installment payments. Don’t get too comfortable carrying a balance, though, since you don’t want to pay a great deal of interest.

Improving Your Credit Score Fast

There are companies that claim that they can repair your credit score fast. Be wary of these claims. You can raise your own score in 30 to 90 days, just by paying down debt quickly and making on time payments. Many credit repair places employ shady methods to give your score a short-term bump, but the effects wear off after a couple of months, and then you are back to where you started.

It is also worth noting that, by law, these credit repair companies cannot do anything for you that you cannot do for yourself. So if a company is claiming that it has some super-secret method that no one knows about, show extreme caution. A legitimate company can’t do much more for you than challenge negative items, help you fix errors, and encourage you to improve your credit habits — all things you can do for yourself without having to pay a cent.

Bottom line: Your best bet is to check your credit history, and then fix errors that appear on the credit reports at the three major credit bureaus. Then, begin to make all of your payments on time and reduce your debt. Consistently good credit habits will have their effect by helping you raise your credit score.

Post from: Personal Dividends. Subscribe to the original site Feed

How to Raise Your Credit Score

Related posts:

1. Credit Card Use is an Option Even with Bad Credit
2. Credit CARD Act of 2009: Consumers Getting the Shaft as Banks Rush to Raise Interest Rates
3. Credit CARD Act of 2009: How it Affects You
4. Getting Your Credit Card Debt Under Control
5. 5 Ways Card Issuers Can Still Nail You Despite the Credit CARD Act of 2009

Source: sxc.hu Photo: emsago

Earlier this year, Congress passed the Credit CARD Act of 2009 in response to populist outrage over banks and their practices. While the act does provide a number of protections for consumers, and does force a little more transparency out of credit card issuers with regard to their terms and changes to card agreements, there are some problems that consumers should be aware of. In fact, you are probably already aware of the fact that the February 2010 implementation date for most of the terms of the act has resulted in a rush to raise interest rates. It’s unfortunate, but, despite enraged and incredulous shouts of How can this be legal?, it is, in fact, legal. Credit card agreements, as currently constituted, leave all of the terms to the discretion of issuers. And that means that until government regulation takes effect, those with credit card debt are at the mercy of the banks that issue credit cards.

Credit CARD Act changes already in place

In August, some of the changes mandated by the credit card act went into practice. Here are the three main changes that are already in effect:

1. Issuers must give you 45 days advance warning of upcoming changes. This means, if the issuer is going to change your interest rate, or your rewards program, they need to give you 45 days. This gives you time to pay off a card (in theory; in practice it’s a bit more difficult) before the interest rate goes into effect.
2. The right to opt out of fee increases and interest rate hikes. Congress probably thought it was throwing a bone to consumers by instituting this provision early. Credit card issuers have to allow to opt out of changes by closing the account and paying it off under the current terms. However, those consumers who take this option in order to avoid higher interest rates (some banks are hiking rates by 3% or more across the board) will find that their credit will suffer. Available credit will take a serious hit, and that can harm consumers who plan to make large purchases, such buying a home with a mortgage, or using financing to buy a car, since their credit scores will suffer.
3. Issuers must provide at at least 21 days to pay their statements. Credit card statements must be issued earlier so that consumers have adequate time to make payments before late fees are assessed.

Raising rates while they still can

Credit card issuers (this includes cards issued on behalf of department stores and gas stations, which have some sort of financial division or bank) can raise rates as they see fit until February 2010. There have been some attempts to move Congress to make the Credit CARD Act changes effective at the beginning of December 2009, but by now, for most people, the damage is already done.

When the new rules go into effect, there will be limits on why interest rates can be raised, and how they can be applied to balances. While defenders of credit card companies often point out that there is usually some credit-based reason for interest rate hikes, that doesn’t explain why many people with good credit and payment histories see rate hikes. In the current case, credit card issuers are hiking rates on everyone to ensure that they get a nice, fat increase in revenue. Rates are set by a formula that takes the prime rate in the market and then adds a certain number of points to it, such as prime plus 10. Many issuers are simply changing their formula to prime plus 13 or 15 or whatever they want — which means higher rates for everyone. The fact that they have to notify you 45 days in advance, and allow you to opt out and close the account, is small comfort.

What you can do

All you can do at this point is call your credit card issuer and hope for the best. Do not believe stories about an “interest rate freeze” until the credit card act goes into effect in February. That’s bull. If there was a freeze, banks wouldn’t be able to raise the rates they are charging on their credit cards. It doesn’t hurt to ask for a rate reduction, though. Just remember to be polite. You may also have to ask for a supervisor, the solutions department, or the retentions department. Many representatives are authorized to offer you a decrease of between 2% and 5%. Here are the items that will give you a better chance of success:

• Good credit score.
• Account in good standing.
• More than minimum payments.
• You haven’t recently requested a lower interest rate.
• The ability to close the account, and take your business elsewhere.

If you do not get an interest rate deduction, and you are having trouble making your payments (this can be especially difficult if your minimum payment was raised on top of the interest rate hike), you may have to work out a payment plan with your creditor. This will likely result in a closed account. If you are not planning to use credit anytime soon, closing a credit card account that is imposing particularly difficult terms might not be a bad option. You can pay back the account with the current terms, and then work on recovering your credit rating down the road.

In the end, the Credit CARD Act is more likely to hurt than help until full implementation takes place in February. Additionally, it will be July 2010, when the new transparency rules enacted by the Federal Reserve, until more disclosure of terms can be seen. However, that doesn’t change the fact that the credit scoring system is still quite secretive. Until there is more transparency in credit scoring, and until consumers take better control of their credit use, it doesn’t matter how many laws are enacted: The game is going to be rigged in favor of the credit card issuers.

Post from: Personal Dividends. Subscribe to the original site Feed

Credit CARD Act of 2009: Consumers Getting the Shaft as Banks Rush to Raise Interest Rates

Related posts:

1. Credit CARD Act of 2009: How it Affects You
2. 5 Ways Card Issuers Can Still Nail You Despite the Credit CARD Act of 2009
3. How to Raise Your Credit Score
4. Credit Card Use is an Option Even with Bad Credit
5. Getting Your Credit Card Debt Under Control

Source: sxc.hu Photo: EyeLens

There is a lot of talk going on right now about the first time home buyer tax credit, what will happen when it expires, and whether Congress will approve an extension of the home buyer tax credit program. But no matter what happens with the tax credit for home purchase — and whether or not you end up taking advantage of it — you need to understand what is required if you want to qualify for a home mortgage loan. Here are the basics of what many mortgage lenders are looking for right now:

1. Credit Score: In the heyday of mortgage lending, you could qualify for a home loan with just about any credit score. As you might imagine, mortgage lenders are not so rash anymore. In order to even be considered, you will likely need a credit score of 660-680. If you want the best interest rate, though, you will need somewhere around a 720-740. Those low mortgage interest rates are nice, but not everyone will qualify for them.
2. Debt-to-Income Ratio: The amount of debt you have in relation to your income is a major consideration for mortgage lenders. They want to make sure that your debt won’t overcome your ability to pay. For most lenders, the debt-to-income ratio tops out at around 40% of your monthly income being used for debt payments. However, if you want the best mortgage rate, you will need to adhere to the 28/36 qualifying ratio. This states that your housing costs cannot exceed 28% of your monthly income, and your total debt payments each month should not exceed 36%.
3. Down Payment: The days of 0% down payment mortgages are pretty much over (at least until the next housing bubble), so you will need to put some money down. Many lenders want a 10% to 15% down payment, although some will accept 5% down. For the best rates, some lenders are now requiring 20% to 30% down payments. As a result of these new down payment requirements, many people are turning to FHA loans, which only require a 3.5% down payment.
4. Income Documentation: Gone are the days of low-doc and no-doc loans. Now, you need documentation of your income — and plenty of it. Some mortgage lenders require six months of pay stubs and two months’ worth of bank statements on top of your last two years’ tax returns. Making sure that you can handle the payments is paramount to mortgage lenders right now. If you are self-employed, this process can be even more onerous: When I applied for my home mortgage loan, I had to go through an income audit with an accountant (price: $600) in order to acceptably document my income.

In addition to these basic requirements, some banks may require a certain degree of liquidity. They may require that you have at three months’ worth of payments available in a savings account, emergency fund or some other place where it is readily available. Some banks want as much as 12 months or more available for payments. They want to know that if you lose your job or run into some other problem, they will still be paid — for at least a little while.

First Time Home Buyer Tax Credit for Home Mortgage Loans

These rules still apply even if you are trying to get a first time home buyer tax credit, although you can use the $8,000 tax credit toward your down payment. If you want to take advantage of the first time home buyer tax credit, though, you might be running out of time. If Congress doesn’t extend the deadline (currently November 30, 2009), then you need to hurry. Home loans need to close by November 30 in order to qualify. With most mortgages taking around 45 days to close, it means that if you don’t get the paperwork started by October 16, you could be in trouble. If you run into issues, it can take up to 60 days to close on a mortgage — and you could miss the deadline.

Responsibly getting a home mortgage has always required good financial management, planning and preparation. Now, though, with tightened lending standards, it is even more important that you prepare ahead of time to buy a home.

Post from: Personal Dividends. Subscribe to the original site Feed

What You Need to Qualify for a Home Mortgage Loan

Related posts:

1. How to Pay Off a Home Mortgage Early
2. FHA Loans Then and Now
3. You Paid Off Home Mortgage – What Next?
4. How to Raise Your Credit Score
5. Home Buyer Tax Credit Extended and Expanded