Welcome to the credit score section. Here you will understand about credit score and it’s ratings, how it affects your life, how to rate yourself, how to read credit report properly and also know the various factor that affects your credit report most (protect your credit score).

Understand the Credit Score – it can create troubles

Surprisingly if you have these few habits then it can hurt your credit score very badly and You should avoid these events. Nowadays almost all business uses the FICO system to make the lending decision quick and proper. And also use to check the financial health of their customer. The credit score is the only parameter that decides your financial situation in the credit market. Knowing the basics of credit repair put you way ahead of the game.

Know your credit: Credit score basics

In school, you were always told about things going on in your permanent record. The only permanent record you have as an adult is your credit score. However, your credit score does follow you around everywhere you go. So before start anything else it’s necessary to understand the ways to improve credit score.

It decides whether you can get a loan to buy a car or house. It impacts your interest rates and insurance premiums. A bad credit score forces you to pay expensive deposits for rent, utilities, and mobile phone service. It can even affect whether you get a job or promotion.

Bad credit is like a black cloud hanging over you everywhere you go. It’s overwhelming and fills many people with uncertainty. But you don’t need to passively accept bad credit. Stop holding yourself back with fear and doubts. Debt can be conquered.

It’s possible to buy the car or house of your dreams. Taking control of your financial situation is a breeze when you know how to.

What is credit repair – you need to know

Credit repair is easier than it looks. A lot of companies claim to have credit repair secrets, but they won’t tell you what they are. That’s because at best, credit repair companies are charging a fee for things you can do yourself. At worst, they’re encouraging you to break the law. It’s always good to know your credit score and make it batter.

I have no problem telling you credit secrets and hacks that I know work. Banks don’t like you knowing this information because they make money off bad credit loans with high fees and expensive collection actions. Credit cards for bad credit have much higher interest rates and will ultimately just make your situation worse.

Stop letting the banks bully you into overpaying today based on mistakes you made years ago. Credit repair is an achievable goal, and that’s what we’re going to talk about today.

Understand the ways to improve credit score and Take control of your credit by using this information the financial industry doesn’t want you to know about. They’re all legal, and we know they work based on how credit reports work.

This is how to truly improve your credit score.

Get your free credit report

Your credit score affects your life in many ways. So the only ways to improve credit and protect yourself and your money are trying to stay on top of Big Brother. All three agencies are required by federal law to provide you with a free annual credit report at your request once every 12 months. You also have 60 days to report a free copy if you’re denied credit, insurance, or employment based on bad credit. To order, visit annualcreditreport.com or call 1-877-322-8228.

Anatomy of a FICO Score

To make the lending decision quick and properly more than 90% of business uses the FICO system to know the financial health of their customer. The biggest three credit reporting companies in the United States Market are Experian, TransUnion, and  Equifax.

Each credit reporting company set their own standard and business model because of this each of them makes their own changes to formulas according to their own rules. This change causes your credit score may very little bit for different reporting companies. However, there are various ways to improve credit score.

First, what are the components of your FICO score anyway? Your credit score is based on a secret algorithm designed by FICO, originally Fair, Isaac, and Company. The details of this algorithm are still hidden under a veil of secrecy even today. Though we do know the formula is generally comprised of the following five components.

Anatomy of FICO Score

  •  35% Payment History
  •  30% Credit Utilization
  •  15% Length of Credit History
  • 10% Credit Inquiries
  • 10% Type of Credit Used

So, in a nutshell, the largest component of your score, Payment History, looks at missed or late payments. Credit Utilization subtracts your amount owed from your credit limit. Length of Credit History looks basically at the Average Age of Accounts (AAoA) and how long it’s been since they were used. Credit Inquiries or “Hard inquiries” happen when you authorize a creditor to check your score. Finally, by Type of Credit Used they mean Credit Mix. They like to see a variety of different types of credit account types, e.g., revolving, installment, open.

The three Credit Reporting Agencies

There are really only three agencies that you need to concern yourself with when talking about your credit score. Feel free to skip ahead if you already know this.

To make the lending decision quick and properly more than 90% of business uses the FICO system to know the financial health of their customer. The biggest three credit reporting companies in the United States Market are Experian, TransUnion, and  Equifax.

Each credit reporting company set their own standard and business model because of this each of them makes their own changes to formulas according to their own rules. This change causes your credit score may very little bit for different reporting companies. However, there are a lot of things and financial habits that matter to your credit score.

How CRA’S performs

We may not tell you the exact details of how FICO credit score is calculated but FICO gives us information about what kind of information matters on its scoring algorithm.

Equifax, Experian, and TransUnion are the big three report agencies who keep tracks of your financial transaction and other information, including:

  • Credit card balances
  • History of balances of loan and credit cards
  • History of payments on loan and credit cards
  • Number and type of accounts you hold
  • Bankruptcy filings

All these agencies mainly collect and maintain your credit information and then resell it to the other businesses. The Experian credit score is a FICO 8 score which ranges between 300 and 850TransUnion score also ranges from 300 to 850. Like others, Equifax also provides FICO and Vantage Score and uses different scoring models which ranges between 300 and 850.

Now let’s talk about small things you can do that can potentially make big impacts in your score to change your life!

What are good Credit Score and It’s Rating

Credit scores used by lenders to calculate the risk of lending money. It’s a tool to help creditors determine how likely you are to repay their loans. Most of the major credit agencies in the United States use the FICO score to evaluate your credit health. Your FICO score normally ranges between 300 and 850. So, what’s a good credit score? While each creditor may have their own calculation, generally the following breakdown applies.

  •  A FICO score under 630 is considered as Poor Credits
  •  An average or Fair score is between 630 and 690
  • Good Score is between 690 and 720
  • An excellent score is anything above 720

You’d be surprised how many people contact me with no understanding of what their credit score is. One customer, we’ll call him Tom, was convinced he was being haunted by the ghosts of his past. He couldn’t figure out why people kept rejecting him. Tom tried burning sage around his house to purge the spirits, but what he really needed was sage advice.

How Do you Rate?

Before you can change your credit rating, you need to understand what it is. Your FICO credit score, created by the Fair Isaac Corporation, is used by lenders, creditors, landlords, and even employers to assess your credit risk.

FICO scores range between 300 and 850. The criteria for a good credit depends on what you’re applying for. Although 650 isn’t necessarily bad credit, it won’t be enough for a high-end condo rental or mortgage. It also depends on where you live.

In cities like Boston, MA; San Francisco, CA; Seattle, WA; Minneapolis, MN; and Philadelphia, PA, the average credit score of renters is over 700. But in cities like Greenwood, MS; Albany, GA; Laredo, TX; or Riverside, CA, the average credit score is below 650.

Your FICO Score Component

Your credit score is based on a secret algorithm designed by FICO, originally Fair, Isaac, and Company. The details of this algorithm are still hidden under a veil of secrecy even today. Though we do know the formula is generally comprised of the following five components or factors.

• Most Important factors – 35% Payment History
• Very Important factors – 30% Credit Utilization
• Somewhat important – 15% Length of Credit History
• Somewhat important – 10% Credit Inquiries
• Less Important factors – 10% Type of Credit Used

Related: Know these few things before they can hurt your credit score.

Why a Good Credit Score is one of the most important factors?

Your credit score is one of the most important factors landlords use when deciding whether to rent to tenants. Here’s a chart showing the cities with the highest credit scores in the country, so you know what you’re competing against.

Know your credit

Experian recently released a study showing credit scores for new and used car buyers. The average recipient of a new-car loan has a 713 credit score, while the used-car loan average was 656.

Approximately 20 percent of borrowers got a car loan with credit scores below 600 and 5 percent had credit scores below 500. While people with these low credit scores were able to secure a car loan, they paid a lot more for it. So it’s very important to understand your credit score before applying for any loan or mortgages.

Borrowers with good credit typically only must pay $1000 or 10 percent of the selling price for a down payment. With bad credit, this doubles to 20 percent or more, and that’s not all. Here’s a breakdown of how credit scores affect the interest rates for car loans.

Know your credit

As you can see, a credit score of 700 will get you an annual percentage rate (APR) of 4.16-5.68 percent. Meanwhile, a 600 credit score nearly triples that APR. I bet you didn’t realize your credit score was costing you so much.

Let’s say you get an auto loan for $10,000 for five years. With a 4.16 percent APR, you’ll pay a total of $11,204.22, assuming you’re never late with a payment. At 16.92 percent, you pay $15,034.61 by the end of your loan. Even with a higher down payment, you’ll end up with higher monthly payments and pay nearly 40 percent more by the end of your loan.

Mortgages have even higher credit requirements!

You need a credit score of at least 740 to qualify for the best loans with the lowest down payment requirements (20 percent) and interest rates. Many lenders will qualify you for a conventional mortgage at 700, and some will even finance you as low as 620, although this is easier with VA– or USDA-backed loans.

Once your credit score drops below 580, your best bet for a mortgage is the Federal Housing Administration (FHA), but you’ll need a down payment of 10 percent. That’s much better than the 20 percent or more needed on a conventional loan. Although with an FHA loan, you’ll need more PMI.

It will also affect mortgage interest rates. A FICO score of 700 can get you a 4.49 percent APR, whereas a 620 score comes with a 5.857 percent APR. Over the course of a 30-year mortgage, that’s a difference of $60,000 on a $200,000 home. Of course, mortgage rates are always changing. As of August 2018, the average APR is 4.57 percent.

Here’s a chart showing the difference your credit score makes.

Know your credit

So not only does a bad credit score require higher deposits and down payments, it increases monthly payments and total loan repayment amounts. That’s why it’s important to maintain a good credit score. Bad credit will come back to haunt you when you try to buy your dream home or a new car.

Know these few things that can hurt your credit score

A credit score can affect your life in two ways. If your FICO score is high then the possibility is you will get the approval of your loan or credit card easily with a much-reduced interest rate. Your lifestyle became so easy. You will get the freedom of credit and enjoy life as per your wish. However, there is another possibility of just the opposite of this if your credit score is not good. So it’s better always to things that affect the credit score. Feel free to skip ahead if you already know this.

If your FICO score is low then the door to your happiness is close all around you. You will never get your dream house, even not in your lifetime. It also restricts you to access a product or services offered by the bank or other financial institutions.

How to protect yourself and your score

Your FICO score can split into few major factors like payment history (35%), Debt Burden (30%), Length of History (15%), Types of Credit (10%), and Recent Credit Searches (10%). I will discuss to you how this factor is effects your credit score. Feel free to skip ahead if you already know this.

Payment history: This means the bulk of your credit score is made up of on-time payments and how much available credit you have. If you pay all your dues, credit accounts, loans on time each month then you are in a good position. How you handle your debt and how well you pay them is the most important factor for your FICO score.

Debt Burden: Many experts will tell you to stick to 30 percent of your available credit. I recommend keeping your available credit at 94 percent. You should only be spending $6 for every $100 of available credit you have. If you want to successfully raise your credit to the best possible score. So in practice, your credit limit will be five to six times high than your usages limit to game the system. This lowers your credit risk and makes you someone lenders love to work with.

Length of your credit history: The length of your credit history contributes 15 percent of your FICO score. Normally it takes six months of payment history to establish a credit score. In general, the longer the history, the more effect on the score.

Effects of late payment on your score

You can consider payment history as a record of all the things you did wrong related to your credit and how you behave to your debts. Late payments are directly related to payment history. So late payment is the most common thing among the consumers and it creates a tremendous effect on your credit score. Suppose if you make a thousand-dollar payment for the various credit card but you forget to make a payment for $50 for a single credit card. It will hurt your credit score dramatically. The longer time you late the payment, the more effect on your score. So be care full about things that affect credit score negatively.

A single late payment could have a significant effect on your credit score if you hold a higher credit score. According to the FICO data, a 30-day late payment could hurt you as much as 90 to 110 points drop in your FICO credit score. Provided that you are an initial score of more than 780 and you never missed a payment on a credit card.

For example, a consumer with only two late payments history and an existing 680 FICO score could drop 60 to 80 point in his score after hit with a fresh 30 day late payment on any of his credit account. (one is two years ago a 90-days late payment on credit card account and the second one is approximately one year ago a 30 days late payment on an auto loan account)

How collection affect your score

If you fail to pay your debt before the 90 days late payment periods then your debt sold to a third-party collection agency or internal collection department. It will update your credits reports and your score will suffer.

Are you thinking about the collection may affect your credit score? Do not worry, we can help you in this regards and you can bring back your credit point. You may be surprised by what is on your credit report. It may be something from years ago like an old cable bill that you missed when you moved. That happened to me when I received a collection notice for $156 for an old Comcast bill from a house I’d moved from several years ago and didn’t even know about it.

That one collection notice on my report was driving my score down by maybe 100 points. That was an honest mistake. Every time when you see a collection account on your credit report, you feel uncomfortable thinking that this account has a negative effect on your credit score. You will see this account in your credit report each time a collection agency reports debts to credit bureaus. Thus, these affect your credit score negatively.

However, there are some ways to get the thing sorted out. And you should always try to stay on top of all three credit reporting agencies. To avoid the damages of your credit score by the collecting account keep reading to find how the collecting agencies work.

Collections can be removed

The amount of collecting debt has no effect on your credit score. For your better understanding if you have a debt of $500 and it reduces your credit score by 50 points. A $1000 debt also reduces the same amount of point – 50 points from your current credit score.

There will be a major reduction in your credit point when the first times the collection account reports. After that, each additional collection will add a limited effect on your credit score.

Removing a collection account will usually boost your credit score. It’s always good to stay on top of all three credit reporting agencies. When you contact a collector for settlement, you should try to agree with them to a “payment for deletion”. There is a good chance it will help to boost your score. You have to check whether you paid the collection or remove the collection account, in both cases how many point you can earn.

In this regard you have two options: 1) A mortgage company can pull your credit in the last 30 days and they can run such simulation. or 2) you can sign up in a three bureau-monitoring site for www.privacyguard.com and run the analysis.

These scores are consumer score, not the FICO score but it helps you to decide which collection(s) should you try to pay or delete based on the potential score improvement. Of course, there may be another reason to pay a collection. But if you are looking for score improvement, follow the instruction above or call us – we always use these tools. Not all agencies will agree to pay for deletion.

When Charge off play the game

A creditor will charge off your account after 180 days of no payments when you do not pay anything to debt. A charge off has a highly negative impact on your score. It stays on your report for 7 years from the date it missed the payments.

The creditor often uses a third-party debt collector to attempt to collect payment after an account has been charged off. The original creditor may hold the account but assign it to the third party for collection. In this case, the original charge off with the balance will be reporting. However, a new collection account will report to your credit file if the creditor sells the debt.

Now you have two major negative items on the same debt, a charge-off, and a collection. It is a good idea to solve the problem with the original creditor before they sell the debt and the collection account shows up. The first collection can cost you 100 points negative if your credit score is in 700s. If you have lower scores and other negatives. Then the new collection has less effect on your credit score. But it is still significant. So it’s a good idea to take care of things that affect the credit score.

Hard inquiries may affect your Score

Applying for new credit may have an effect on your credit score but depends on each person’s credit history. In general, there is very less effect on your FICO score. One additional credit inquiry (hard) may result in five negative points in your score.

Hard inquiries are those, which generated when you apply for new credit and your lender request for your credit to a credit bureau. Even if your credit score changes by inquiry, it will list as factors that affect your credit score.

Therefore, Inquiries from potential creditors consider against you, but your own request does not any impact on your score. But you should always try to stay on top of all three credit reporting agencies. Do not apply randomly for your credit cards. Before applying to do your homework, Compare rates, terms and features offer by the lenders and then only apply. It is not just you, and it’s not your fault. It happens to all of us. One study showed over 34% of Americans had 620 or lower “Bad Credit” scores. Maybe they had a health issue, maybe they were in between jobs.

Related: Dispute credit report with the credit reporting agency

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