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Why Repairing Your Credit Could Be Easier Than You Think

You’ve trashed your credit. Maybe it wasn’t even your fault. You could have had a medical emergency that cost you thousands of dollars. Maybe you were in an automobile accident and your car was totaled. Or it could be that you lost your job and didn’t have enough money to both pay your bills and keep a roof over your head. Of course, it could have been your fault. Did you charge wildly on a two-week dream vacation without considering how you’d repay the credit card company? Did you quit making payments on your cards because you just didn’t have enough money to make even the minimum payments?

The embarrassment of being declined

You know for certain you’re in trouble with your credit cards when you’re trying to checkout at your favorite store and your credit card is declined. That can be a horrible feeling. Fortunately, there are things you can do to repair your credit, which is not as difficult as you might think.

First, if you find that you’re in trouble with debt don’t apply for any more credit. Maybe that’s a sort of well duh, but if your credit is already poor the last thing you need to worry about is more credit. It’s likely that the application system will auto decline your application anyway. However, the more times you try to get new credit the more this will damage your credit report. This can bring down your score even further (more on this later).

Review your credit reports.

You have three reports because there is three credit reporting bureaus. They are Experian, Equifax and TransUnion and they are obligated by law to give you your credit report free once a year. You can also get your credit reports individually or simultaneously on the website www.annualcreditreport.com. But whichever you choose it’s important to get your reports and read them carefully to see what the lenders are seeing that’s damaging your credit. This could at least help you do better in the future.

If you would like information on how to read your credit reports watch this short video courtesy of National Debt Relief.

Pay down your accounts

A third way to help resuscitate your credit is to pay down your accounts. One of the biggest factors in your credit score is your debt to credit ratio. In fact, it accounts for 30% of your score. If you have a high debt to credit ratio it’s because you’ve used up a large percentage of the credit available to you. When you pay down one or more of your accounts this will improve your ratio, which ultimately will help your credit score

Dispute errors on your credit reports

Another reason to review your credit reports regularly is that one or more of them could contain errors. Your credit card company or a business could have reported something to the credit bureaus by mistake. If you do find an error it’s important that you dispute it. You could do this online but it’s much better to write the credit bureau a letter disputing the item you think is an error. Once the bureau receives your letter it will contact the company that provided the information and ask for it to verify it. If it is unable to do so or if it fails to respond within 30 days the credit bureau is supposed to remove the item from your credit report, which might be able to improve your credit score.

Open an account at a credit union

If you have a good job and need to prove yourself in terms of your credit you might want to join a local credit union. This is because credit unions tend to be a bit more liberal with credit. Or it might offer a secured credit card that would help you get started. If you use that secured card wisely, you might be able to eventually convert it into a normal credit card.

Did you know that it’s important to have different kinds of credit? Having a credit card or credit cards is only half the battle. If you have an installment loan, a line of credit, a mortgage, an installment loan or some other form of credit this can help your credit score considerably. This shows potential lenders that you are responsible with multiple kinds of credit. Of course, being responsible with all those different kinds of credit means making all of your payments on time every month going forward.

Get a secured card

As mentioned above, if you’re trying to rebuild your credit a good way to start is with a secured card. This is where you deposit some amount of and then use the card to charge against that balance. Once your balance reaches zero, you could deposit more money and continue to use the card. You need to be careful which type of secured card you choose, as there are two types. One is a prepaid debit card, the other a secured card. In both cases, you deposit money and then charge against the balance you’ve created. If you were to choose a prepaid debit card, you would load it with money just as with a prepaid cell phone.

However, with a secured card you deposit the money with the card issuer and then draw against it just as if it were a checking account. Of course, you can’t overdraw the account, as you could with a checking account because when your balance reaches zero the card can no longer be used. Prepaid cards are called cash centered transactions because you’re not using the bank’s money. In comparison, with a secured card you’ve actually deposited money with the card issuer (a bank) and are drawing against it.

What this means is that the biggest difference between these cards is that how your use a secured card will be reported to the credit bureaus but not how you use a prepaid card. This means if you’re trying to rebuild your credit it’s important to get a secured card. Naturally, you will want to use it sensibly which means adding money before your balance reaches zero and not trying to use the card when there is no money left in your account.

Understanding your credit score

If you are serious about repairing your credit it’s important to understand how your credit score is computed. As mentioned earlier in this article 30% of your credit score is based on your debt to credit ratio. Your credit usage or how you’ve used credit in the past accounts for 35% of your score. If you have misused your credit there’s nothing you can do about it because, well, history is history. Another important factor is length of credit history as it accounts for 15% of your score. This is basically how long you’ve had credit. The different types of credit you’ve had accounts for 10% of your score as we covered in the section about signing up with a credit union. The final 10% of your score is based on what are called hard credit inquiries or how many times you applied for credit. Your score is actually dinged two points every time you apply for credit. These stay in your credit report for two years though their significance diminishes at six months and then at one year.

Small Mistakes That Are Costing You A Good Credit History

credit history definitionIf you are confused about your credit score, then the best place to start is to understand your credit history.

Simply put, this is a record of all your credit transactions. Take note that it does not record all your financial transactions. It will only record credit that is under your name. So no matter how much money you have in your bank account, it will not matter in your credit report. All it will really care about are the debts that are piling up and being borrowed under your name.

Although this is not the end all and be all of your financial situation, whatever is on your credit history will have a huge impact on your personal finances. This is why it is very important that you take care of what is placed in this report. You need to make sure that there is adequate information and that it will show how you are responsible with your credit accounts.

Unfortunately, there are statistics that show how illiterate some people are when it comes to their credit report and everything connected to it. According to CreditCards.com, the survey done by the American Bankers Association revealed how people are confused about their credit report and credit scores. They think that they are the same.

Well they are not. Your credit history and your credit report can be likened with each other but a credit score is an entirely different concept. Your credit report contains the history of your debts. Whatever is on your history will be the basis when computing for your credit score. This score will determine the financial opportunities and products that you can avail.

It is very important that you educate yourself about your credit report, because any confusion that you may have about it might jeopardize the credit score that will be derived out of it. There are many things that you need to know and let us start with the financial habits that could be ruining your credit history.

These little mistakes may be bringing your credit score down

When something ruins the history stated in your credit report, you can bet that it will affect your credit score. Although the bulk of the information you will get from the Internet involves credit card debt and how it can ruin your credit history, you should know that it goes beyond that. There are so many other causes of your credit downfall. So let us identify the entries that could be viewed as credit report problems. Knowledge of what they are could help you avoid committing these mistakes.

  • Late home rental payments. Although they are not required to submit reports to the major credit bureaus, they are not banned from it. If you are regularly late on your rent, your landlord might report you – that can taint your credit history.
  • Making car rental reservations. When you plan on renting a car, one of the requirements that will be asked of you is your debit or credit card. Either of the two will help guarantee that any damage that you will inflict on the car can be covered. However, you need to know that using any of the two have different effects on your credit history. If you use your debit card, the rental company will be prompted to conduct a credit inquiry on you. The same is not true if you use your credit card. An inquiry on your credit report will have an effect on your score so be careful about this. The best way to go about this is to reserve the vehicle using your credit card and then settle the bill with your debit card.
  • Unpaid medical bills. This is actually not a small mistake but given the frequency of this debt, it deserves to be mentioned. According to WashingtonPost.com, 43 million Americans are currently burdened with delinquent medical bills. This data came from a report released by the Consumer Financial Protection Bureau (CFPB). It revealed that one out of five credit reports are tainted by outstanding balances on medical debt. This type of debt is something that you cannot avoid when you need it the most. But despite that, it can be just as destructive as an unpaid credit card debt. Do not ignore this debt and try to negotiate how you can pay it off.
  • Unreturned library materials. This may come in as a surprise. If you borrow a book or even a DVD from the library and you fail to return it, you will be charged with penalties. Some people know about this penalty but do not think twice about it because it is actually quite small – $0.25 a day. However, if your fine reaches $25, it will be fined further with $7.95. Most people, by the time it reaches this amount would have forgotten about it. But the library will make sure you will not because this is about the same time that they will forward your account to a collections agency. That could end up being a bad mark on your credit history. Think about it. If the lender sees that you cannot even pay a small amount, how do you think they will feel about lending you a bigger loan?
  • Delinquent tax payments. We all know how aggressive the IRS can be when it comes to collecting taxes. You can be sure that even if you run from your tax obligations, the IRS will track you and make you pay. Not to mention the record that they will place on your credit report. It can really take a downward spiral very fast.
  • Unfulfilled gym memberships. When it is time to cut back on expenses, one of the most common suggestions include gym memberships. If you fail to fulfill the terms of this contract, you will just be opening another way for your credit history to be tainted. Just pay off your obligations from this membership contract and cancel it. There are so many ways to stay fit without having to pay anything.
  • Ignored traffic tickets and violations. Whether it is a traffic violation or a parking ticket, these can be a cause for your credit report to receive bad marks too. While it will not be a devastating downfall, it will still reflect a great deal about your credit behavior.

How to rebuild your credit report

A lot of us have gone through financial hell in the past few years and we have our ruined credit reports to show for that. The good news is, this is one problem that you can recover from. Here are some tips that we can give you to help build, or rebuild a good credit history.

  • Choose the type of credit you will use. If your intention is to work on having a good credit history, then you need to use the right credit accounts. One of the accounts that you can use is an affordable secured credit card.
  • Understand the simple rules of good credit behavior. When you start using credit again, you need to implement the right credit behavior. This includes paying on time, paying no less than the minimum requirement, etc.
  • Be selective of how you use your credit. If it is not necessary, then do not buy it using your credit card. Also, make sure that you can afford to pay your dues and able to minimize the interest that you will pay on it.
  • Monitor your credit report every now and then. According to MyFICO.com, your credit repair should begin with this. Make sure you get a copy of your credit report and check if there are errors on it. If there are, you need to dispute it. Sometimes, you exhibit the right credit behavior but after becoming a victim of identity theft, you end up with a botched credit history.

Here is a video from the Bank of America to help you with tips on how to build your credit from scratch.

5 Credit Score Myths That You Need To Stop Believing

It is true that what you don’t know about your credit score can hurt you. But it is also equally destructive if you had been believing the wrong things about credit scores all this time.

Some people are probably still confused about their credit report and the score that is derived from it. While the calculation is actually difficult to guess, those in charged of computing it are transparent about the factors that can affect it. All you really need to do is to make sure that these factors are taken cared of for you to have a great score.

The important thing that you need to know is that your credit rating is an important measurement of your credit behavior. By behavior, we mean your ability to manage your credit and pay it off responsibly. The more you lack in terms of credit management, the less appealing your score would be. That could affect your chances of getting a loan to buy a home, finance your business or secure financial aid for a higher education. If you wish to avoid any problems in case you need any of these loans, you need to pay attention to the condition of your credit score.

Here is a video that will briefly define what this credit rating really is.

5 myths about credit rating that you need to forget

After having defined what a credit score is, let us now discuss the popular misconceptions about this financial term. It is easy to be confused about this score. Some people are so baffled that they end up not trying to understand it at all. Well that could cost you in the long run because ignorance is never bliss – especially when it comes to your finances.

There are so many myths concerning your credit rating and here are 5 that you probably haven’t heard of before.

Myth 1: You only have to worry about 1 credit score.

Let us get one thing straight – there is more than one source of this credit rating and they are handled by different companies or agencies. Each of them have different formulas and you need to be aware of the varying credit score ranges. Sometimes, you think that you are in great shape but you are actually looking at the wrong range. For instance, a FICO score range is 300 to 850. The PLUS Score made available by Experian is only for consumers and has a range of 330 to 830. If you look at the latter and you got a 700, you would think that everything is well. But what if the lender used the FICO Score and the what you thought was sufficient was actually lower? You need to know what score the lender will be using so you can understand and probably negotiate a better loan term with them.

Myth 2: Credit elimination is the key to increase your credit score.
When the Great Recession happened, people suffered so much because of the debts that they owed. Some American consumers said to themselves that they would never put themselves in that position again. They worked hard to get rid of their debts and they thought everything will be okay. But while you may think that a life without any credit is great, the same cannot be said about your credit score. As defined earlier in this article, this is how you can measure your credit behavior. If you do not have any credit, how can you have a credit score? Paying for cash will not improve your credit rating. You need to use credit and then display good behavior in paying it back. The best way to improve your credit rating is to use your credit cards and pay it back in full each month. According to CreditCards.com, you can understand how closing credit cards may seem like a good idea to improve your score. But that is not the case. You will actually cause the credit utilization in your credit report to rise. That can pull your credit score down.

Myth 3: Your assets will affect your credit score.

man with shovel and thinking about moneyThis is not true. The credit bureaus who are collecting your credit information will never look at your bank accounts. They do not care how much you earn and how many assets you have. All they care about is how you behave when it comes to your credit obligations. The only time that your bank account will have an effect is when your checks are starting to bounce. But if it is overflowing with funds and yet you are still missing out on your payments, your credit score will really suffer. Your savings will have an effect if you know how to use it in relation to your credit. For instance, if your funds are suddenly compromised, you do not have to delay debt payments if you have sufficient reserve funds.

Myth 4: Your educational background will affect your credit score.

Your college degree will not help your credit score if you do not know how to manage your debts. The ones computing your score will not care if you have a masteral or not. As mentioned, your assets will not be a part of your credit report. So the high income that you are earning because of your educational background will not matter if you cannot pay your dues. In fact, some college graduates have a low credit score because they are having a hard time paying off their student loans. If you can use your education to help you understand how to manage both your money and your debts, that can help improve your score – if you can implement it correctly.

Myth 5: A bad credit score can compromise employment opportunities.

In the past, this was a problem. But legislators realized that this is not a fair way of finding great talent. According to an article from Forbes.com, Senator Elizabeth Warren (Massachusetts) will work to end this practice of being biased to job applicants with a low credit score. She believes that this is unfair and through the Equal Employment for All Act, seeks to eradicate this practice. While there is no law prohibiting employers from looking at the credit report of applicants, it should not be the reason for a job applicant to be turned down for the job.

How to avoid ruining your credit report

According to the latest State of Credit published on Experian.com, there is an improvement in the credit score of American consumers. Compared to 2013, the 2014 State of Credit revealed that there is an increase of 2 points in the average credit score in the nation. Now, the score is 666. This is great news but that does not mean you should be relaxed already. Taking care of your score takes constant effort.

Your credit score needs attention and you can expect that this will be necessary for the rest of your life. Here are a couple of tips that you can follow to make sure your credit rating will never be ruined.

  • Do not eliminate credit. As explained earlier, eliminating credit will not help your score. You need use credit every now and then so the credit bureaus can record that activity and your behavior in paying it off. Using your credit card and paying off the balance in full at the end of each month is the best way for you to do that.
  • Pay your dues on time. Late payment is a big factor in your credit score computation. You do not want them to bring your score down. Not only that, you will be saving money by avoiding the charges incurred by a late payment.
  • Always check your credit report. You may be responsible with your credit management but if you fail to check your credit report, you may not realize that you are already a victim of identity theft. Someone may already be using your name to borrow money and not pay it off. If you cannot report this immediately, you might end up with a bad credit score and a debt that you never benefited from, but you need to pay.

The 5 Most Important Things To Know About Your Credit Score

Credit Score highlighted in yellowThe most import thing you need to know about your credit score by far is … your credit score. That’s because it’s what rules your credit life. If you have a good credit score (more about this later), the gates of credit will open wide to welcome you and you’ll get the most favorable interest rates – whether it’s a credit card, a mortgage or a personal loan. But if you have a poor or bad credit score, ouch! You may have a tough time getting any credit and when you do it’s likely to come with an interest rate that could cause you to fall over in shock.

While you may know your credit score, did you know it’s only one of your many credit scores and that no single credit score is your “real” one? If you’re really on top of things you might know that if you have a high balance on one of your credit cards this will lower your credit score – even if you pay off the balances on your other cards every month. And you might even know that if you miss just one payment it can lower your credit score by 25, 50, 75 points or more.

All this is important but they’re not necessarily the most important things you should know about your credit score as they are:

1. Your credit report(s) is the key

Your credit report from Equifax, TransUnion or Experian is what’s used to calculate your credit score — whether the information is right or wrong. This is why it’s critical that you get and review your credit reports to make sure all the information in them is correct. You can get your reports free from each of the credit bureaus once a year or all at once on the website www.annualcreditreport.com. Since the credit bureaus don’t share information it’s very important that you get all three. Also, you can’t know which report will be used to compute your credit score so you need to make sure all three reports are accurate. Data breaches and identity theft have become a way of life these days. If you don’t review your credit reports regularly you may not know you’ve been victimized. It’s also possible that one (or more) of your reports contains errors. If you spot this or anything that looks like identity theft you need to contact the relevant credit bureau immediately and dispute the information.

2. Your credit score isn’t engraved in steel

Your credit score can change as information can be added or removed very quickly. And the changes can be either positive or negative. If you have a poor score this can a reason for hope that your score will change. On the other hand it also means you need to be alert.

It’s always possible that a mistake could damage your score or, worse yet your score could be trashed by identity theft. If either of these happen you need to know about it immediately so that you can take the appropriate action.

3. Your can rebuild your credit

Have you had serious problems with your credit in the past? Then the good news is that you can rebuild your credit. While this can be seriously frustrating there are almost always things you could do to move your credit in the right direction. For example, you could get a secured credit card with a small limit and use it carefully. Also, as negative information about how you’ve used credit becomes older it generally has less of an impact on your credit scores and will eventually disappear from your credit score calculation.

Man climbing range of credit scores

4. You can know if you have a good or bad credit score

As you read earlier in this article you don’t have just one credit score. Lenders can choose from among many different credit scores and each has its own credit score range. The reason this is important is because when you get your credit score you need to know the various ranges so you can understand how your number fits in. For example, your FICO score ranges from a low of 300 to a high of 850. You also have a VantageScore with the same credit scoring range. However, the VantageScore Scale (versions 1.0 and 2.0) ranges from 501 to 990 and your PLUS score goes from 330 to 830. But in any case, regardless of which scoring model your lender chooses, the simple fact is that the higher your score the better. As an example of this if your FICO score is 830, this puts you just 10 points away from the highest possible score and you would be considered “super prime.” On the other hand if your VantageScore Scale score is 840 that’s not as great because it leaves you 150 points shy of the maximum score. But given the fact that both your FICO score and VantageScore basically range from 301 to 850 is possible to see where you stand by category as follows.

• Excellent Credit: 750+
• Good Credit: 700-749
• Fair Credit: 650-699
• Poor Credit: 600-649
• Bad Credit: below 599

So the answer to the question what is a good credit score is any score above 700.

5. You can improve your credit score

Since a bad credit score will cost you thousands of dollars in interest, increase the cost of your auto insurance and maybe even keep you from renting a house or apartment it’s important to know what you can do to improve it.

a. Make sure your credit reports are accurate

As noted above, there could be erroneous information in one of your credit reports or even worse you could be the victim of identity theft. If you do find errors in one of your reports you need to dispute it immediately. Each of the three credit bureaus has a form on their website for this purpose but it’s much better to do it in writing. You should send your letter certified and return receipt requested so that you will have proof you disputed the information. When you file a dispute with a credit bureau it will contact the company that provided the information and ask that it be verified. If the company that provided the information doesn’t respond within 30 days or can’t verify it, the credit bureau must remove it from your credit report.

b. See where you stand

Once you’ve learned that your credit reports are accurate the next step is to get your credit score – assuming you don’t already have it. The only place you can get your true FICO score is on the website www.myfico.com but it will cost you as you will be required to sign up for its monitoring service at $19.95 a month. But it’s not critical that you get your FICO score. You could get your score free at sites such as CreditKarma.com and CreditSesame.com. And no, neither of these will be your true FICO score but they will be close enough for you to know where you stand.

c. Determine why you have a low score

All credit scoring models include a “reason code” or “score factors” that explain why you lost the most points in your credit score calculation. If you check these out you’ll know why you have a low score and can create a plan to improve it.

d. Create a plan and stay with it

Once you know why you have a low credit score you can make a plan to improve it. There are usually three reasons why you have a low credit score. The first is that you have a lot of credit card debt. The second is negative information in your report because you did not use your credit wisely and three is a mixture of these.

If your problem is that you have more credit card debt than you should, there is a quick and easy answer – providing you have enough money to pay down some of your debts. The second biggest component in your credit score is called credit utilization or your debt-to-credit ratio. If you can improve that ratio by reducing your credit card debt you should see an improvement in your credit score practically overnight. Unfortunately, if the problem is that you have negative information in your credit report it’s going to take time and changes in the way you handle credit to improve your score. If you have unpaid debts or debts that have gone to collection you’ll need to address them. You’ll also want to start adding new more positive information to your credit reports to make up for the damage you’ve done in the past. What this amounts to is making sure you keep your credit card balances low and always make your credit card payments on time.

To know more about all five components that make up your credit score and which ones you could work on, be sure to watch this short video courtesy of National Debt Relief.

2 Ways Your Credit Score Is Compromised By Your Kid

poor credit scoreNot everyone makes the connection between their credit score and their kids. And when it comes to your credit, what you don’t know about your credit score can really hurt you. This is why you may want to pay attention to what this article will try to tell you.

Some people may be surprised to know how much their kids can do to harm their credit report. Of course, they can only do that with your consent but sometimes, we fail to realize how much of our credit history they can actually influence.

This is the reason why you need to view parenthood as a financial decision too. While you need to be physically and emotionally ready to have kids, you also have to consider your finances as well. Not only will you experience a bigger expense list, you will also be responsible for the financial well being of the child. You need to instill in them the right values and behavior so they can take care of their finances well.

Your kids will really start out not knowing how to take care of credit in general. If you are not careful with that, you may not only jeopardize their future, but also your very own credit report.

According to StatisticBrain.com, the national average credit score in the country is not too great to begin with. Based on the FICO score, the average is at 691, from a range of 300 to 850. Based on VantageScore, the average is at 749, from a range of 501 to 990. While the average is not really bad, it is not great either. And if you want to maximize your future financial opportunities, it is best for you to be on your guard when it comes to your credit report.

2 ways your children can ruin your credit history

So you may be thinking, how can your kids affect your credit history? How can they destroy your score if you are the one making financial decisions at home?

You would probably think that it is all on how your kids influence what you need to buy. Any good parent would want to provide their child with the best things that money can buy. In fact, there is a survey that revealed how some parents are willing to be in debt just so they can buy their kids new items this Holiday. The debt here is none other than credit card debt. While the intention may be good because gifts will make our kids happy, the means is could be better. For some parents, they experience a lot of financial difficulties because they failed to learn how to say no to their child.

It is true that this particular scenario could ruin your credit score but it is not one of the two ways that your kids can really trash your score. There is actually something much worse than that.

Cosigning loans

First is co-signing loans. Here is the background about these type of loans. You as the older one is sure to have a great credit history behind you. Since you have used your credit cards in the past or taken other loans and paid it off responsibly, your score would reflect that you can be trusted with debt. That means you will most likely be approved of a loan. That is not the same for your child. As young as they are, they do not have a credit history yet. That means the lenders have no data to look at to gauge whether your child will be a responsible borrower or not.

This is where you, the responsible parent with the great credit history will come in. You will co-sign the loan with your child so they can be granted the loan that they need. In most cases, this is the scenario of parents with children who are about to enter into college.

While helping out your child with loans is a great support to give them, it will put your credit score in danger. In a page about co-signing loans on the website of the Federal Trade Commission, FTC.gov, it is explained that this will make you responsible for the debt as well. In case your child is not able to pay it back, you will be expected to pay the full amount plus any late charges or fees associated with it. And if your child fails to tell you that they are not able to pay off the co-signed loan, your credit score may have already dipped without you knowing about it.

Credit card use

The other way that your credit score can suffer is through your credit card. Some parents make their kids a supplementary user of their card – especially when they reach their high school years. This is a great way to teach your kids how to manage credit. However, it can put your own score in danger. After all, you are still the primary card holder. If you do not monitor what your child buys through the card, you might be in trouble already. We all know the devastating effects of credit card debt on credit reports. Do not let your kid ruin yours by racking up too much debt on your card. Let this be a great lesson for them and not are lesson to you about trusting your kid with your credit card.

How to teach kids about credit reports

The very first financial lesson that your child will learn is going to come from you. Whether this is something that you will sit down and talk to him about or let him see through your habits, they will get the first lesson from you.

It is even possible for you to teach them about credit reports yourself. This is especially true if you have a joint account with them or you listed them as authorized users of your credit card. You may want to show them a copy of their credit report. According to ConsumerFinance.gov, minors are allowed to get a copy of their credit report by the time they reach 13 years of age. Parents can also request this as long as they provide proof that they are the legal guardian of the child.

The main reason why you want to do this is because of child identity theft. It is rare that kids will request a copy of their credit report. This is probably why some criminal choose to use their identities. You want to avoid this by checking on your child’s credit report every now and then.

But even without the report that is on your kid’s name, you can show them your own credit report. Then explain to them the importance of having a good record on your report. You need to tell them that your credit score is an important qualification to have for the future.

This is only one of the personal finance lessons for kids that you need to go through to prepare them for adulthood. If you teach them about credit, you can help them understand the value of money. It helps to go through a couple of videos on the Internet to help you explain things to them.

National Debt Relief have a couple of videos that you can use – like the video below. Here are some tips that will help you lower your credit score by 100 points.

4 Possible Reasons Why You Have A Credit Report Error

magnifying glass on credit reportIf you find a credit report error, you need to act on it fast. The after effects of the Great Recession left a lot of Americans suddenly concerned about the state of their credit. And you really should be. Your credit report holds a lot of weight on your financial life – especially when you are relying on loans to get your ahead on your financial goals. So if you ever find an error in your own report, make sure you know what to do.

According to a report published on ConsumersUnion.org, the FTC (Federal trade Commission) revealed that one in every five consumers found an error in their credit reports. That means an estimate of 40 million consumers encountered problems with their reports. 5% or 10 million consumers had severe credit report mistakes that could make them pay more in terms of loan interest rates.

The same report mentioned that consumers found a lot of errors in their credit data. This includes finding an entry that did not belong to them. That could mean identity theft problems. On one side, some people said that they had a more simple credit report error – merely needing an update.

4 ways you can get an error in your credit report

But regardless of the error that you find, you need to correct that. But before you can deal with an error in your credit report, you need to find out what caused it in the first place. There are a couple of reasons to lead your data to be ruined – one more severe than the other.

Here are 4 reasons why you have a credit report error.

  • Your own mistake. We are all bound to make mistakes – even when it comes to our own information. This is why you have to be very careful about how you will fill out application forms for credit accounts or any loan that you want to make. Sometimes, there are cases when you need to write on the form by hand. If your handwriting is all over the place, whoever will encode your data might make a mistake. So make sure that if you are filing out something or providing your information, you double check what you are placing. Because that may end up as a serious error in your credit report. Try to be consistent in the information that you will provide. If it is your mistake, then you may want to call the financial institution that you submitted the information to so you can correct the mistake. You may have to call the credit bureau too so you can update your information.
  • The bank, lender, creditor, or similar entities’ mistake. These are the mistakes that are sent by the people you provided information to. These are the ones that submit the information to the credit bureaus. If it was not yours, then you may want to check out if the bank or the entity that submitted your information made a mistake. In the event that they are responsible for the credit report error, it might be harder for you to track if they did correct the mistake or not. Sometimes, you may have to go through the investigation to prove that they did make the mistake or not – at least, that depends on the institution. In any case, make sure that you follow up your case until the mistake in your credit report is edited. There are also cases wherein you are in the midst of a dispute and the creditor or utility company marked it off as a late payment or something. You may want to resolve this so your records can be corrected.
  • The credit bureau’s mistake. If you find a credit report error and you are sure that you did not make a mistake and the same is true for the bank, then it is probably the fault of the credit bureau that is collecting your data. These bureaus collect millions of data and despite a sophisticated database, they are bound to make mistakes too. They can mix the files or misreport your information. The repercussions of these errors could be severe – so make sure you dispute the mistake as soon as possible. At any case, their process is not fail-safe so always be on your guard.
  • The case of identity theft. If none of the other three checks out, then you may be a victim of identity theft. This is when someone else takes your personal and financial information to buy things and make you pay for it. In other words – they will steal from you. According to an article from CNN.com, there were 13.1 million cases of identity theft reported in 2013. In fact, they claimed that one American falls victim every two seconds. The thing about this is, only you can spot this credit report error. As long as it is done under your name, the credit bureau will put it in your report. But if you send them a letter to dispute an entry, that is the only time they will investigate. If you do not file a dispute, then the record will stay on your report and the crime will go unpunished.

The key to correct an error in your credit report is to know about it first. If you are not aggressive in your credit monitoring, these mistakes will not be corrected. No matter how careful you are with your money, a tarnished credit report can haunt you and keep you from pursuing your financial goals.

Problems that could arise when your credit report has errors

If you have a credit report error, you could be facing a couple of problems. Here are some of the things that you could encounter.

  • Wrong credit score. According to FINRA.org, people only bother to check their credit score when they are about to buy a home. If you do have an error in your credit report that you did not correct, you might find that it is enough to ruin your chances of getting your dream home. That wrong entry in your report may be responsible for you having a low credit score. We all know that a low score could mean the disapproval of your loan. If you are approved of the loan, you may be asked to pay a higher interest on it. Not only that, insurance companies can also ask you to pay higher premiums. These look into your credit score so make sure you keep it high by correcting any error that you see on your report.
  • Paying for debts you do not owe. In case your credit report error is caused by identity theft, you might find yourself paying for an account that you never borrowed. This is especially true if it took you a long time to discover the theft. The longer it takes for you to report an error, the harder it will be to prove that you did not open that credit account. Debt effects can be very devastating – much more if it was a debt you never got in the first place.
  • Missing out on opportunities. A credit report error can also make you miss out on a lot of financial opportunities. For instance, employers usually look at your credit report before hiring you. Potential business partners also look at this data to determine how well you manage your finances. A bad credit history could bring your reputation down.

In the end, that one credit report error could end up leading you to a lot of financial problems in the future. Make sure that you monitor your credit report regularly and dispute any incorrect information that you find – and do it immediately.

Wake Up, People! You Absolutely Must Know These Things About Your Credit Score

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeA study done in 2013 revealed some amazing facts about how ignorant many Americans are regarding their credit scores and credit reports. For example, 2/5ths of those surveyed did not know that credit card companies and mortgage lenders use credit scores to determine their eligibility for credit. Another 2/5ths incorrectly believed that personal characteristics such as marital status and age are used to calculate credit scores. Between 25% and 33% did not know when it is that lenders must inform borrowers of the credit scores used in their lending decisions. More than 25% do not know how to raise or maintain their scores. And 36% incorrectly believed that credit repair agencies are usually or always helpful in improving credit scores and correcting errors in credit reports.

Wake up, people!

If you don’t understand credit scoring and credit reports you could be facing big trouble. If you’re not aware of this, you definitely need a good credit score to qualify for an auto loan, a mortgage and other financing. And if you make just one misstep such as forgetting to pay a credit card bill, you could be on the slippery slope to serious credit problems.

Do you know who compiles your credit reports?

Your credit reports are compiled by the three major credit bureaus – Experian, Equifax and TransUnion. The information they use comes from banks and the financial institutions with which you do business and includes every credit contract you’ve ever had related to debt. Debt collectors even report to the credit bureaus. So if you have an old unpaid medical bill, this could pop up on your report and damage your credit score.

In addition, the three credit bureaus collect information from public records on tax liens, court judgments and bankruptcies. Any time you apply for any type of credit (called a credit inquiry), this will be reported to the three credit bureaus. In turn, the credit bureaus provide your credit report to the lenders when you apply for new credit.

Banks and credit card companies aren’t the only ones that access your credit reports either. Cell phone providers, landlords, insurers and utility companies will also ask for a credit report in determining whether or not they want to deal with you.

What about employers?

According to the Fair Credit Reporting Act, employers can check your credit reports but they have to get your permission to do this. Of course, if you’ve applied for that dream job and your prospective employer has asked to check your credit reports, you’ll probably feel pressured to say yes. If you say no this would be as good as saying that you have poor or bad credit. And under no circumstances are employers or prospective employers permitted to check your credit score.

The inverse ratio

There is an inverse ratio to credit scores. The higher your score the lower the interest rate you will be charged on an auto loan, a personal loan, credit card, and a mortgage. Even your auto insurance will cost less if you have a high score. Conversely, the lower the score, the higher your interest rates will be.

One freebie a year

You can get a free copy of your credit reports once a year. This is a perk that was legislated by Congress a few years ago. There is a website, www.annualcreditreport.com, where you can get all three of your credit reports either simultaneously or one at a time. Alternately, you can get your credit report free from each of the “big three” credit bureaus. You should get these reports and review them carefully to make sure they do not contain errors. If you do find an error in one of your reports you need to immediately dispute it with the appropriate credit bureau. What some people do is get their report from one of the credit bureaus every three months, which is a way to monitor their credit and immediately spot any fraud.

Man climbing range of credit scoresThey won’t include your credit score

Your credit reports will contain a lot of information but they won’t include your credit score. While there are a lot of different credit scores floating around the most important one is your FICO score as this is the score that most lenders use in determining whether or not to extend you credit. You can only get your FICO on the website www.myfico.com.

Where else to get your credit score

Getting your credit score used to be a fairly big job. But it’s becoming much easier. You can get your score free on websites such as CreditKarma.com and CreditSesame.com and from the three credit reporting bureaus. These won’t be your true FICO score but should be close enough to give you a good idea of how you stack up. Whatever your number is, don’t fixate on it. The important thing is to understand how you stand in the range being used. FICO scores range from 300 to 850. This means that a score of 800 would put you in the range of very good or excellent credit. However, the VantageScore, which was developed by the three credit reporting bureaus, has a range of 501 to 990. It also assigns a letter grade to scores. If you were to have a VantageScore of 800 you would be ranked as C or Prime, which wouldn’t be as good as an 800 FICO score.

It’s becoming easier

If you have a Discover card you’re probably seeing your credit score every month on your statement. The credit card companies, 1st Bankcard and U.S. Bankcard have said that they will soon be sharing FICO credit scores and related information with their customers. This is in response to the US Consumer Financial Protection Bureau (CFPB), which has been urging the credit card companies to do this because it believes the more information a consumer has, the better a job he or she will do in managing their credit. While this has not yet proven to be true, it certainly can’t hurt for people to be able to see their credit scores every month and whether they’re getting better or worse.

How your score is calculated

No, your age, marital status, number of children or any other personal information is not used in calculating your credit score. It is based on six factors: Your payment history, debts owed, length of credit history, amount of available credit, types of credit and your credit inquiries.

If when you get your credit score you find that it’s either poor or bad there’s nothing you can do about your payment history. History is, after all, history. You also can’t do anything about your length of credit history. However, there is one factor you could get to work on – which is your debt-to-credit ratio. It’s calculated by dividing your debts owed by the amount of available credit you have. For example, if you have available credit in the amount of $10,000 and $5000 in debts owed, your debt-to-credit ratio would be 50%. Since this accounts for 30% of your FICO score this is an area where you could do something to affect it positively. The two alternatives are to either pay off some of your debts or ask one or more of your creditors to increase your credit limits. Do either one of these and you would lower your debt-to-credit ratio and this should have a positive effect on your credit score. If you’d like more tips for improving your credit score, watch this short video courtesy of National Debt Relief.

The net/net

What all this boils down to is that your credit score pretty much rules your credit life. And since your credit score is based on your credit reports – or how well you’ve used credit – the best policy is to always use it sensibly.

Surprising Fact – Secured Credit Cards Are Not Just For Those With Bad Credit

If you’re interested in personal finance you’ve probably read several if not a dozen different articles promoting secured credit cards for people with tarnished credit reports or poor credit scores and are unable to get conventional credit cards. While this is true it’s not the whole truth. The “nothing but the truth” is that secured credit cards can be great for young people that are trying to establish a credit history or for foreign citizens that are living in the US and have no American credit history let alone a credit score.

If you have poor credit

Have you checked your credit score recently? You can get it free from any of the three credit reporting bureaus or from sites such as CreditKarma.com or CreditSesame.com. This will not be your true FICO® score as the only place you can get it is on the site www.myfico.com. You will have to sign up for its Score Watch program that costs $4.95 for the first month and then $14.95 a month thereafter. But you will get two FICO Credit Scores, two Equifax Credit Reports™, FICO® Score monitoring and alerts
The reason why it’s best to get your true FICO score is because that’s the one that 90% of all lenders use in deciding whether or not to grant you credit. FICO scores range from a low of 300 to a high of 850. When you check your score if you find it’s below 580 potential lenders will see you as having a “poor” credit score. If this is the case getting a secured credit card could be a good way to build up your credit so that you will have a higher credit score. And you want to have a higher credit score because there is an inverse relationship at work here. The higher your credit score, the lower the interest rates you will be charged. Conversely, the lower your credit score, the higher will be your interest rates.

How secured credit cards work

To get a secured credit card requires that you make a refundable security deposit that then works as cash collateral in the event you default on your payments. Your credit limit will be based, of course, on how much money you deposit. While it’s possible to get a credit limit of more than 100% of your security deposit it’s more often 50% to 100%. What this means is that if you make a $300 deposit on the card that’s its credit limit. However, if your lender offers only 50% of your deposit then your credit limit would be $150. Clearly this is not as good a deal. It would be much better to find a card where your credit limit is equal to your deposit.

If you’re trying to build credit

No matter what your circumstances might be, it’s a good idea to get a secured card if you are trying to build or rebuild your credit. You are basically guaranteed to get approved because you’re the one that’s taking the financial risk through your security deposit and not your bank or lender.

No one will know

One really good thing about a secured credit card is that no one but you will know it’s a secured card. They are not emblazoned with the word “secured” on them. If you pull out the card on a date or to pay for a business lunch no one around you will know that you have no or bad credit and had to get a secured card.

Choosing the right one

Virtually all banks, major lenders and even credit unions offer secured cards. Before you choose one be sure to read the fine print carefully. This is where you’ll find the card’s fees and APR as well as other important information. But there is one thing to check out that’s more important than any other. Make sure that how you use the card will be reported to all three credit bureaus – Experian, Equifax and TransUnion. You need to make sure your use of the card will be reported to all of these bureaus because not all lenders pull information from all three. You want to create a positive history with a secured card and then make sure it’s relayed to a potential lender regardless of which credit bureau it uses.

What else to look for

Maybe this goes without saying but you should look for the secured card that has the lowest possible fee structure and APR (annual percentage rate). Unfortunately, many secured cards have transaction fees for each purchase, application fees, monthly fees to maintain the card, higher interest rates. no grace period when you make purchases and other fees that unsecured cards just don’t have.

The interest rate

Unfortunately the interest rate on a secured card or its annual percentage rate can be as low as 9.90% or as high as 22.99% or even higher. When the secured card has low or no upfront fees, it often has a higher interest rate. Conversely if the card has high upfront fees or annual fees, it could have a lower interest rate. In addition, there are often many other fees that are determined by the lender and so differ from card to card.

A secured card is not a prepaid card

It’s also important to understand that a secured card is not a prepaid card. When you make a deposit to “secure” a card and make a purchase, your balance is not reduced. Of course, you will still be required to pay for whatever you charge on a secured card each month just as is the case with a conventional credit card. However, the secured deposit balance will remain the same until you close your account – unless the card’s terms state otherwise. In comparison, with a prepaid card your balance decreases every time you make a purchase until you reach a zero balance. At that time you will need to either add money to the card or throw it away.

Note: If you’d like to know more about prepaid credit cards and what they’re good for, watch this video courtesy of National Debt Relief.

 

They aren’t negotiable

If you search carefully you may be able to find a secured card that has few or no fees. However, some cards can have a lot of fees and they can be very high. With secured cards these fees are rarely negotiable and some have fees of more than $14.95 a month in addition to application fees, late fees, over-the-limit fees, cash advance fees, annual fees and more.

You won’t get any rewards

Another downside of secured cards is that they don’t come with any rewards. You won’t get those nice little extras that many regular cards provide such as airline miles or cash back. But remember the reason that you would get one of these cards is not for its rewards. It’s to help you build or rebuild your credit, which could serve you well in the years ahead.

The net/net

The bottom line of a secured card is that it could help you build or rebuild your credit but it can be a slow process. For people that just had a bankruptcy or just completed debt settlement and don’t have good credit, it can be a good to get a secured card to help rebuild their credit scores. But if you don’t have a lot of negative information on your credit report such as late or missed payments or debts that have gone to collection then adding a secured credit card won’t turn things around for you as if my magic. The fact is that a secured card just won’t be an instant fix.

How To Improve Your Credit Score Without Making Yourself Crazy

how debt relief affects credit scoreYou do know what your credit score is, right? If not, now would be a good time to learn what it is. The reason for this is simple. Your credit score rules your credit life. If you have a poor credit score you may not be able to rent an apartment, buy a house or a car or get new credit cards. You may have to pay more for your home and auto insurance and for any loan you are able to get.

So what the heck is a credit score?

For many years the only way a lender could determine whether or not to loan you money was to sit down and plow through your credit reports from the three credit reporting bureaus. As you might imagine this was a very time-consuming process. The people at what was then called Fair Isaac Corporation (now known as FICO) felt there had to be a better answer. Its solution was to turn all of those credit reports into a single three-digit number – your credit score. How FICO pulled this off is based on an algorithm that’s known only to it. If you don’t know your FICO score you can get it at www.myfico.com for $19.95 or for free if you take out a free trial subscription to its Score Watch program. It’s also possible to get a version of your credit score free – though it won’t be your true FICO score – from the three credit reporting bureaus or from independent websites such as CreditKarma.com or CreditSesame.com. If you have a Discover card you’re probably already getting your credit score each month along with your statement.

What lenders look for

When a potential lender checks your credit score it generally views it in ranges as follows:

  • Between 700 and 850 – Very good or excellent credit score
  • Between 680 and 699 – Good credit score
  • Between 620 and 679 – Average or OK score
  • Between 580 and 619 – Low credit score
  • Between 500 and 579 – Poor credit score
  • Between 300 and 499 – Bad credit score

If you have a credit score lower than 580 you need to improve it and you can – by following these tips. And they’re easy enough that following them won’t make you crazy.

Pay your debts on time

On the face of it this may seem too simple but if you create an history of consistently making your payments on time, this will boost your credit score. If you have a car payment, credit card balances, a mortgage or student loans make sure you don’t miss your payments. If you do, your account could be turned over to a collection agency and trust us, you don’t want this to happen. A debt collector can be your worst nightmare as many of them are so tenacious they make a pit bull look like a kitten in comparison

Pay off your credit cards

Here’s another simple thing you could do and that’s pay off your credit cards. If possible, pay off your full balance or balances and then go a month without using your cards. This stops you from having to pay interest, saves you money and will, of course, increase your credit score.

Fix errors

To err is human but to fix mistakes in your credit reports is divine. One recent study revealed that nearly 25% of us have errors in our credit reports that could be affecting our credit scores. You need to get your three credit reports from the credit reporting agencies – Experian, Equifax and TransUnion and go over them with a fine tooth comb. If you find errors you will need to write a letter disputing them to the appropriate credit bureau. Your letter should identify each of the items in your report that you are disputing. You will need to include whatever documentation you have that proves your case and explain why you are disputing the information. Make sure you also request that the erroneous item or items be removed or corrected. It’s best to send your letter by certified mail, return receipt requested, so you can prove that the credit-reporting agency received it. Be sure to keep a copy of your letter and your documentation.

Moderation in all things

This phrase was attributed by the Greek philosopher Aristotle to Chilo, one of ancient Greece’s Seven Sages. It basically means nothing in excess and this is especially true when it comes to credit cards. Most experts say that you should only use 20% or less of your available credit. In other words, if you have credit cards with a total credit limit of $1000, you should keep your balances under $200, which will be very good for your score.

Up your credit limit

If that 20% doesn’t give you enough credit to satisfy your monthly needs, contact your credit card issuer and ask it to increase your limit. This will keep your usage ratio low while allowing you to spend more. As an alternate to this, you could keep smaller balances on multiple cards to maintain the right ratio.

Resist the impulse to open more accounts

One of the problems with credit cards is that it is simply too easy to open new accounts. Just about every time you check out at a store you’ll be offered the opportunity to get a new card. Also, the credit card issuers are offering more and more incentives to open their cards such as cash back and airline mileage. But each time you apply for a credit card it dings your credit score by at least two points. Plus, the more credit cards you have the more tempted you might be to use them.

Adult WomanHang on to your older cards

Here’s a tip that’s pretty darn simple. Just hang on to those older cards. If you have been making your payments on them, this is a good indicator that you are a responsible user of credit. In the event you feel you have too many credit cards and need to close a few accounts, close the newest ones first. Also, make sure you use those older cards occasionally so that your account will look active.

Time will go by

If you were forced to declare bankruptcy because of out-of-control spending or bad luck such as an unexpected illness or loss of a job, you will just need to let time pass. It can take seven or even 10 years for that bankruptcy to drop off your credit report. The good news is that if you let time pass and that bankruptcy drops off your report, your credit score will improve significantly.

How about a secured card?

In the event you are waiting for something to drop off your credit report such as a bankruptcy or an item that went into default, you might get a secured credit card. This is where you make a cash deposit to “secure” the card. You can then use it until you’ve depleted your deposit at which time you can either add more money or simply throw away the card. But the important thing is that if you use it wisely, it will help you rebuild your credit.

The net/net

The bottom line is that it if you follow the simple tips you’ve read in this article, you can increase your credit score and have better credit without making yourself crazy

Minneapolis Tops The Cities With The Best Credit Score

man jumping with a chart behind himWe all know that you could be hurt by a bad credit score. That is why a lot of financial experts say that you also have to keep an eye out for your credit report. You want to always know the state of your credit ranking so you can see if you need to improve it or not.

When you have a good credit rating, that means you have been displaying good credit behavior. It tells others that you are creditworthy – which simply means your debt is at a reasonable level, you pay your dues on time and you know how to manage your debts. Having a high credit score will prompt lenders to give you a good interest rate on any loan that you want to borrow. That is because they are sure that you do not pose any risk – that you will not run away without paying your debts.

Minneapolis have better credit management skills

When it comes to having a good credit standing, Minneapolis ranks as the top city with the highest credit score average. According to the press release published on Experian.com, residents of this city averaged at 702. This score increase by two points since 2010. This is based on the VantageScore that ranges between 300 to 850. The city is followed by Boston with 694, San Francisco with 689, Seattle with 679 and New York with 678. Phoenix is noted to be the city with the highest score increase – jumping from 647 in 2010 to 654 in the latest study done by Experian.

It has to be noted that these cities that ranked the 5 highest credit score does not necessarily have the highest or lowest debt ranking. Of the top 5, Seattle has the highest debt average per consumer at $27,279. It is followed by San Francisco with $25,828, Minneapolis with $25,626, Boston with $25,413 and New York with $25,396.

The fact that Minneapolis does not have the lowest debt average per consumer (a spot held by Detroit with $23,604), and yet has the highest credit score average shows us a couple of truths about credit ratings.

  • A low debt amount does not necessarily give you a high credit score. Detroit has a credit score average of 667 – a far cry from the 702 of Minneapolis. Although the latter has $2,000 more debt, it does not affect how the consumers in this city is properly managing their debts.
  • A high debt amount is still a factor in pulling down your score – but credit behavior still weighs in the end. Seattle, although it has a high debt amount, still landed in the top 5 credit score average. But if you look at the complete top 20 list from Experian, the city with the highest debt, Dallas ($28,240) has a credit score of 648. This proves that a high debt amount may not entirely be the cause of your credit score downfall but it does have a strong pull.
  • The debt amount is still outweighed by the credit behavior in helping you get a high score. Seattle is the perfect example for this. It is only $1,000 less than the highest average debt per consumer in Dallas but the credit score difference is more than 30 points.

Governing.com also provided data about the top states with the best credit score average. On top of the list is Minnesota, the state where Minneapolis belongs to. This state has an average of 718. It is followed by North Dakota with 715, South Dakota with 714, Vermont with 712 and New Hampshire with 711. It is interesting to note that the whole state where Minneapolis is included seems to be doing a good job when it comes to maintaining a good credit score.

How to maintain a good credit rating

But what does it take to get a good score? If you have a bad credit rating now, you do not have to fret because there are ways to fix your credit score.

Here are three important things to remember.

Borrow money wisely.

Being wise about credit goes beyond not borrowing when you need it. You have to learn how to borrow only what is necessary. A lot of people base the amount of loan that they will apply for on how much they are capable of paying. This is wrong. You only borrow what you need, nothing more. If you want to buy a home and you will qualify for a $1 million mortgage, do not take it. If a 3 bedroom apartment only costs $500,000, that is the amount that you should borrow. If your income takes a hit and your monthly cash inflow is lessened, your debt obligations will remain the same. Where will you get the amount that you need to pay off your debts?

Practice proper payment behavior.

Another important habit in credit management is your payment behavior. In the FICO Score, it is 35% of your overall score. When you pay your dues on time, this will reflect well in your score. It can keep your number up and that is always a good thing for lenders. When they see a lot of late payments, that will be a red signal for them that you do not possess the best payment behavior. You are a high risk borrower and that will prompt them to impose high interest rates on you.

Monitor your credit report.

It is not enough that you keep your score low. It is also a must that you make it a habit to monitor your credit report. You might be exhibiting good judgement and the right payment habits but that does not mean your score is already in good condition. One incident of identity theft without you knowing it can make your score plummet. It will also leave you with a huge debt to pay off. This is why you must review your credit report as often as you can.

Here is a video from Bank of America that will help you understand what a good credit score really is.

New way to compute your credit ranking

The way that credit scores are being computed is always being improved. Recently, FICO, the leading provider of consumer credit scores have announced that they refined how medical debts and collections will be computed and reflected in the credit rating of consumers.

The news found on FICO.com revealed the changes in the FICO Score 9. They are as follows:

  • Better way of assessing the collection information of every consumer and those with a thin credit history.
  • Bypassing of any paid collection accounts.
  • Differentiating of medical and non-medical collection accounts.

These changes hope to lessen the impact of medical collections on the credit score of consumers. This change is meant to make the computation more precise for lenders. After all, medical debt is not something that can be compared directly with mortgage loans, credit card debt and student loans. It is a debt that you oftentimes do not have a choice in – because it literally means choosing between life and death.
It is also a great improvement, the way this new formula allows consumers with a thin credit history to be judged more accurately about their payment behavior. It will give the new credit holders a better chance at getting a good deal on their first few loans.

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