Demystified Improvingcredit

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  • 8/15/2019 Demystified Improvingcredit


    No Nonsense Guide to Improving Your Credit

    Understand thebasics and learn howto improve yourcredit score.Improving or rebuilding credit is animportant step toward giving yoursel abetter fnancial li e. When you improvecredit (whether rom good to excellent or

    rom poor to good credit), you may fnd iteasier to get a home loan or other fnancing.Plus, you may quali y or lower interest ratesand lower mortgage payments.

    I you have less-than-per ect credit, youllbe happy to know that its not as di fcultas you might think to repair bad credit.Well help you understand the basics andshare ways to improve credit scores.


  • 8/15/2019 Demystified Improvingcredit


    The goal o improving your credit score, rebuilding credit ormaintaining good credit is to give lenders, such as your bankor your home loan company, con dence that you will makeyour loan payments on time and will pay back what youborrow. To decide whether or not you are a good credit risk,lenders usually look at the seven actors below. By working onthese key points in your li e, you can start down the path tobetter credit or bad credit repair.

    IncomeLenders want you to have a steady income every month

    rom earnings, commissions, investments, rental paymentsand other sources, such as government bene ts or alimony.They also look or a stable work history, which generallymeans that you have been working steadily or the pasttwo years.

    AssetsAssets are things you own that have value. Lenders wantyou to have assets that are liquid, or easy to turn intocash. This includes savings, investments, retirement undsand cars.

    Liabilities Liabilities are debts, including home loans, equity home loans,credit card balances, car loans, student loans and so on.The amount you owe isnt so important on its own, butlenders are very interested in how your debts compare toyour income, as discussed below under Debt-to-Income Ratio.

    Other Financial In ormationLenders also look to see i you have any situations thatcould make it hard or you to make your loan payments,such as lawsuits, collection activity, recent bankruptcy orproperty oreclosure, obligation to pay alimony or childsupport, or being a co-signer on another loan.

    Payment History Your credit score can be hurt i you pay late just once by 30days or more, whether its on a home loan, a credit card, acar loan or other bills. Starting now to pay your bills on timeis a great way to maintain or rebuild your credit.

    Credit ReportsLenders will look at your credit reports, which arecreated by the three national Credit ReportingAgencies (CRAs):Equi ax, Experianand TransUnion.These reports include details on your credit accounts andin ormation on your payment history.

    Debt-to-Income RatioLenders compare your monthly debt expenses to yourmonthly income to get this number. For example, i yourgross monthly income is $3,500 and your total monthlydebt payments total $1,000 then your debt-to-income ratiowould be 29% (1,000 3,500 x 100).

    In general, lowering your debt-to-income ratio can helpimprove your credit score and help you quali y or a homeloan with better terms.



    What actors can improve credit?
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    Do you need help improvingor rebuilding credit?

    Rebuilding credit begins with recognizing that youre introuble. I six or more o the warning signs below are true inyour li e, then you may want to start working on improving

    your credit. You only pay the minimum amount due on

    your credit cards each month You make late payments or sometimes cant

    make a payment You add more to your credit card balances

    than you pay each month You rarely i ever see your credit card balances

    go down

    You dont know how much you owe, total,between your credit cards and other loans You apply or new cards but are at or near

    your credit limit on existing cards You pay or necessities such as groceries, gas

    or insurance with credit cards or cash advancesinstead o cash

    You tap your savings to pay your credit cardbills and other debt or you have no savings.

    You eel anxious or stressed when using yourcredit cards.

    Lenders may also consider you to have less-than-per ect credit i

    When you have less-than-per ect credit, lenders eel less

    con dent that you will pay back the money you borrow.They o set a potential loss by charging a higherinterest rate.

    Improve Your Credit and Enjoy the BeneftsWhen you have good credit, you may nd it easier to quali

    or loans and lower interest rates, since lenders will consideyou a lower risk. Lenders gain con dence when you have a:

    So take heart: There are ways to improve your credit, makinyou more likely to quali y or loans with lower interest rateSee the tips to improve your credit on the next page and geton the road to bad credit repair.

    Your income varies signi cantly from monthto month

    Youve had credit problems in the past You owe a lot of money compared to

    your income

    Nine warning signs o less-than-per ect credit.

    Steady income High credit score

    Good credit history Relatively few debts

  • 8/15/2019 Demystified Improvingcredit


    Less-than-per ect credit lowers your credit score, whichusually means your FICO score, arating system developed by Fair Isaac Corp. Lenders,including home loan companies, look at your credit scorewhen deciding whether or not to lend you money andhow much interest to charge. When you repair bad creditand/or raise your credit score, lenders are more willing to letyou borrow money and are more likely to charge a lowerinterest rate.

    Rebuilding Credit: First Steps

    Rebuilding Credit: Check Your ReportsChecking your credit reports rom the three CRAs can helpyou see why you may have less-than-per ect credit. You can

    nd out how many credit accounts you have open, what yourbalances are and i you have any negative marks, such as latepayments. I you see any errors, contact the credit bureauimmediately to have them corrected. This could help improveyour credit score.

    You can request a ree copy o your credit report once every12 months by doing one o the ollowing:

    Rebuilding Credit: Moving orwardTracking your spending is one habit that will help youkeep your credit and your overall nances in good shapegoing orward. Start by setting spending goals.



    Tips to Improve Credit ScoresLearn how to improve orrebuild your credit and get ontrack to lower interest rates and alower mortgage payment.

    Visit Annual Credit

    Call 877-322-8228 Order a report by mail. You can download an

    order form at Annual Credit

    Contact the individual CRAs:Equifax


    To raise your credit score, start with these steps:

    1. Always pay your bills on time

    2. Work to pay off debt, dont simply move it fromone credit card to another

    3. Keep balances low on all of your credit cards andother credit accounts, but dont stop using themaltogether. Ironically, having no balance on yourcards doesnt help improve credit creditorswant to see how well you manage using and pay-ing off your credit cards. To improve credit, try topay off at least what you spend each month.

    4. Close credit accounts you dont need. Only applyfor and open new accounts when you reallyneed them.
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    Write down a budget with your monthly income and

    expenses, rom biggies like your home loan to little things likeyour morning rappucino. Every day, record what youve spentso you can see when youve reached your budget limit.

    Improving or Rebuilding Credit: Get a Helping HandThere are several trustworthy, ree or low-cost resources thatcan help you improve your credit. Here are some reputableorganizations:

    Federal Trade (877-382-4357)

    CRC-240, Washington, DC 20580Amerix 8930 Stand ord Blvd., Columbia, MD 21045

    National Foundation for Consumer Creditwww.nfcc.org800-388-22278611 Second Ave., Suite 100, Silver Spring, MD 20910

    Experianwww.experian.com888-397-3742Attn: Consumer A airs, P.O. Box 9600, Allen, TX 75013

    Equifaxwww.equifax.com800-685-1111Attn: Consumer A airs,P.O. Box 740241, Atlanta, GA 30374-0241

    TransUnionwww.transunion.com800-888-4213Attn: consumer Disclosure Center,P.O. Box 1000, Spring eld, PA 19022

    Bad Credit Repair Scams

    Avoid companies that require a ee to help you repair bad creditMany o these companies will cost you a great deal o money,could involve you in raud and could leave your less-than-per ect credit in worse shape than be ore.

    Here are some signs that indicate a company may be runninga bad credit repair scam:

    It takes time to rebuild credit, and there are no shortcuts. Butwhen you take smart steps to repair bad credit history andpractice smart money management, you can eventually enjoythe bene ts o good credit, such as lower rates and lowermortgage payments.

    The FTC Web site has additional in ormation about creditcounseling (http://www.