Credit Score: Importance and Essentials of a Good Score
Credit Score is nothing but value to determine a person’s creditworthiness. The credit score is generated from information sourced from various credit bureaus such as banks, financial institutions and all such establishments where payments are made by a person.
The most popular company that you would have heard is CIBIL which provides detailed information about a person’s credit score. If you apply for a loan for any purpose, the first thing the lending institution will do is call for your credit score.
How a credit score is determined
A credit score is determined from your payment history. Every time you default on making a payment, your credit score is directly affected.
Remember all the times you failed to pay the credit card bill on time or issued cheques without having the requisite balance in your bank account and the cheque was returned/bounced due to insufficient funds.
All this time had a direct bearing on your credit score, thus interpreting it that you are likely/unlikely to make future payments on time. This, in turn, helps department stores, electronic stores, and lenders to decide whether to lend you money and/or allow you to buy goods on credit.
Earlier, this information was not available for individuals as it was not deemed necessary. But with the world economies getting a major hit in 2008-2010 where housing prices collapsed due to the inability of borrowers to pay, and Investment Banks such as Bear and Stearns having to shut shop due to inability to collect the loans, it was a wake-up call which was long overdue.
Today one can get their credit score for a fee from the right agencies. It might be a good idea, going forward if you can get your credit score before you apply for a loan for any purpose. If your credit history is bad, then the chances of you getting a loan are as good as nil.
How a credit report works:
The credit score in itself does not tell whether you should be given a loan or denied one. Instead, it allows lenders to make informed decisions. The information for creating your credit report is collected by credit bureaus such as CIBIL from various other sources.
How to improve your credit rating?
Improving one’s credit rating is not difficult or impossible. One just needs to be more diligent and disciplined when making payments. Stick to the pay by dates. Don’t skip payments for any reason.
Buying something may seem tempting versus making a payment that is due, but putting the payment on priority and postponing the shopping to a later date is the more prudent course of action.
When issuing cheques, make sure that you have sufficient funds in your bank account for honoring the cheque. Do not indulge in fraud, however tempting it may be or however big risk taker you may be.
Having a good credit score will help you go a long way in building your reputation. A person with a good credit score is always welcomed with open arms and lenders are always willing to go the extra mile to ensure your comfort.
The life of an average adult in the modern world is fairly chaotic. Balancing work and a family can be a challenging task, especially if you have to travel in the midst of all that. The chaos is no excuse to lack proper credit monitoring though.
You just have to find a way to monitor your credit while you go. Here are a few ways that you can monitor your credit without having to slave over your office computer.
Many credit monitoring programs will email you any time a change takes place in your credit report. If you have a phone, laptop, or tablet with internet access, you can review those emails on the go and still have an idea of what is going on with your credit.
If you have a phone that instantly alerts you whenever you receive an email, you will have real-time credit monitoring no matter where you go.
In some cases, you can get a text message about credit alerts in case of any change in your credit report. This can be dangerous if your phone does not lock because someone else can see your credit information on the phone.
If you have a device with a locking screen though, you will not have to worry about your personal information going in someone else’s hands. You should be able to set up what kind of alerts you want to receive in text messages, just in case.
Many credit card companies will call you to verify charges on your account when something suspicious shows up. This may involve a series of large purchases on the card, or a chain of ATM withdrawals.
As long as you have your cell phone accessible while you are on the run, you can get those phone calls to see what is going on with your credit cards. You can always chargeback if you discover a charge that you did not authorize.
There is no reason for you to neglect credit monitoring, even if you have a busy schedule to manage. You can get all of the information you need about your credit through the web, so all you need is a mobile device that can access the internet for you. Keep a close eye on your credit accounts and credit pulls so you do not become a victim of identity theft.
Shop Around For The Right Credit Monitoring Service
These days, you can’t afford to not keep an eye on your credit report. Identity theft is on the rise, and no one can afford to not keep abreast of what may or may not appear on this all-important document.
Affordable Cost Paying To Trace Credit Report
Many people are signing up for credit monitoring services, which track credit reports and sends an alert if there is any suspicious activity. The services typically cost between $10 and $15 per month.
Experts are divided as to whether consumers need a credit monitoring service, as well as whether they are worth the cost. But more and more of these experts are saying that signing up for such a service is very helpful to consumers. But they also say it is important to know what the service you sign up for really offers, how much it costs and what you’ll get for your money.
Basic Credit Monitoring
Basic credit monitoring services will track your credit report at one or more of the credit reporting bureaus, and send you a notification if there is an inquiry or some sort of unusual activity. They can also provide you with unlimited access to your credit report and can track your credit score.
One of the most helpful aspects of credit monitoring is that these services are good at spotting when a new account is opened using stolen information. This helps prevent identity theft, although some instances will still slip through the cracks, as most services don’t pick up all activity.
Some of the more progressive credit monitoring services are now offering to monitor public records, databases, and websites for use of consumer information – which provides a much broader base of coverage.
But can’t consumers do this on their own? They can and should monitor their accounts, watching for errors and fraud, but if you feel you are in danger of falling victim to identity theft, a credit monitoring service might be a good choice.
If you are shopping for a credit monitoring service, check to see if the company checks on your report with all three credit reporting bureaus. Check with the Better Business Bureau to be sure there are no complaints registered against the company, and shop around.
Make sure you get the best deal for the money. You’ll want to steer clear of those companies that make over the top promises they can’t possibly deliver, like telling you they’ll prevent identity theft. No company can prevent it.
What you want instead is a credit monitoring service that is cost-effective, monitors as many areas as possible, reports quickly and accurately, and that will help you keep your finger on the pulse of your credit.
Once you’ve found this company, paying a little each month for peace of mind will surely be a small price to pay.
5 Must-Read Books On Credit Repair
Pulling your credit score up into higher ranges isn’t a difficult task once you know how to repair it. You’ll need to arm yourself with knowledge before you start rising, and there is no lack of credit-related books. Take a page from these five absolute must-read credit score repair books.
From Credit Repair to Credit Millionaire by Donna L. Fox
One of the surprises of a low credit score is the number of unknown marks that wind up in your credit report. Unknown bills and cards drag your score down like a weighted balloon. Ms. Fox’s book is written from her discovery of her plummeting credit.
As a law student, she was able to enjoy the perks of having good credit, such as purchasing real estate and the condo she calls home. After discovering that her credit score had fallen, she learned the ways to bounce it back up. In this book, she shares with readers her method for reviving a bad credit score based on her experiences.
Credit Repair Kit for Dummies by Stephen R. Bucci and Terry Savage
This little volume comes packed with a large toolbox of tips and tricks for building and maintaining your credit score. Readers learn how to manage their credit instead of hoping it stays up on its own. This guide is perfect for the credit novice who hasn’t spent a lot of time focusing on their credit.
Besides learning the tips and tricks of credit, Bucci and Savage arm their readers with knowledge of their credit rights, how to protect themselves from identity theft and any legal options they have.
Credit Repair Kit for Dummies breaks down credit information in an easy to read and easy to digest informative guide.
Credit Repair by Robin Leonard and John Lamb
Many credit repairers have found this book a valuable source of information. Leonard and Lamb’s comprehensive credit guide has allowed many people to recover from a credit crisis, empowering them with the necessary confidence and hope that is so desperately required.
Credit Repair shows curious readers on how to boost their credit as well as develop a realistic budget plan, save smartly, stay away from credit discrimination and how to read your credit report. It answers the essential questions of managing credit.
The accompanying CD-ROM includes templates of letters, such as a letter requesting a validation of debt which can turn your bad credit crisis around and point it in the right direction.
Hidden Credit Repair Secrets by Mark Clayborne
This book is another comprehensive volume, giving you the information to set credit goals and aim for them. Clayborne is a certified credit consultant, making his secrets available to the public in this breakthrough tome.
Clear and concise, this guide leads readers through the necessary steps of credit repair from the very first page. This book also contains letter templates that can be used to remove negative strikes removed from your credit report.
Once you start cleaning up your credit report, Claybourne then shows you how to nurture it and make it rise. Included is a 12-step plan for settling disputes that shows you the lingo that you’ll need to settle negative marks.
Complete Credit Repair by Brette McWhorter Sember
Yet another credit book that provides a disk with the proper paperwork to begin putting your credit back in order, this guide is great for those starting or taking their first steps into understanding the way credit works.
Sember offers readers who are being harassed by debt collectors a way to get away from the hounding calls. Similar to the other books mentioned on this list,
Complete Credit Repair includes a copy of the Credit Card Accountability and Responsibility and Disclosure Act of 2009, a legal document that outlines the benefits and other necessary information that those repairing their debt need to know. Simple and straight-forward, this book is a must.
No one book will fix your credit, but it will get you started in the right direction and equip you with the information to make credit repair easier. These five books offer the help that you need to turn that bad credit score into a score to be proud of.
Top Free Credit Score Calculators Online
The credit score is essentially a mathematical formula that outputs a number between 300 and 900. Your credit score determines whether you can have access to borrowed money or not.
Whether you want to take a loan out for a house, car, or just get better financing on your credit cards, your credit rating will play an important role in the process. Checking your credit score is important for a multitude of reasons. Chief among them is to make sure that it is accurate!
Events of identity theft and fraud can leave your credit score in ruins. It is best to periodically check and see that everything is as it should be.
This will be the most accurate assessment as the people of Fico actually invented the original formula for calculating the credit score.
The downside is that it will come in the form of a free trial so be sure to cancel if you don’t want to keep paying for the credit score watch.
Equifax will be just as accurate as MyFico but suffers the same flaw. It is a paying service, so while you can get your score with a free trial, you will need to cancel the order before ten days pass or face being billed.
Now it will start to get it the realm of estimation. This is still a valuable resource, as it will give you insight into creditor’s criteria for writing loans. As well, this site provides valuable tips on actively improving your credit rating.
Credit.com is more user-friendly and will provide you with links to credit cards that can offer favorable rates of interest as well as other bonuses like cashback and introductory fee waiving.
Kanetix is simple and straightforward. It provides fields to input data and will give you an estimated range. This site could be a valuable tool to cross-check other results and also potentially see which entry criteria have more of an impact on the score than others.
As well as giving a credit score calculation, CalcXML, also provides you with a comprehensive cross-comparison of competitive credit cards and their respective information: fees, rewards, and expected Annual Percentage Rate.
It is important to note that your credit score is not the only factor in getting your loan or mortgage approved. Lenders will rarely if ever, decide to lend solely on your credit rating alone. They will check your credit report.
Credit reports go into in-depth detail about your history of lending behavior. This item will be more important in a lender’s decision making than just the credit score. That being said, the score is useful for you in that it allows you to see any major variability in the rating.
Seeing as all these links are very easy to use, it would be to your advantage to get the most accurate score possible by cross-referencing sites and seeing where the average lies. Best of all, they are all free!
Bad Credit and Your Employment
It’s hard to imagine why any employer might need to know what your credit score is or what your credit reports may say about you, and yet more and more often companies are checking the credit of their potential employees before giving them a job.
While some people assert that it’s unfair for companies to look into an applicant’s credit score, most states do not prohibit this practice.
What does your credit say about you?
Depending on your credit history, your credit report can tell a potential employer a lot about you. Current debt, past debt, and history of non-payment will all be visible, but so will a rough employment history. Credit reports can hold any information that you ever provided to any lender or provider of services.
What does your credit score mean to employers?
Different companies look for different things in your credit reports. Some companies have limitations on the amount of personal debt one employee can carry at the time they’re hired, while others are only looking at your patterns of behavior financially.
Statistics show that people who are in major debt are far more likely to engage in fraudulent activities than those with a good handle on their financial freedom.
Employers also believe that someone irresponsible with money is more likely to be irresponsible on the job; exhibiting harmful habits like missed shifts and on-site laziness. It is in the employer’s best interest to hire candidates who are going to prioritize well and work hard.
What do you need to know?
Before a potential employer can run a credit check on you, he or she needs to inform you and receive written permission. If you’re not comfortable having an employer check this information, you’re well within your rights to deny them.
Either way, you’re unlikely to get a job that requests a credit check if they think you have something to hide. If you’re rejected for a job, you have a right to know if your credit was the reason.
Your employer is required to tell you which company provided the credit rating that led to the decision, and then you have an opportunity to dispute the claims. The problem is that many employers simply avoid giving this reason to avoid the hassle involved in a dispute.
Always take the time to get to know your credit score, and to dispute things that you believe have been placed on it in error. Remember that it’s never too late to reverse your bad credit and do your best to start a new and better financial life.
Your Sample Credit Bureau Letter
Do you have credit problems? Often all it takes is a letter to your consumer credit bureau or creditor to fix the problem. Such letters are fairly straightforward, which means you can avoid the $50 cost of hiring someone to write one for you. Bring in an attorney and your cost can run 5 times that amount!
Why pay a mint for a credit repair letter when you can do the job yourself? Perhaps you are not sure what should be said in this type of letter or maybe you do not know where to send it. In a bid to save you money, the following steps will help you present a concise and polished letter.
1. Your Header – Include your name, address, city, state, zip code, phone number and email address at the top of the page. Center your four lines of information or align it to the left.
2. Your Date – Put down today’s date showing the month, day and the year.
3. List the name of the creditor or credit bureau. Follow that name with the company’s street address and the city, state and zip code. If possible, list the name of the contact person and that individual’s title.
4. Begin your letter with a “Ladies and Gentlemen” salutation. Alternately, you can use “To whom it may concern.”
You are now ready to explain your situation, summarizing that information in two or three paragraphs and getting right to the particular problem.
For instance, if there is something on your report that does not belong to you then you should state, “The following information on my credit report does not belong to me.” List the name of the creditor, the account number and state the reason it should be removed.
If there are two or more errors on your reports, list each error separately by paragraph. Last of all, when you have concluded listing the problems, then ask the credit bureau to send to you a corrected credit report and have them forward copies of your amended report to everyone who has requested a copy within the previous 180 days. You will not be charged for this service.
If the credit reporting company does not respond to you within 30 business days you can correctly assume that the information on your report is wrong and that it will be automatically removed. Regardless, you should still ask for your free copy of your now corrected consumer credit report.
Once you complete the letter then sign it. Although you listed your personal information on the top of the letter, go ahead and share your full legal name, address and your contact number. Include your Social Security Number too, to ensure that credit bureau updates the right person’s account — and that would be you.
Lastly, you can list the word “attachments” or “enclosures” at the very end of your letter to show that you are including supporting documentation. Always, keep a copy of your signed letter as well as copies of your supporting documents for future reference.
If you find problems with one credit report, then you should obtain copies of your other two credit reports to examine.
If you find mistakes, repeat the process with the different bureau — it can take an additional 30 to 60 days to notice a change in your credit score, but once the wrong information has been expunged then you will be in an improved position to apply for that personal loan or home mortgage, and receive an interest rate and other terms that are more favorable to you.