Finances

Lenders are quite fussy about what they like to see on your credit report. So much so that you will have a hard time to meet their high expectations. But what exactly are they looking for? In this article we take a look at one aspect of your credit history that lenders have a keen eye out for.

Most revolving loans, loan accounts and credit cards will show a monthly payment pattern describing your history for up to 6 years, although often only the last 3 years are visible on your credit history. Usually a revolving credit account or credit card account will be shown as a row of numbers, each one representing a single payment month. Often ‘0′ is used to show - on time, ‘1′ is used to show 30 days late, ‘2′ - 60 days late, and so on through to 9, which is generally indicating an account that has been written-off or sent to a collection agency. You should note that different credit reference agencies employ different codes but the agency concerened will normally give you a full explanation of the codes used.

As an example a well kept credit card should look something like this:

If you have never heard of a FICO score before, you should become familiar with the term. Named for the firm that invented it, Fair Isaac Corp., the FICO score is the three-digit credit summary that, in essence, reduces your entire financial life to a simple set of numerals.

The score represents a distillation of information gleaned from the three main credit-reporting bureaus ? Equifax, Trans Union, and Experian, regarding your loan and payment history, as well as any bankruptcy filings you may have made. Andy liens or payment defaults will be incorporated into the score as well. The score, which can vary from a low of 300 to a high of 850, represents an attempt to quantify a lifetime of financial dealings into a single number. It has been quite successful. In fact, most people would be surprised to see just how important that score has become and how many businesses use it for reasons that aren’t entirely obvious.

About Search Entries:

Every time a lender checks your credit history from your credit file (i.e. each time you apply for a loan), your credit-file will have a record of this. These records are known as search entries. The search entries do not generally say whether you were approved or denied credit, but they do reveal the name of the lender(s) processing previous applications. Lenders automatically impart this information back the credit bureaus and see it as an important tool.

As you can imagine, with this information other lenders can see if you have been applying for many, many loans. The lender dealing with your current application would expect to see a few search entries, but if there are more than, say, 20 in a few months he will be very wary, and may reject your application. (Of course he will be adding one more entry to your credit-file himself in the process!).The original reason for a credit search entry being inserted into credit files was to check for fraud, but lenders have since found much value in watching the habits of consumers applying for credit.

Few things influence the home buying process more than your credit. I like how Clark Howard refers to the three credit repositories as, "the three screw-ups". There is some validity to that, and hopefully recent legislation will help clean up many of the inaccuracies. Regardless, lenders need a source to determine levels of risk for lending money? and the Fair Isaac Company is where it lies. (Note: Fair was one of their last names? doesn’t necessarily denote fairness.)

There are close to 50 different things that influence your credit; some good, some bad. Within those 50, there is some 14,000 variations?talk about a fragile balance! For example, did you know that if you pay off a collection it might actually lower your score! Don’t worry most lenders don’t know it either. Also, beware of credit counseling services that promise all kinds of miracles. The only things that can be legitimately removed from your credit are things that are invalid, erroneous, or outdated. Aside from that, if it is yours? it’s yours. There may be ways to "flower it up" but it isn’t coming off. (Being intellectually honest, you know it shouldn’t either.)

Consumers reject financial advice in favour of financial frivolity

It would appear that even though their "friends" aren’t as flexible as they used to be, consumers are still stretching their credit cards beyond the comfort zone.

The vicious circle of debt manipulation involving banks, consumers and commercial credit companies is putting consumer spending under strain, as funds begin to dry up. In May 2005, the Financial Times reported the accusation that banks were fuelling Britain’s personal debt problem by repeatedly offering debt-ridden customers loans they were unable to repay.

As the UK’s personal debt increases by £1 million every four minutes, credit card spending habits still seem to be spiralling out of control. According to Credit Action, nearly 66% of the adult population have a credit card, with multiple card holding becoming a growing phenomenon in the UK. More than 60% of card holders possess at least two cards, with 10% holding at least five cards. There has also been a significant rise in the number of personal bankruptcies. In the year up to March 2005, 37,886 people were made bankrupt, a 30% increase on the previous year.

Maintaining your Credit Profile

Every consumer should be maintaining their credit profiles to ensure the highest scores possible. To do so, you must first order your credit reports from the three major credit bureaus: Equifax, Trans Union, and Experian. The federal Fair Credit Reporting Act (FCRA) entitles you to a copy of your credit Report for free, provided you meet the following criteria:

? You have been denied credit because of information in your credit report within the last 60 days.

? You are currently unemployed and are seeking employment.

? You receive public assistance.

? You believe that your credit file contains errors due to fraud or identity theft.

Additionally, you also may be able to get your credit report and credit score from other business or companies. For example, if you live in California and are shopping for a home loan, the lender must provide you with your credit score by law. Several other states require that credit scores be disclosed to consumers.

It’s possible to receive a free copy of your credit reports annually if you live in Colorado, Georgia, Massachusetts, New Jersey, Vermont and Maryland. Recently Congress passed a law which affords each of us the right to a free credit report annually. Below is a listing of the start dates for this particular program:

Credit Score Factors

The information contained on our credit reports affect every aspect of our lives; including employment, insurance, and even interest rates (mortgage, credit cards, automobiles, etc.). There is specific information captured on our report which is used to form our credit score:

? Payment History (accounts for approximately 35%)

? Outstanding Debt (accounts for approximately 30%)

? Length of Credit History (accounts for approximately 15%)

? Types of Credit Currently in Use (accounts for approximately 10%)

? Recent Inquiries (accounts for approximately 10%)

Payment History ? Your payment history includes the following types of specific Information:

? Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)

? Adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)

? Severity of delinquency. The more recent the problem, the larger the impact on your credit score.

? Amount past due on delinquent accounts or collection items

? Time since and frequency of past due items (delinquency), adverse public records, or collection items

? Number of past due items on file

There are many different ways to borrow money. Outlined below is a useful guide to some of most common ways of borrowing money.

Loans

There are many loan companies offering to lend you money. They will check your credit worthiness and may offer you a secured loan or an unsecured loan.

A secured loan means that you undertake to give the lender property you own if you do not keep up the repayments. In return, you usually get a lower APR and longer repayment period. An unsecured loan costs more in repayments but does not carry all the risks of a secured loan.

Overdrafts

Your bank might allow you to overdraw - that is, borrow from the bank by taking out more money than you currently have in your account.

You will be charged interest on your overdraft and possibly a fee as well. If you go over the overdraft limit set by the bank, you will have to pay a lot more.

Check what the bank charges for overdrafts and try hard not to go over your limit. If you do need to borrow and cannot repay the amount very quickly, you might be better off with a bank loan.

Credit 101

How does a creditor determine whether to grant you credit? For many years, creditors have been using credit scores and credit scoring systems to determine if you’d be a good risk for a loan or credit card. More recently, credit scores have been used to help determine what rates you pay for insurance. What is a credit score and why is it so important?

What is a credit score?

Credit scores and credit scoring systems are used to help creditors evaluate the risks associated with granting loans and extending credit. Everyone has a credit score. Information about you and how you have handled your credit is captured onto a credit report. How you have paid your bills, the number and type of account you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a system, creditors are able to compare all of this data against the credit performance of other consumers with similar profiles. A credit scoring system assigns a point value for each factor and helps predict who is most likely to repay a debt. The total number of points is combined to form your credit score. Your credit score predicts your creditworthiness or the probability that you will repay a loan / credit in a timely fashion. The higher the credit score, the lower the risk associated with extending loans and credit. The lower the credit score, the higher the risk associates with extending loans and credit.

"Easy Low Down Monthly Payment," "Buy Now Pay Later," "You Deserve the Car Today and We Can Finance It for You," & "Spend Today, 0% APR until Next Year!" We see those statements above every where today, on TV commercials, car dealership, banks and magazines. Those statements have put a lot of people into a financial disaster, because the statements make a lot of people believe that acquiring bad debts is an ok thing to do.

One of the main reasons why a person gets into a financial disaster is because he/she can’t wait when it comes to buy the things she wants. They keeps buying doodads and liabilities (things that lose values/luxury that goes beyond your current means) because they have no control of their spending habit.

For example, I have a friend who loves to use her credit cards to buy jewelry when she is depressed! Today she has over $20,000 bad debts. Every month, she can only pay off her interests from her credit cards only! Her office looks nice and well decorated but her financial statement looks very grim. She only lives from paycheck to paycheck to pay her debts.