Improving credit score

[Twistedrx7]

Anyone know of some good tips to improving your credit score. I know making payments early and/or on time. Overpaying the amount due. I have good credit yet cannot seem to get a car loan anymore. Or even a credit card. I usually get a nice rejection letter saying it is because of my lack of credit history.

[TheHaze]

Anyone know of some good tips to improving your credit score. I know making payments early and/or on time. Overpaying the amount due. I have good credit yet cannot seem to get a car loan anymore. Or even a credit card. I usually get a nice rejection letter saying it is because of my lack of credit history.

It's because, like it says, you have a short credit history. That doesn't mean you have bad credit, just that you don't have enough experience with payments and loans. So you'll just have to settle for smaller loans or put in larger down payments.

[Buteo]

find a co-signer?

[Main3s]

Keep your credit cards with an open balance less then half. That shows that you make payments and can keep (good) credit. If lack of credit is the issue, then try and get a CC at Target, Kohls, Discount Tire..etc. They may only give you a $500. limit but that can establish good credit if paied on time and their fairly easy to get. Talk to your bank and see if they'll give you a loan.

Finally remember it may just be the economie...

[copperhead]

This space reserved.

 

I've got a great write-up from another forum, but it I need to finish installing open office before I can open it.

[Twistedrx7]

Problem is i cannot open a credit card because of my lack of history? Yet, ive already had two car loans go through the first time. Now i am down to one car loan with only 5K left to pay off. Never needed a co-signer or anything. Just seemed odd, i couldnt get a credit card at a jewelry store yet the next week i went to the bank and got a 12k loan.

[John Bruh]

the best thing to do if your trying to get a auto loan would be get a savings secured (hopeing you have a couple thousand in there) get that type of loan for like 3k and 12mo. that will help because its an installment loan, which auto loans are. credit cars are good (thats how i built my credit up to a 730 in 2yrs and got my house) but their a revolving type of credit. open up a couple new credit cards, keep them at 50% and get that savings secured loan. if you need a car asap and cant wait get a co-signer that will help you.

 

Also when getting an auto loan there are a lot of different varaibles. what are you looking at, year, miles, book value, money down? etc, etc.

[John Bruh]

2 open auto loans will kill the deal too. do u know ur credit score?

[2highpsi]

There is a formula for credit scores, however its not made public due to the fact that people would manipulate it.

 

Get a copy of your credit report and make sure everything is correct, and there are no delinquent accounts on your history.

 

Don't apply for credit often as "hard pulls", or an attempt to recieve credit brings your score down.

 

Average age of accounts is a big factor also. If you just opened a couple accounts your average age of accounts goes down, and thats bad. Also don't close an account you have had for a long time, that can also lower your score.

 

Keep revolving debt(credit cards), but keep your balances down. The sweet spot seems to be as close to 33% of your available balance as possible.

 

Keep an auto loan. Make extra payments, but still keep the loan for a few years.

 

Keep a realestate account and keep it payed on time.

 

Thats your credit score. On top of that banks look at things like how long you have lived at a house. They want to see that you don't move around a lot. They also like to see you keep a job for as long as possible. DTI or Debt to income is also big. Make sure to keep your total monthly debt (credit cards, house, car loan) around or under 40% of your gross monthly income.

 

Hope that helps

[Conesmasher]

Anyone know of some good tips to improving your credit score. I know making payments early and/or on time. Overpaying the amount due. I have good credit yet cannot seem to get a car loan anymore. Or even a credit card. I usually get a nice rejection letter saying it is because of my lack of credit history.

 

The loans that you get or don't get could also be a result of the market. Don't always blame yourself.

 

I can only tell you what I have done for the last eight years and has seemed to work for me.

 

Credit cards: I got my first one at 18, with a $500 limit......that has jumped to $5000 limit at this point. I never let the balance get out of control and I always made more then the minimum payment. Second card was nice, but I never used it. At 21 years of age I had $21,000 in available credit limit from my credit cards.....that is a huge change to mess up......thank goodness I didn't. In total I have 3 banks cards, 2 retail cards. All of them have always been paid on time and I typically keep balances low.

 

Cars: Was co-signed for when I turned 18, car got totalled and got co-signed on another car 6 months later. After that, I didn't need anymore cosigners

 

House: Bought a house last year and my score was 815, which isn't too shabby for a 25 year old.

 

Keep the debt-to-income low, and illustrate that you CAN carry a balance, but you don't let it get out of control. You have to show them that you can use it in moderation and not blow up. To this day I still haven't cancelled my earliest CC's.....it's nice having that show up on you credit report and your account is relatively old.

[HAOLE]

DaveRamsey.com

[copperhead]

Credit and you

by thewise1

 

Feb 1st, 2005

 

I've seen a lot of misinformation lately regarding credit and I just thought that it's time I clear it up.

 

The young and dumb years

 

First, a little background on me. 6 years ago I was a dumb 18 year old who thought he knew everything. I got my first credit card and although I realized I needed to pay it back, I pretty much maxed that bad boy out within a short amount of time. Then Capital One offered me another $500 limit card and before I knew it, that one was maxed out too. I had other credit as well, but my revolving debt was pretty much at limit for a couple years. Eventually I got a good job making about $40k in Spokane, WA at 18. With such a bright future, I really don't know what I was thinking by not planning for it, and the debt skyrocketed as I took that job for granted. Eventually, I was laid off as the company couldn't make it in that town, and suddenly I found myself with no savings and about $25k in debt, all told.

 

At that point things went downhill fast. I couldn't find work quickly, as the dot com bubble was bursting, and the bills started to pile up fast. Unemployment insurance helped, but I came away with a pretty trashed credit report. I had somewhere on the order of 5 or 6 collections per credit report, most for piddly little $100-$300 bills, such as utilities, cable, and whatever else. I also narrowly avoided getting my car repo'd, and my credit cards ended up with at least 3 late payment notations each, ranging from 30-90 day notations, and I had one charge off on my report from a landlord. I had gone from a situation of what appeared on the surface to be success, into a situation where I had nothing, and nothing to show for my debt.

 

Thankfully I got a new job across the state, even though it was a slight pay cut. I moved and started to put things to rights. I suddenly realized how fast it could all come to an end and started to build a plan for the future, which to this day hasn't yet been fully implemented, but has helped a lot. I no longer wanted to use debt to get the things I wanted, although sometimes I was certainly tempted. I did pay off all of my bills eventually, every penny. I did not settle with any of them because I felt I gave my word to them to pay these things, so that was only right.

 

Sometimes honor doesn't count...

 

Well, I finally had all my debts paid off. I figured I could go ahead and buy a house - after all they may have gotten my payments late, but they got every penny plus interest and fees.

 

Boy did I have a surprise in store for me! My credit was pulled and I had a low 500's FICO score on two of the reports and a 495 on another. For those of you unversed in credit scores, a lot of folks that file bankruptcy never hit a point that low on the scale.

 

Well, for a year I kind of let it go, assuming I couldn't do anything about it. I was careful to always pay my bills on time, but the credit score didn't improve.

 

I finally decided to take control of my situation. I started researching credit laws. I frequented several internet forums where folks had similiar situations to mine, some legit and some a little more shady. These folks spoke of things like re-aging, FCRA violations, FDCPA violations, validation of debt letters, settlements, things that I'd never heard of. There was a lot to absorb (and to this day I haven't absorbed near all of it!), but I started to gather that it was possible to rehabilitate my credit without waiting 7 years for the negatives to drop off my report.

 

Years later...

 

Today my credit still isn't perfect. It's a long battle; I've finally cleaned all the collections off of trans union, all but one from equifax, and all but 3 from experian. I've got most of the late payment notations removed. I've got the charge off removed. I have built a good mix of credit, and my scores have come up from high 400s/low 500s to the mid to high 600s while my credit utilization is reported at 0%.

 

In this article, I'm going to tell you what I've learned along the way. This knowledge is not all encompassing, and it's not the only way things can be done, necessarily, but it is accurate.

 

 

 

Credit 101

What is credit?

Credit is when someone loans you money in some way or another. It could be a credit card, known as a revolving account, where you pay for something using the card and then pay them back later, it could be a car loan, it could be a home loan. Any time you use someone else's money, you are using credit and incurring debt of some kind.

 

What is a credit report?

A credit report is a file maintained on you by what is known as a consumer reporting agency, or a CRA for short since I'll probably refer to them a lot in this article. They include such organizations as Equifax, Trans Union, Experian, and others that contain other information aside from debt/spending habits. There are databases about your medical history, your credit history, your insurance history, your driving history, and those are just the ones that people know about. It's not a stretch to suggest that your way of life, preferred clothing, kind of car, neighborhood, and all sorts of other things are catalogued in a database somewhere and used in decisions like this as well. Some of you may be thinking I'm a nutjob now that I say this, but as a tangent I will suggest you google for information clearinghouses and look at some of the consumer information that is available to large companies with the right budget for target marketing and the like.

 

Anyway, that's a tangent and essentially all you need to know for the sake of this is what a credit report contains.

 

What a credit report contains:

It DOES contain information about what accounts you have. (These are known as tradelines on a credit report)

It DOES contain information about what your payment history is like with that account in the form of a code for each month.

It DOES contain information about your credit limit and high balance with that account.

It DOES contain information about the account itself, such as term for installment loans, whether it is a joint account, etc.

It DOES contain information such as your name, address, previous addresses, other names, SSN, etc.

It DOES contain any collection agency accounts you've managed to create in the form of their own tradeline. These will be reported in their own area on a normal report from one of the big 3 CRAs.

It DOES contain information on public records, such as judgements.

It DOES contain information regarding bankruptcies if applicable.

It DOES contain information on inquiries, which is what is placed on your report if someone accesses it for the purpose of viewing it, whether it is for a credit application or for your own viewing. More on this later.

Dates of last activity on accounts

Creditor names and addresses/contact information

 

What a credit report does NOT contain:

Your income

Your race

An explanation of any negative items if they were due to hard times, unless you insert a comment on the report, which you have the right to do.

 

Some super common myths

Pulling your own credit will hurt your score!

Status: False. There are two types of inquiries that can be present on your credit report; commonly known as hard pulls and soft pulls, when you pull your own credit for your review you will insert a soft pull onto your report. These do not affect your score in any way whatsoever. My credit reports have well over 80 of these in the past 2 years, and it has not hurt my score in any way shape or form.

 

On the other hand, whenever you apply for credit, a lender will pull a hard inquiry. These bad boys will slightly hurt your credit if in excess. The FICO score will combine all hard inquiries with a similiar purpose that fall within a 14 day period into one pull, to account for rate shopping. If you have just 1 hard inquiry within a 2 year period, I wouldn't worry about it. If you have 6, you might want to consider avoiding credit applications.

 

The CRAs keep information on your income

Status: False. This information is not used in the calculation of your score and supposedly is not stored by the CRAs anyway.

[copperhead]

Continued....

 

I have a 750 FICO score, and I'm only 18. I'm doing awesome! I could get financed for anything

Status: Varied. If this is you, congratulations. You haven't done anything wrong... yet. Score is nothing without history to back it up, and at 18, you lack that history. You may be able to get credit at many places, but you will not recieve the same deal as someone who is 25 years old with 7 years of history and a 720 score. Keep up the good work. Don't abuse your credit, and never ever pay anything late. You'll be in great shape in a few years.

 

I have to charge money on my credit cards to build credit.

Status: False... mostly This is a myth, that, as far as I can tell, is propogated by credit card companies that want to seduce our younger generation into a life of credit card debt. I can tell you right now that most cards will report a paid/on time code to each month whether your balance is $0 and you make no payment, or whether your balance is $5000 and you paid twice the minimum payment.

 

As long as the payment isn't late (or below the minimum, creating a late situation for the remainder), you will get the little green box for that month that says "OK". Furthermore, a large portion of your FICO score is calculated based on your revolving debt utilization. I can say without the slightest doubt that a 0% utilization is immensely better than even a 40% utilization. Personally, and this will vary depending on credit report, the difference between 0% utilization of my credit cards and 40% utilization is around 30 points.

 

The difference between 0% utilization of my available revolving credit and 100% is well over 80 points on the FICO score.

 

You DO NOT need to charge up your credit cards to build credit. "Credit", in this context, is something of a misnomer anyway; "Credit" is merely your history. Since the history reported by most CRAs is merely whether or not you were late that month, the amount you charged on your credit card in the past will not come into significant play, if at all.

 

The exception here is a very indirect exception. Some credit card companies, especially subprime companies, reward this behavior. They do not control your FICO score but they do have their own internal scoring system that uses your account activity (which they DO have records of) and will assign a higher score to those who carry a balance, as these are the people that they are most likely to make a profit off of. It is a well settled and known fact that folks who carry a high balance are more likely to end up in default than someone who is not, and the subprime credit industry thrives off of this multi billion dollar market. The late fees, the overlimit fees, the sky high interest all combine into one VERY lucrative deal for them, and when all are combined could result in effective interest rates that approach or exceed 100% or more per year depending on the amount of credit involved.

 

Since companies like these reward this behavior, sometimes you can get a credit limit increase by doing this. Wisely used, this can slightly affect your credit score if you carry a balance at all simply because when your credit limit goes up, your overall utilization goes down slightly. It's a diminishing return and not worth the interest you'll pay, quite frankly. Using credit responsibly will result in the same thing when you can get accounts with reputable, prime market credit card companies and get your limit increases without having to play their game.

 

Cliffnotes: Don't carry a balance for this reason.

 

I can't possibly improve my credit score without waiting 7 years.

Status: False. Yet another myth propagated by the powers that be. You can indeed have legitimate items removed from your credit report. There is no law that requires a company to report to your credit report their business experience with you, but there is a law that requires them to report anything they DO report accurately. Now quite frankly you're not going to make any headway if you call up a customer service rep and ask them for a goodwill adjustment of their reporting to your credit file, or a goodwill deletion. These folks are paid $8 per hour to answer the phones and tell you "no". That will almost never work. However, a letter written to the right folks, a bit of leverage in the form of catching them in violations of the law, and a little eloquence can go a long way in getting items removed from your credit report that you don't want on there.

 

That doesn't even touch on your right to dispute any item on your credit report and the requirement that it be dropped if it can't be verified within 30 days.

 

You can, indeed, get negative items removed from your credit report. The results are amazing.

 

 

Types of tradelines/entries:

Revolving

These accounts are essentially credit cards.

 

Installment

These accounts are generally vehicle loans, personal loans, etc.

 

Mortgage/Real Estate

Pretty self explanatory. Buy a house and it'll end up in this category.

 

Collection

You don't want these. Their effect on your score is horrible.

 

Public Records

Judgments, liens, etc. I have none so I don't know what else they can be aside from these two things.

 

 

Laws that govern consumer reporting

Fair Credit Reporting Act (FCRA) governs the consumer reporting agencies.

Fair Debt Collection Practices Act (FDCPA) governs the collection agencies and other debt collectors (but not original creditors, generally)

There is an addition to the FCRA that was signed into law and takes effect in December, I believe. I have not yet studied it, as there is plenty of material in the FCRA that I haven't yet learned.

Your local state laws generally have consumer protection acts that may come into play as well.

 

How to build good credit

Here it is. You're 18, you want to build good credit, and you don't want to do it the hard way and make all the mistakes I did.

 

1. First of all, don't make the mistake of thinking you need to live on credit. If you live in an area that you can't live on your income ONLY and avoid living paycheck to paycheck, then you need to either reduce your expenses, increase your income, or move somewhere that you can make the budget work. It's simple finances.

2. Save up an emergency fund. This is really important. Your income could come crashing down any day... we all hope it won't happen but it generally does at some point in our lives. Plan for 6 months of no income. As your lifestyle gets more expensive, increase your emergency fund to compensate.

3. Save up $1000, go out to your credit union, and get a personal loan for $1000. If they require you to secure it, go for it. You can secure the loan with your $1000, and pay back the loan with the money you borrowed, plus a few dollars in interest. Do it over a minimum period of 12 months. Rinse, repeat. If you can do more, go for it, but make sure you don't use that money for anything but paying it back.

4. Get 1 credit card to start with. For God's sake, don't go with Capital One, Providian, Orchard Bank, or any of the other subprime guys. Credit card companies love getting students as customers because statistically they will make a lot of money in interest off you. You will have your choice if you build the personal loan tradeline first and wait a couple months. I suggest Citibank, Chase, Discover, American Express (this is a different kind of CC though, so understand what it is before you get it), and the like.

5. Don't be in a hurry to get an auto loan. It will improve your mix of credit slightly, but your personal loan is already working on the installment loan part of your credit mix. Far better to not finance a depreciating asset like a car. That is not to say that you could not do it, but you'll thank yourself later if you aren't in $20k of debt on a car that's worth $15k. Just be smart about it.

6. Buy real estate, and never, EVER make a late payment on it.

 

Along the road you should build yourself up to maybe 3 or 4 credit cards, a few personal loans (not at the same time), and some real estate loans. A car won't hurt things but probably won't be a huge factor in improving your score either.

 

If you read nothing else in this article, read this, though. Do not allow yourself to abuse your credit. Just because you have credit available does NOT mean you have money available. Keep your balances at or near zero whenever possible. There is nothing wrong with using your card and paying it off each month in full. There is nothing "wrong" with paying interest on a balance either, but you're wasting money that you could better spend on something that really benefits you whenever you pay interest.

[SRTurbo04]

Good read thanks man