More About Boosting Your Credit Score

A followup to a previous article How To Improve Your Credit Score

Having a good credit score is one of the most crucial fundamentals for acquiring financial stability. This is because your credit score does have a hand in just about everything touching on your finances, from getting your credit card, financing your mortgage, finding insurance cover and even finding a job. As you already know, money makes the world go around. It would be great if love did; however, without money, national and personal economies would collapse and anarchy would reign high. This is why you need to figure out how to boost credit score in case yours is in a bad shape.

So, what is a credit score and why should you have a good one?
This is a three digit number that is generated using the information currently present on your credit report. It is meant to predict the risk, particularly, the likelihood that you will default on your credit obligations. Your credit score can be as low as 300 and as high as 850. Basically, a score of 850 means that you are trustworthy and less risky to lend money to while a score of 300 on the other hand means that you are a very high risk borrower. These are made based on the data contained in the free credit reports from all 3 bureaus reports.

Your FICO is composed of five major categories. Here is how your FICO score is determined.
•    35% of your score is determined by your payment history, including all defaults and public records.
•    30% is based on your current debts
•    15% is based on the length of your credit history including how long you have operated your accounts.
•    10% is based on the types of credits you have used such as revolving and installment credits
•    10% is based on the new credit such as credit enquiries and the number of recently opened accounts.

So why do you need a good credit score?
Your credit score can mean all the difference between being approved or declined for credit as well as the interest rate at which you will repay your loan. First off, an impressive credit score can help you qualify for your apartment rental and even get your utilities connected without making the initial deposit.

Your credit score is the major yardstick that your financiers will use to determine whether you are credit worthy or not. Thus, the decision regarding your loan will totally depend on your current credit rating. If your credit rating is high, then chances are you will qualify for the loan. Better still, you can easily get your loan at a lower interest rate. Thanks to a high credit score, you can negotiate better rates on your loans and credit cards. It all revolves around trustworthiness. Thus, with a good rating, you can have a better leverage for negotiating your interest rates.

Finally, potential employers love hiring people with good credit scores. This is because your credit score is a direct reflection of your level of financial organization and discipline.

So, how do you boost your credit score fast?
Building and maintaining a good credit score is an unending process. Thus, the best way to achieve a good credit score is to remain financially organized and learn how to manage your debts wisely. However, if your credit score is damaged, then you need to figure out how to boost your score fast in order to qualify for credit. Here are five simple steps that can help you boost credit score fast.

1. Get your credit report and credit score
You can obtain your free credit report gov from each of the three credit bureaus once an year: Experian, TransUnion and Equifax. Be sure to get all the three reports because they may have a slight variation.

2. Reduce Your Debt vs Credit Ratio
This could be one of the fastest ways to help boost your score according to many experts. Paying off large credit card balances relative to your credit limit. Keeping the debt balances low in relation to your credit limit. They say below 30% of your credit limit is a good figure to maintain. people who have lowered their debt balance have often seen significant boost in their credit score.

3. Do Not Close Old Accounts.
Old accounts are actually a positive thing for your credit. It shows you have a good credit history. When people close their old accounts, they sometimes experience a significant lowering of their score.

4. Carefully examine your reports for errors and inaccurate information
Once you have received your credit reports, you need to look out for all the items entered on them. Surveys show that 25-50 percent of credit reports come with errors and inaccurate entries. These errors may appear on your report when the bureaus mistake you for someone else with the same name as you. The other reason, which can be more serious, is identity theft.

5. Establish the source of errors appearing on your report
Once you have spotted the errors appearing on your report, you need to establish the origin of these errors. Start off by verifying your identity to ensure that your names and address and social security number are correctly appearing on your report.

Upon spotting the errors on your report, be sure to contact the credit bureaus in order to have the errors corrected. In case you are a victim of identity theft, ensure that you contact the police, your creditors and the credit bureaus alerting them of the fraud.

6. Dispute the errors on your report
Apart from errors in your personal information, your credit report may also come with errors in the form of late payments that you actually made on time, closed accounts that are still listed as open and outstanding debts that you have already paid. All these errors can have a negative impact on your credit score hence you need to ensure that you dispute them until they are erased from your report.

7. Manage your debts well
This goes right back #1 and to the rest. Once you have improved your score, ensure that you uphold this status by managing your debts well. And with the items responsible for your poor credit score off your report, you need to develop the discipline of paying your debts on time and keeping the debt ratio low.

The importance of a good credit score cannot be overstated. If you are planning to apply for credit, then you need to ensure that your score is in order. However, if your credit score has been tainted for any reason, then you need to figure out how to boost credit score fast before approaching your lenders.

The Average Credit Score

The average credit score is a numeric calculation used to decide who gets home loans at what interest rate. If this magic number is high enough, prospective home buyers get to move into their beautiful new home. These lucky buyers have low interest rates making home ownership less expensive. However, if this number is too low, the borrower buys a house with a higher interest rate or a we-are-story letter from the lender. By understanding how the three different credit reporting bureaus work, consumers use this information to increase their credit worthiness and save money.

What Do The 3 Credit Bureaus Use?

There are three credit reporting bureaus in the United States. These are Experian, Equifax and TransUnion. Information about consumers is relayed to one, two or all three of these statistic keeping businesses. This information includes:
• Mortgages
• Automobiles loans
• Credit cards
• Revolving credit like a Sears account
• Installment payments for furniture or appliances
• Collections
• Judgments
• Foreclosures
• Repossessions
• Government liens

Credit Bureaus Use Different Numeric Scores

Each credit bureau records incoming information and issues a numeric score based on the data collected. Although these scores are commonly called FICO, each bureau has its own format, range and name.
Credit Bureau    Score Name    Numeric Range
Experian                 FICO                  330 to 830
Equifax                  Beacon               350 to 850
TransUnion          Emperica             300 to 850

Credit Bureaus Use Different Information

Unfortunately, not all bureaus receive the same information on each borrower. Lenders, credit card companies and other credit issuers may only report consumers’ paying habits to one or two of these bureaus. This difference in information transmitted is one reason credit scores differ from agency to agency.

How Credit Scores Are Calculated

Each reporting agency uses the same formula to analyze consumers paying habits. These are:
• 35%  payment history,
• 30%  credit utilization or the amount of credit used compared to the amount of credit  available
• 15%  the age of credit, a credit card account that is 10 years old is worth more than a one year old credit card,
• 10%  recent credit applications; these remain on the report for two years and
• 10%  the mix of consumer credit with higher points combining mortgage, auto and credit card.

Each financial event in the consumer’s life has an impact on this credit score. On-time payments add points while late payments deduct points. How many points are added or subtracted is a closely guarded secret and one reason for discrepancies between companies. The other has to do with value systems.

Even a 30 day late payment on a FICO score of 680 can drop the score 60 to 80 points while bankruptcy lowers that score 130 to 150 points. A person with a higher FICO would be penalized even more for the same actions. A 30 day late payment may drop the score 90 to 120 points while a bankruptcy would cause this number to plummet 195 to 225 points.

Computing the Average Credit Score

Although many credit issuers only use a score from one company, others like banks and financial institutions get this information from all three credit reporting bureaus. Armed with this data, they either average the three numbers or take the middle amount. For example:

Customer          TransScore  EquifaxScore     ExperianScore     Average    Middle
John                     750                 680                     720                   717          720

If the lender required a score of 720 to get the loan and averaged the three credit scores, John would not qualify. However, if the lender used the middle score which was 720, John would qualify for the loan.

National Average Credit Score

According to a recent report, the national average credit score in January 2011 was 692. People with scores 750 and above are rated excellent. People earning scores between 680 and 750 have a very good rating and qualify for home loans. However, some lenders require borrowers to have scores of at least 720. People with scores below 550 have trouble getting financing for almost anything.

Improving Your Score

There are two ways to improve credit: checking you free credit report once or more per year to make sure they contain only up-to-date and accurate information and handling finances wisely. Many times information on these reports is wrong. Problems include:
• missing accounts
• wrong information on existing accounts including payment status and balances
• paid off accounts are still active
• accounts belonging to someone else
• judgments, foreclosure, repossession or bankruptcy not the consumer’s

Consumers need to inspect all three reports and send a letter to the bureau showing incorrect data. Every individual is allowed one free credit report a year from each of these bureaus. Over time, anyone can improve his or her credit scores by doing the following:
• pay bills on time,
• keep credit card debt to 30% or less of the credit card limit,
• keep older credit card accounts active,
• refuse new credit and
• use different types of credit like automobile or other installment loans, home mortgages and credit card accounts.

These numeric calculations on financial responsibility are important. Whether someone arranging credit uses just one score from Equifax, Experian or TransUnion or collects scores from all of them, higher numbers are better. Most lenders use the average credit score of all three to decide the credit worthiness of the borrower. Although consumers do not have control over how their financial history is analyze and calculated, they can improve this all-important number by paying bills on time, reviewing their reports and handling credit wisely.