How Can I Repair My Credit Rating?

To answer the question “How can I repair my credit rating?” you first need to know how your credit score is calculated. There are five factors that are involved. These are payment history, amount owed, length of credit history, type of credit and new credit. What these terms mean and how they affect your credit score will be discussed in the following paragraphs.

Payment History. This is where any missed payments are recorded. Even if you have made the payment but it was late and did not arrive until after the due date, it will still be noted in your payment history.

Amount Owed. This is the total amount of credit that is outstanding at any one time. The balances on all your loans and credit cards are noted under this heading. As well as the total debt, the proportion of your approved credit is also taken into account. For instance, if the total outstanding is only half of the amount of your approved credit limit, then your credit score would be higher than someone whose credit cards were all maxed out.

Length of Credit History. The longer the better is the general rule. It stands to reason that someone who has used credit for a number of years will be regarded more favorably than another person who has just taken out his first loan two or three months ago. This is the reason why it is sensible not to close all old accounts, but to keep at least one open, even if you are not using it, to keep the record of your credit history.

Type of Credit. This factor is not a case of one type of credit being preferred to another, rather that lenders like to see that you are using a variety of different loans. For instance, if you have a mortgage, a car loan, home improvement loan as well as two or three credit cards, this will tend to boost your score.

New Credit. This is the last of the five factors that are used to calculate your credit score. What counts here are both the number of loans that you have taken out and applications that you have submitted, even if you did not accept the offer of credit. This is the reason why making multiple applications for credit, for instance to check whether you can get better terms from a particular lender, can have an adverse effect on your credit score.

The final point to note is that some of the five factors have more effect on your score than others. In fact they have been listed in order of importance. Payment history accounts for 35% of your score, amount owed 30%, length of credit history 15%, type of credit and new credit 10% each. From this you will see that making payments on time and not borrowing right up to your limit are the factors that contribute most to your credit score. So concentrating on these two factors is the first step in answering the question “How can I repair my credit rating?”.

Hugh Harris-Evans writes on financial matters and is the webmaster of Credit Card Cleanup.com where you will find further articles on credit repair and tips on how to make the most of your credit cards.

To receive an intensive 5-day e-mail course on Restoring Your Credit, Click Here: Credit Repair Strategies.

This entry was posted on Thursday, April 19th, 2007 and is filed under Credit Ratings. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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How Credit Scores Affect Mortgage Applications

With a good credit score an applicant will receive prompt response from many lenders, all of them offering low interest rates and low down payment options. The loan amount offered also may be high. On the contrary a low credit score would result in a lot of rejection from various mortgage financers. Because creditors wouldn’t come forward easily to give credit to individuals that have a history of difficulty in repaying existing loans. After all, creditors take risk when they finance mortgages against the credit history of a debtor. Naturally, they will wish to remain on the safe side and pick up less risky ones that have good credit histories. A good credit score means less chance of missing on payments and therefore less risky.

But there are some real risk takers that will come forward to finance mortgages for individuals with bad credit scores. They would charge high down payments and always high interest rates though. They may also fix additional charges for every little paper work and may charge high closing rates. The loan amount offered will also be considerably less. The individual with poor credit scores will not have much choice but to accept the terms and conditions as there are no other alternatives. This is a tight situation and to avoid this you must have a good credit score.

People with bad credit may fall in to the trap of ’secured loans’. Secured loans are the ones where the loan applicant offers an asset as collateral security. The lender becomes secure about the repayment of the loan and not the borrower. Securing a loan with bad credit score becomes easy only when the applicant is willing to offer some asset as collateral security. This again is a very dangerous situation where an individual runs the risk of losing his entire collateral asset in case of failing to pay the loan installments in time. An individual should always avoid such type of a loan.

Resort properties normally require large amounts of finance which a person with bad credit may find it difficult to obtain. So it is always advisable to keep your credit score high. Incase the credit score becomes low due to unavoidable financial reasons it can be improved upon. There is no need to lose hope simply because a person has a low credit score. If the property that he intends to buy has good equity he should go out and try to obtain finances for it. There are many sub prime lenders willing to offer their services.

For a review of your credit report as it relates to a mortgage loan and a consultation on the best loans available to you, give us a confidential, no obligation and no cost call.