CREDIT SCORE

Credit History and why it is important to have good one Everyone needs credit. It's a necessary part of daily life. Whether you're renting an apartment, buying a car, renting a car, want to get a cell phone or are ready to buy at an online auction, having credit in your name is part of the approval process. So, how does one go about establishing credit? Here's what Steve Bucci, the president of Consumer Credit Counseling Services of Southern New England suggests. Open a bank account. This will not appear on your credit report, but bank account numbers are often requested on credit applications. Apply for a credit card. To avoid being denied credit, apply only for those cards whose requirements you are likely to meet. Department store or gas credit cards are usually easier to obtain than a bank-issued card with a Visa or MasterCard logo because the balances do not generally revolve. Before applying, make sure the creditor reports account activity to the credit bureaus. As the purpose of obtaining the card is to establish credit, you want to choose a card that will help you do that. If you want to get a Visa or MasterCard, ask at the bank or credit union at which you have your account. Charge purchases and make payments on time. Use your credit card for purchases and make sure to pay the balance on time. Once you have used the card responsibly for three months, you may want to apply for a Visa, MasterCard, American Express or Discover. These cards will allow you more flexibility in charging purchases, but will also give you more opportunity to get in trouble. Remember a $5,000 credit limit is not $5,000 in additional income. It is only a different way to spend the money you already have. Create a spending plan. Before you use your credit card, you will want to make sure that you are able to pay off the balance on the items you plan to purchase. Write down all of your expenses and your income and adjust your spending accordingly. A secured card is an option. If you have trouble qualifying for a credit card, you may opt to apply for a secured card. These cards have credit limits based on a required deposit made by you into a savings account. You use the card just as you would any other credit card. If denied credit, ask why. Ask any creditor that denies you credit to give you the reasons you were denied. Reasons may include income, employment or credit history. It is important to find out why you are denied because frequent inquiries (applying for credit) on your credit report can be viewed as a negative to a potential creditor. If you are denied credit, you can request a free copy of your credit report to see if there is erroneous data on it, and have corrections made. Just as important as a blueprint for establishing credit are the things you don't want to do to jeopardize your credit rating. Don't overdraw your bank account. You will be charged fees and you could damage a good reference. Avoid missed or late payments to any creditor. That is a sure way to damage your credit rating. Don't let anyone else borrow your credit card, debit card or in any way have access to your bank account. You are responsible for any authorized use of your accounts. Don't give your card number to anyone over the phone or Internet unless you have initiated the transaction. Avoid cash advances at all costs. They're expensive. You'll pay an upfront fee of 2 to 4 percent on the amount you withdraw and you'll be stuck paying a high interest rate, often in the high teens or higher. And because there's no grace period on a cash advance, the interest charges will begin to mount as soon as the money comes outs of the ATM. Pack away your debts with the payment push Want to know what the big moneymaker is for credit card companies? Fees (read: your money). Last year, 31 percent of the industry's profits came in the form of late-payment fees, over-limit fees and the like. If you are like the average American family, your total credit card debt is around $8,100. If you were to stop charging altogether and pay only the minimum amount due on this amount, it would take about 30 years to get rid of it. No one wants to hand over cash to the credit card companies, but by paying only the minimums or falling behind a couple of months here and there, you are lining their pockets with profit and limiting your opportunities for enjoying life. Use the "Payment push plan" to methodically dissolve your debts. Here's how it works. 1. No new debt Put away the credit cards; borrowing is no longer an option. Even when you know you deserve something, you can't have it until you can afford to pay cash for it. 2. It's a head game A daily affirmation helps to program your mind for success; post this on your bathroom mirror: "By living frugally, we will have the cash necessary to pay off our debts in ___ months instead of ___. The $______ we save in interest will be put into savings so we will always have enough to pay the rent and weather any lean periods in the future." Use calculator (there is many online calculators) to determine how quickly you can be debt-free and how much you'll save in interest fees. Use the facts to write your bathroom-mirror mantra. 3. Prepare a debt repayment schedule Use our debt repayment worksheet. Include columns for the name of the debt, balance due, interest rate, current payment and "Payment Push" period. Rank the debts by interest rate, with the highest one on top. Add a line under each debt to describe how you're going to fund the "Payment Push." The "Payment Push" gets applied to one debt at a time: Continue to make the same monthly payments on all debts except the one getting the "Payment Push." 4. Start at the top Apply the "Payment Push" strategy to the debt on the top of the list: All extra, available cash is used to pay down the debt with the highest interest rate, first. That includes raises, bonuses, belt-tightening and that $20 bill that unexpectedly popped up. Push hard at the rest of them. When the first debt is paid off, use the cash that is freed up to pay down the next debt on the list. Be on the lookout for new ways to cut costs and bring in more money. The sooner a debt gets paid off, the sooner you can push hard at the next one on the list. How's your credit?   Know Your FICO® Scores, Improve your FICO Scores, Save Money When you apply for credit – whether for a credit card, a car loan, or a mortgage – lenders want to know what risk they’d take by loaning money to you. FICO scores are the credit scores most lenders use to determine your credit risk. You have three FICO scores, one for each of the three credit bureaus - Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores tend to change as well. Your 3 FICO scores affect both how much and what loan terms (interest rate, etc.) lenders will offer you at any given time. Taking steps to improve your FICO scores can help you qualify for better rates from lenders. Savings Example The higher your FICO® scores, you the less you pay to buy on credit – no matter whether you're getting a home loan, cell phone, a car loan, or signing up for credit cards. For example, on a $150,000 30-year, fixed-rate mortgage using today's national rates, a person with FICO scores of 760 or better will pay $212 less per month for a $150,000 30-year, fixed-rate mortgage than a person with FICO scores below 620 – that's a savings of $2,544 a year. You can see that it pays – literally – to improve your FICO scores. You can always trust myFICO to provide tips, advice, and tools to help you know and improve your FICO scores.