Credit Card Watch

Do You Understand Credit Scores?

Understanding credit scores isn’t all that difficult. Improving credit scores isn’t difficult either and if you’re thinking about purchasing a new home or car, or maybe you want apply for a credit card or even purchase insurance, you’ll need to understand three simple numbers. These three numbers are your credit score and they will have huge impact on virtually every major financial transaction you experience. So it’s in your best interest to know what your score is, understand how important it is and learn how you can improve it.

How did you get your credit score? Anyone who has ever had a loan or credit has a score that demonstrates how well they have managed their credit in the past. Factors considered include, how much credit you currently have, how much outstanding debt you owe and whether you have made your payments in a timely manner. Lenders believe that the history of how you manage credit is a good indication of how you will manage it in the future. The lender views your credit score as a quick and reliable indicator of how likely you will repay, on time, any credit extended to you.

If you’ve experienced credit problems previously — such as past due payments or even accounts having been charged off — your credit rating has some strikes against it. If this is the case, most banks, credit unions and other lenders may have reservations about loaning you any money. Fortunately, for those with less than perfect credit there are companies specializing in extending credit to consumers who have been turned away by others because of their strict lending guidelines.

Today, 33% of people who attempt to finance an automobile have some history of credit problems on their records. However, just because you may not qualify for the best auto loan rate doesn’t mean that there aren’t other lenders you can turn to. There are many companies committed to offering a second chance to consumers who have experienced financial problems. In fact it is exactly these consumers that auto dealers have relied upon as some of their most profitable customers.

Most dealers refer to people with these kinds of credit troubles as “get-me-boughts”, or “credit bandits”. In many cases the worse a buyers credit situation, the more likely that they will do whatever it takes to drive away in a vehicle, including agreeing to a price that’s way too high, monthly payments beyond what they can really afford and deferred down payments.

To help consumers avoid these types of tactics and practices we’ve written a book, entitled “The Insider’s Secrets” where we give away every trick, tactic, tool and technique used by dealers to maximize profits. Our 30+ years experience in every aspect of the automobile business makes us experts and taking advantage of the information we provide will make you an expert as well. Our website, theinsiderssecrets.net, will provide you with tons of valuable and useful information as well. You’ll find articles like this one and many others, covering a variety of topical issues. You’ll also find links too many helpful websites; lenders, vehicle appraisal companies as well as popular sites like Carfax and Kelley Blue Book, to name just a few. You’ll also be able to order “The Insider’s Secrets” in either a paperback or ebook version.

Most lenders will rely on tools like a credit-scoring system. Scores can range from about 350 (not a good credit risk) to over 850 (very good credit risk) and are based on over 30 individual bits of information such as, payment history, total outstanding debt and how long you have had a credit file. There are three major reporting bureaus that track all of this information: TransUnion, Equifax and Experian.

Ever time you apply for a new credit card or fail to make a timely payment, that information is provided to the bureaus and it affects your rating. When it comes to improving credit scores and a plan to eliminate debt, the quicker you begin, the further you’ll be in the long term.

Below are some helpful tips for maintain and improving credit scores:

• Pay all your bills in a timely manner. If you are behind on payments, get them current and keep them current. Late payments have a very negative impact on your rating. You can usually request that your lender move the date your bills are due to another time of the month if it would assist you with paying on time.
• Your goal should be to pay off credit card debt each month. If you can’t do that, at least make the minimum required monthly payments. Paying the required payment each month on time will improve your rating.
• Do not max out your credit limits. By using all or a large part of your available credit is a signal that you have stretched yourself to the limit. Many experts suggest that your balances shouldn’t exceed 50 percent of your available credit limit.
• Close accounts you no longer need, except for your oldest accounts. Many lenders will see open, unused accounts as a chance that you might go on a spree and overextend yourself. If you were to close your older accounts it may look like your credit history is shorter than it really is. To help determine which accounts to close, think about closing the accounts that are costing you money with annual fees or high interest rates.

Maybe you have a good credit score, just a lot of debt. There are ways to get out of debt.

• Have a plan. Experts agree that setting up a household budget and sticking with it may be the best way to get out of debt.
• Pay off credit cards that have the highest interest rates, pay the minimum required payment on your other cards. When you get your highest rate card paid off, continue with the card that has the next highest rate. You will do better to pay your credit card debt down than to transfer it around to other cards that offer lower rates.
• Every month, pay a little extra money on your bills, as though it is part of the required payment. It doesn’t matter how small the amount, by paying as little as $10 extra each month you can reduce your repayment time by as much as half.

You Need to Begin Today

Order your report from the three reporting agencies, (Equifax, Experian and Trans Union) learn where you stand and why. When you request your own report, it is considered a “soft inquiry” and will not count against you. The Fair Credit Reporting Act provides for every consumer to receive a free copy of their credit report, each year, from each of the three credit reporting agencies. These free reports will not contain a score however, for that you will have to pay, on average about $16 per report. You can request your free reports at annualcreditreport.com

Each of the three credit bureaus use different scoring models to determine your score, meaning that you most likely have more than one score. Furthermore, within any given bureau’s scoring model, there may be more than one score available, depending on the type of inquiry. If your credit report is being requested by an auto dealer, the credit score may be an “Auto Enhanced Score” this formula places more emphasis on information that predicts your likelihood of repaying an auto loan.

Many people incorrectly refer to a credit score as a “FICO” score. FICO is an acronym for The Fair Isaac Corporation, and while Fair Isaac is certainly regarded as a pioneer in developing credit scoring models they no longer the dominate force they once were. Many companies, including the three credit bureaus have developed their own scoring models. You can find links to all three at our website, theinsiderssecrets.net An Equifax score is called a “Beacon” score A Trans Union uses an “Empirica” score An Experian uses “FICO” You must understand your credit rating, even if it’s not as high as you’d like it to be, it’s much better to understand than it is to be misinformed. And with identity theft becoming an ever increasing concern you must keep an eye on your report. If you never check it, you will have no idea what’s on there that shouldn’t be.

If your credit is less than perfect, you may wonder, will it be worth my time to start working on it now? Yes, it’s never too soon to commit yourself to increasing your score. History on your record that occurred within the last couple of years will have more impact than things further in your past. If you have work to do to, you’ll be better off the earlier you begin. Use Your Rights! Repair Your Credit! The Fair Credit Reporting Act makes it easy for you to ensure that your credit rating and score are accurate. It also sets out the remedies to correct errors and misinformation. The key is to know what’s on your reports and to be diligent in your efforts to repair and maintain your good credit.

Gary McClure, President and Founder of CMAC Enterprises, is the author of The Insiders Secrets: The complete Guide to Buying the Right Car, Paying the Right Price and Financing at the Right Terms and Rates.

To follow all of Gary’s tips and advice on Financing, Credit and Auto purchasing, visit Gary’s Blog or learn about all of the services CMAC offers at The Insider’s Secrets website.