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Credit Problems? What can be done?


Do you have credit problems? Are you looking for help with repairing your credit? Do you want to know what your options are? Are you trying to buy a home with bad credit? Do you need 100% financing but your credit score is too low? If any of the above questions describes your situation or you currently have some issues with your credit score(s) being low then this is indeed a must read. Low credit scores and bad credit can cause many problems in today's world with so much emphasis on almost everything you do placed on your credit profile. Whether you are applying for a new credit card, applying for a personal loan, wanting to get financed for a mortgage, trying to find a homeowners or auto insurance carrier, applying for a new job, trying to rent an apartment, or whatever it is you need to do, everyone wants to look at your credit profile and credit scores and use this to help base their decision on. To be honest, his is extremely scary. Many people have credit problems because of bad situations, bad choices made at a young age, life threatening illnesses, family problems, and a wide variety of other reasons that happen to come our way in life. The problem for most people is that once they get into a bad situation and their credit suffers due to this, it becomes a very tough and sometimes never-ending battle to dig yourself out of this situation. Lets face it, bad things happen to very good people.

There are some solutions and assistance available out there though to improve your credit, your credit scores and your financial situations. The first thing that you need to do is to obtain a copy of your credit report and look to see how good or bad your credit actually is, where the deficiencies in your credit report are and whether there are any inaccuracies being reported within your credit report. This will give you an idea of where to go next and as to what you available options are. You can obtain a free copy of your credit report once per year by visiting www.annualcreditreport.com.

Your next step will be to determine how bad your credit actually is and which of the following is going to be your best option. You can choose from trying to repair your credit yourself, hiring a credit repair company to work with you on fixing your credit report, you can hire a credit builder types company to help rebuild your credit almost overnight, or you can find a mortgage broker that would be willing to assist you with improving your credit scores. There are various ways sites online that offer numerous tips on how to repair credit, sample credit dispute letters, credit scoring factors and everything else you can think of. Here are a few links with a lot of good information on self credit repair/maintenance help:

http://fshomeloan.com/index_files/mortgageblogger.htm

http://www.creditinfocenter.com/forms/

http://www.ftc.gov/bcp/conline/pubs/credit/repair.shtm

http://credit.about.com/od/creditrepair/Credit_Repair.htm

Self credit repair can be done for very cheap and can also produce great results. The keys to making self credit repair work are to put forth a genuine effort of many different credit repair tactics and to stay persistent with your credit repair efforts. For self repair you must obtain copies of all of your credit reports from all 3 credit bureaus. Next you will dispute anything that is improperly listed, that contains errors or is listed unfairly. If your first round of disputes are unsuccessful you will send out another round of disputes and repeat this process until your credit has improved and the items are reporting correctly. You must keep good records of everything that you mail out, copies of everything and copies of all correspondence back from the credit bureaus and/or the creditors. Obviously there is more involved to fixing and improving your credit by yourself, however for the sake of time and simplicity I am only going to provide the basics for you here in this article. You can find out much more detailed information from clicking on the links above.

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So, if you realize or decide that self credit repair help may be too extensive, time consuming, complicated or just plain difficult you may want to consult the services of a credit repair company. BE ADVISED THAT THESE COMPANIES ARE USUALLY NOT CHEAP! There are literally thousands of companies that offer credit repair. Some of these companies are scams, some are worthless and provide an expensive service that does not follow through on their promises, and yet there are some that are very good at what they do and they provide you with a truly great service. Credit repair companies usually charge on average anywhere from $500 up to $1,500 per person. Usually, this will cover 1 year of credit repair. Other companies charge by the month, offer discounts for multiple customers and offer discounts for extended service agreements. Shop around to find a credit repair company that you can trust. Do your homework before entering into an agreement to work with one of these companies. Search sites such as the Better Business Bureau at www.bbb.org, Rip Off Report at www.ripoffreport.com, the appropriate state attorney generals office at http://www.naag.org/, or any other website that you know of that may be able to provide more of a background on the company you are considering dealing with. I also highly recommend doing a Google search on the name of the company to see what type of information comes up. If people have had bad experiences with a certain company, they will write about it online somewhere and if they do, it will generally come up in a search. Try this search with the company name "in quotes" and not in quotes for best results. Credit repair companies can help out, but again be cautious as to which company you decide to work with. Here are a few companies that I have come across in the past that seem to be good at what they do and seem to be reputable from what I have seen and heard:

www.thecrcgroup.com

http://www.htdifinancial.com/

If you absolutely do not believe bankruptcy is the route that you would like to take and you want to do your best to pay back most or all of what you owe, you can consider a consumer credit counseling or a consumer credit consolidation program to help you gain control of your finances again. Again these types of companies are a "dime a dozen" and there are literally thousands of them available out there. You should do the same type of research on these companies as mentioned above on the credit repair companies as well. Anyhow, the way these companies work is that they have pre-arranged agreements with many of the large credit card and lending firms throughout the nation that allow them to set up accounts for their clients to pay back their debt while reducing their balances, lowering their interest rates, freezing late and over the limit charges and/or any combination of these items. Therefore, you can save money in fees, interest and or lower your overall balance with some or all of your creditors in order to be in charge of your finances once again. If you do become involved with one of these type of companies please be advised that many lenders will consider these companies similar to filing bankruptcy or barely a step above bankruptcy. Your choices can be hindered or taken away altogether when you are trying to obtain new credit such as buying a house or a car while being in consumer credit counseling. Many mortgage lenders will not lend to a borrower when they are currently in CCC. While this does not make complete sense in regards that the consumer thinks they are doing the right thing by paying off their debt, it is still considered the next closest thing to bankruptcy from a lenders view. Studies have shown that consumers who have enrolled in the services of a consumer credit counseling service are more likely to default on their mortgage loan that consumers who have not. This makes it a higher risk to a bank. However, working with these types of companies can help improve your credit and can often result in less damage to your credit.

Another option to improving your credit scores is by using a credit rebuilding company. You can try to do some of the credit improvement techniques listed above, such as a credit repair company or self help credit repair, in addition to using a credit rebuilding company. A credit building or credit rebuilding company will basically add seasoned and important tradelines to your credit report for a fee. These can be some of the most costly ways to improve your credit scores and your credit report but these can also provide immediate benefits with some of the best results. The 3 most important factors in determining your credit score are payment history, balance to limit ratios, and length of credit history. By buying tradelines on your credit report you are able to take care of all 3 of these items. You are paying to utilize someone else's credit history as an authorized user (most of the time without any actual access to the account) and in return your credit report will add their excellent payment history on the "said" account, their great balance compared to credit limit will be added to your report, and their long established/seasoned credit history will be added to your report in order to improve your credit scores. While this type of credit building is permitted right now, there is talk from the credit repositories themselves to start preventing or avoiding this type of credit scoring loophole. If you think this option may be good for you, then you may want to look into it sooner than later. You can also use this method at a much lower price by using a friend or family member to add you as an authorized user to their account versus paying a company to do this for you. Here is a link to a company who has built a strong name and reputation for themselves for providing this type of service:

http://instantcreditbuilders.com/

Finally, you can choose to file bankruptcy as a last resort. Filing bankruptcy over the past year or two has been made slightly harder to do than it was in the past as bankruptcy filings had reached all time high levels in past years. When filing a personal bankruptcy you have 2 options. You can file a Chapter 7 Bankruptcy or you can file a Chapter 13 Bankruptcy. A chapter 7 bankruptcy is one in which most of your debts are simply wiped out and you are given a clean slate. Most people who file bankruptcy choose to file this type of bankruptcy over a chapter 13 for many reasons, of which many are quite obvious. Usually a chapter 7 bankruptcy is fully completed within 3-6 months start to finish. A chapter 13 bankruptcy is a repayment plan. The repayment plan can last anywhere up to 5 years to pay back a good portion or possibly all of your outstanding debt. If you are unable to file a Chapter 7 then your only option for bankruptcy will be a Chapter 13. If you can not demonstrate the ability to pay the Chapter 13 bankruptcy then most likely you will not be able to file bankruptcy altogether. A chapter 13 bankruptcy will not be completed, also referred to as discharged until the payment plan has been completely paid off. A bankruptcy can help many people in many different situations and provide a fresh start for them. While the level of bankruptcies in recent years has been record setting the profits of the credit card companies are still reaching record levels as well. Therefore, if you have decided to file bankruptcy you should not be embarrassed by it nor feel like you are doing something terrible. Many consumers simply run into bad situations, whether they or a family member has suffered a life threatening illness, lost a job, or some other unfortunate situation and bankruptcy can help them to get back on their feet again, get a fresh start and help to relieve the stresses caused by money problems. Here are some great links about bankruptcy:

http://www.bankruptcyinformation.com/

http://bankruptcy.lawyers.com/Bankruptcy-FAQ.html

http://wiki.answers.com/Q/FAQ/1784

Here is an article that I wrote in a blog of mine located at:

http://fshomeloan.com/index_files/mortgageblogger.htm. This information about credit and credit scoring is still up to date and very worthy of reading about credit scoring and credit reports. Please contact me if I can be of any further assistance to you about any of the information contained within this report.


Credit and Credit Scoring



Credit scores have become more of a factor in people’s lives than ever could have been imagined. Your credit and credit scores can affect your ability to buy a home, get a car, get a credit card, take out a personal loan, obtain homeowner’s insurance, obtain auto insurance, get overdraft protection at your bank, rent a home, sign up for home utilities (such as gas, cable, phone, etc…) apply for a job and the list goes on and on. Without good scores your applications for any of the above can be turned down altogether, you may be required to place large deposits down, and/or you may have to settle for very unfavorable terms. So therefore you can see the importance at keeping your credit scores as high as you possibly can. However, understanding how the credit scoring process works, is a task that most people don’t understand.

Credit scoring is a complicated process and each of the 3 major credit repositories have their own credit scoring models in place to determine a borrower’s credit score. The 3 main credit repositories are Equifax, Experian, and TransUnion. Equifax has credit scores that range from a lowest possible score of 300 and a highest possible score of 850
Experian has a range of 340-820 and TransUnion150-934. Just like computers have upgraded operating systems over the years such as, Windows 98, Windows 2000, and Windows XP, the credit scoring system versions update periodically also. Not all lenders use the same version or the most updated version when obtaining a credit report and credit score for a borrower. Therefore, this is one reason why you may have varying credit scores between one lender and another.

There are five major components or factors that help to determine your credit score. Roughly 35 percent of your credit score is derived from your payment history, 30 percent from how much you owe compared to how much you have available, 15 percent comes from length of credit history, 10 percent from new credit and recent inquiries, and the final 10 percent comes from various other items such as the mixture of credit you currently have. Next we will discuss each of the five components in further detail and explain the basic principals as to how credit scoring works. This information is to be used only to help educate and as a guide to assist with the basic ideas involved in credit scoring.


Payment History (35%)

Your payment history is the most important factor of credit scoring. Bankruptcies, collection accounts, slow pays and late payments, foreclosures, judgments, and liens can negatively affect your credit score. However, an established history of on-time payments and a clean credit history will positively impact your credit scores and help to increase them over time. The older any negative credit history or adverse credit factors are, the less they will negatively affect your credit score. Therefore, recent late payments or other derogatory credit will negatively affect your credit much greater than aged bad credit.




Revolving Credit Balances to Maximum Limits (30%)

The second biggest factor in credit scoring comes from how you utilize your revolving credit. The credit scoring models are going to look heavily upon how much revolving credit you have available compared to how much you have used. For credit scoring purposes, having all revolving credit or credit card accounts maxed out to their limits is not a good thing, nor is it going to help better your credit scores. You don’t want to pay off all of your revolving credit accounts because that will not show the credit bureaus how well you manage your credit. Your ideal credit ratios should be roughly 20-40 percent usage. What this means is that if you have a credit card with a $1000 limit you do not want to max. out the credit card balance, but you would want to maintain a balance between 200 and 400 dollars. If you do realize that you have borrowed more than 50% of your available credit limit on your card or your balance is getting close to your limit, you should either try to pay your balance down to the 40% mark or call your credit card company and see if they are able to raise your limit. The biggest mistake you can make is to let your balance exceed your maximum credit limit. This will negatively affect your credit score a great amount.

Length of Credit History (15%)

The longer and more established your credit history is, the better and more positive of an impact it can make. Someone who pays their bills on time for a 10 year period of time is a much better risk than someone who only has a 1 year history of paying their bills on time, even if they both carry the same credit score. When you pay off credit card accounts do not close them, keep them open and use them periodically in order to continue to build an established length of credit. Closing your accounts can actually have more of a negative affect on your credit score due to limiting the length of time that particular account was open for. The longer you have established credit accounts, the better it is for you. It is possible to still have a good credit score with a short credit history; however lenders may not approve you for optimal financing options due to the lack of history still.

New Credit and Inquiries (10%)

The amount of new credit you have opened, will have somewhat of a minor impact on your credit scores. If you have numerous inquiries resulting from applying for a lot of new credit and add many new trade-lines in your credit report, this can have a damaging effect on your credit score. First, it may negatively affect your scores because you have a lot of new, un-established accounts. Second, it can negatively impact your score because you have a lot of inquiries with various lenders for various types of financing over a short period of time. Credit inquiries can affect your credit score, not a ton, but enough to lower your score. This is not to say don’t shop around or don’t have more than one firm pull your credit when looking to buy a car or a home. You definitely should use due diligence and shop between a couple of lenders to make sure you are getting a good deal. When you are comparing quotes however, you should try to do all of your shopping within a 30 day max. period of time. All inquiries that are made when applying for an auto loan or a mortgage loan are treated as only one inquiry when they are done within a 14 day period of time. Therefore if you are ever told to not have anyone else pull your credit or else your scores will lower, this has little truth to it. There is only one type of credit inquiry that counts toward your credit score. That one type of inquiry is when you are making an application for credit: such as a home loan, auto loan, credit card, etc… When you pull your own credit, a creditor you already have an account with pulls your credit, and/or a prospective employer pulls your credit, these do not have any impact on your scores. Understanding this can help you make sure that you do not fall victim to all of the urban myths regarding credit inquiries.

Types & Mixture of Credit (10%)

Having a mixture of the various types of credit will have a small impact on your credit scores. For a person who has a good mixture of credit such as a home loan, auto loan, 2-4 credit cards and maybe a personal loan this could be deemed a good mixture of credit versus a different person who has 15 credit cards and no other credit. The ideal number of credit cards to maintain is 2-4. Also, other types of liabilities are important to have, such as installment loans and a mortgage loan.

“Knowledge is power” and the most important step to applying for a loan is to understand your credit report, your credit scores and how credit scoring works. It is highly recommended that every person checks their credit report at least once per year to help protect themselves from inaccurate information and from identity theft. A new law was recently passed that permits a borrower to have access to their credit report one time each year for no charge to allow them the opportunity to review their credit history and verify the accuracy of all items listed. You are permitted to obtain a credit report from each of the three credit repositories, TransUnion, Equifax, and Experian. You can get obtain your free report by logging into: http://www.annualcreditreport.com/ and following the directions. When you obtain your free report it will not contain your credit score, but you can pay a small fee if you would like to find out what your score is when you are ordering your free report. It is also highly recommended that you pull a report from each repository individually as opposed to all of them together so that you can dispute any erroneous information to each bureau separately. If you report a problem to only one of the bureaus it will not be fixed among all three of the bureaus. Remember the bureaus are separate of each other and have no communication amongst each other either. Some creditors report to only 1 bureau, some report to 2 bureaus, some report to all three bureaus and some don’t report to any. This is why you must make sure that you check all three credit repositories when you are utilizing your free annual credit report. In conclusion, your credit is very important and understanding the basics of how your credit scores are obtained is equally as important.


Some quick tips for helping to increase your credit score:

Pay all accounts on time and make sure you do not go past 30 days late
Avoid allowing any accounts to go into a collection status
Avoid bankruptcy
Never max. out your credit cards
Keep you balances 40% or lower from your credit limit on revolving credit
When shopping for a mortgage or auto loan try to do it within 14 days so that it only counts as 1 inquiry
Do not close revolving accounts after you pay them off
Don’t go crazy applying for a lot of new credit. Use some common sense
Establish a long history of credit
Don’t think that if you pay for everything in cash and don’t have any credit that this is good for you. It may help your debt to income ratios, but it will not necessarily help with financing for a mortgage or with having a good credit score.
Do not live on credit cards and manage your credit wisely
Be responsible when utilizing credit and don’t over extend yourself

Here is a quick contact list for the 3 main credit repositories:

Equifax Credit Bureau P.O. Box 740241 Atlanta GA 30374-0241(800) 685-1111
www.equifax.com

Experian (Formerly TRW Credit Bureau) P.O. Box 949Allen TX 75013-0949(888) 397-3742
www.experian.com

Trans Union Corporation (Credit Bureau) Consumer Disclosure Center P.O. Box 390Springfield PA 19064-0390(800) 916-8800(800) 682-7654(714) 680-7292
www.transunion.com

Credit Scoring - How are credit scores determined? What is the highest credit score possible? What credit score do I need for a mortgage? Why do I have three different credit scores? What do my credit scores mean? These questions are all very common questions regarding credit scoring. Read through this web-page and you will discover the answers to the above questions and many more. Your credit score is based on a number of different variables such as your payment history, your credit utilization, variety of credit, number of credit inquiries within a certain period of time, length of your credit history and the amount of credit you have available to you.

You wouldn’t believe how common it is! The biggest credit mistake that most of us make is closing our old paid off credit cards. I know that is seems like the right thing to do when you pay off the balance but 15% of your FICO score is made up of your credit history. If you close a credit card with no current balance that you’ve had for years, you are getting rid of a lot of your credit history.

The most important factor in determining your credit score is your payment history. Nothing hurts your credit more than making late payments on any of your debt. It is suggested that if you are used to paying off all your credit cards each month but have fallen on hard times, then it is better to make the minimum payment on each card than to make one late payment.

You should review your credit report at least once a year to ensure there is no erroneous information on it. Credit bureaus are required by law to issue you one free credit report each year upon request. In order to obtain this report, simply request it in writing from the credit bureau.

Many banks allow loan applicants with perfect credit history and high credit scores the convenience of furnishing less or even no income and asset documents such as tax returns and bank account statements. Such conveniences are not offered to home buyers with low credit scores without penalizing them with higher interest rates.

Many loan programs have rate adjustments for lower credit ratings. There are some loan programs, such as FHA loans, which are not credit score sensitive but rather look at your overall credit picture.

There are three different credit report bureaus. They are Trans Union, Equifax and Experian. Each bureau will report a score based and many variables. If you have a limited credit history you may not have three scores, you may only have one or two.

Lenders view your credit report as your financial report card. It tells them your ability to pay back a loan on a timely manner. Review your report annually to correct errors.

The most widely used credit scores are FICO scores, which were developed by Fair Isaac & Company, Inc. (hence the initals FICO). Your FICO score is between 350 (high risk) and 850 (low risk).

When applying for a mortgage, credit scores are one of the main factors that will be used to determine your eligibility for various loan programs. The higher your score, the more options you will have.

If you have a minimum of 20% to 25% equity in your property, in certain cases we can approve you for a loan with no credit scoring based solely on your good mortgage payment history and liquid financial reserves.

The three credit bureaus use a credit, or FICO score, as a general estimate of your ability to repay a loan. Lenders will consider the FICO score in determining the interest rate to charge you. To improve your credit score make your payments on time. Also pay down your credit balances. Contact a mortgage broker for more information on improving your credit score.


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