eIt is more important than every before that people understand how their credit score works. Lenders are continuing to tighten the requirements for getting credit and a real interest rate, and it is important for the consumer to be able to manage his or her credit history to the optimal level. Having a good credit score is essential if you are to participate in any borrowing.
A credit score is based on how well you have handled credit in the past, and how well you may have come back from some situations that may have had an adverse impact on your credit. The credit score itself is a three digit number that is used to determine how creditworthy you are, a before the current financial downturn, a score of 720 would get a borrower the top interest rates.
In the economic environment of today, a score of 740 is required to get the best rates, and scores of lower amounts mean a higher rate of interest, or perhaps a turn down for the loan. The minimum score required by Fannie Mae, the great mortgage purchasing agency, has been raised up from 580 to 620.
Good credit scores are used for more than just getting loans, as employers use it to determine who the higher caliber potential candidates are, insurance companies uses it to screen candidates, and landlords require it to decide who gets apartments.
If you are in the position where you can’t pay your bills, it will be impossible for you to repair your credit, until you get back into a position where you can pay them. You will have to have some extra money over and above your expenses to begin to pay down your bills, to start repairing your credit.
You also cannot build your credit score if you don’t use credit. The formula for determining credit scores attempt to predict how well you are to utilize credit in the future, and living by cash only doesn’t let that part of the formula operate. If you fail to use some credit, your credit reports will not even generate any credit score.
High credit scores are not created by paying credit card interest or carrying a balance on your credit cards. Keeping a credit card balance and paying interest is not good for your credit score. It is also not good business, and the people who continuously have high credit scores will pay their credit cards off all the time and pay no interest at all. Even though the credit card companies want you to pay interest, it is really in your best interest not to do so.
You must have patience. Rome was not built in a day and to build your credit score will also take some time. The timeframe that it will take to get your score back up to the higher echelons will depend upon the extent of credit doom you have subjected yourself to. If you have bankruptcies or foreclosures, you will have to wait until these black marks fall off of your credit report, which is usually seven years.
Now that you have a basic understanding about how your credit score works, you can begin to build your credit score. Go over your credit reports and correct any errors. There are three companies that put out these reports, and you will need to go over each one of them. The companies are Experian, Transunion, and Equifax. Look for late payment reports when you did pay them. Bankruptcies and foreclosures older that ten years should not be still reported. Look for accounts that never belonged to you in the first place.
Obtain a major credit card and begin borrowing some money, and paying it back. If you can’t get one, then get a secured card where you put up enough money to cover the card, then use it and pay off the balance each month. Do not use a debit card for this, you will need to get a regular credit card or one that is secured.
As you progress, you will be able to get more credit, and gradually improve your score without relying on some of these high priced firms that claim they can do this for you. You can raise your credit score yourself by being patient and using credit responsibly.