Your credit scores impact on your credit potential

Your credit score decides your potential of getting a new loan from your credit lender. The three digit credit score will decide how much is going to be the cost of your loan. If your credit scores are high, the lenders will consider you as a low risk to their finance. This means that you will get competitive interest rates.

There are other factors that determine your potential of getting a loan besides your credit scores. The property that you are using to get the loan, how much equity you have, the cost of the loan that the lender can issue for you are reviewed.

Your credit scores are very important in front of different lenders, merchants, employers and insurance companies. They will understand your financial situation and make suitable offers. Consumers are getting more alarmed when they find their credit scores determining their insurance rates. Insurance companies review your credit scores thoroughly and predict how likely you are going to pay the premiums. This has been helpful to them to cut their losses. They use a slightly different formula from what your banks and credit grantors use to determine your credit potential. They call it an “insurance score”.

The way the insurance company have been reviewing the credit potential of the individuals is under scrutiny all over the nation. Many states have passed laws to restrict this practice. Washington, Utah, Idaho and Maryland have already done so, and 20 more states are considering it. Check your state’s department of insurance website to see the laws of your state.

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Credit scores are very important for someone who is trying to improve his financial worthiness. Experts say that a person’s credit potential is determined on the basis of how he is managing his finance. There are still many people who are not aware of how their credit scores can affect their credit worthiness. It is important that you browse through the internet and read the credit card news and articles so that you can get the right education and be an informed consumer.

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According to the recent survey, many people had questions regarding their FICO scores. There were a variety of concerns amongst many people, like inactive credit cards they had, low interest rate cards, how many credit cards they should be having on an average, how to use the 0% APR credit cards and knowing ways to improve the credit ratings. If you are looking to buy a house sometime in the future and you are using one card while there are few other cards that have not been used for quite some time, it should be a good idea to start using the other cards and paying off the bills. You don’t have to apply for a new credit card and get hit with new inquiries, since you already have a past history. You need to make sure that all these accounts are showing a good history on your credit report. This will help to boost up your credit scores. Call the credit issuer and request for the updated monthly statement and check the limit on the card. You can also request the credit grantor to increase the limit after you start making timely payments. These timely payments will help in the long run especially if you are looking to buy a home in the future.

Credit cards can be kept active if you are using the cards once at least six months. If you are having multiple cards, like more than 15 and you are applying for a mortgage anytime soon, closing some of the cards will not help if you have been having such thoughts. You should be having a good credit mix on your credit report. Whether you have open or closed accounts, low balance cards or high balance cards, old or new, your scores matter if you have a variety of accounts. Closing an account does not have anything to do with your credit scores. Instead, it may go off your credit report sooner and negatively affect your lengthy credit history.

The first question that comes in mind is that “is it really possible???” Yes.. It is possible. There are ways to do it but it can be done. You just have to follow few steps to see your credit scores going up while reducing the debts. You need to be a little more dedicated and do careful planning. Once you have the perfect control over your finance, you can turn your financial life and status around.

Most of the people focus on one aspect only and that is reducing debts? Why do you need to think about one aspect only when you can focus on reducing debts as well as increase your credit scores?

• The spin down method.

Most people use the “roll down” method while eliminating their debts. The better and easier option is to spin down all your debts and make it more manageable and realistic. Recent statistics show that this method has been very helpful to the average consumer.

1. Determine your percentage of obligation (POO) for each card/account: It sounds fancy (and a little humorous in a childish way!), but it’s very easy: Simply divide how much you owe by your total credit line. For example, if you owe $800 on your primary card and your total credit line is $1000, then your percentage of obligation is 80 percent. You mind will get immediately focused towards your obligations and you will make every effort to pay back
   
   
2. Decide on a monthly payment amount: Set aside the same amount each month (as much as you can afford) to put towards eliminating debt. It doesn’t matter if it’s $100 or $1000, as long as you know it’s consistent and, preferably, automatic.
   
   
3. Get the POO for each account to 50%: While exact details of how your credit score is determined are unknown, it is accepted that a POO of 50 percent or above will negatively affect your score. So, starting with your highest POO account, make your monthly payments until it’s at 50 percent, and then move to your next highest POO account.
   
   
4. Now, go for 30%: Once you have all of your accounts down to 50 percentage of obligation, commit your monthly payments to getting them all to 30 percent, starting with the largest. If you have come this far, you have to have the faith in yourself that you can do it and achieve your final aim.
   
   
5. The home stretch: Now that your debt is significantly reduced, you can begin using the more common roll down technique of paying off each remaining card, starting with the one with the highest interest rate.

By using this method, you are not increasing your credit scores significantly, but you will also reach your goals sooner than if you simply stuck with the traditional roll down method the entire way.

That’s why the spin down method is the best if you are looking to increase your credit scores while reducing your existing debts.

Fallacy: My scores determines whether I will get credit or not!Fact: There a number of facts that a lender will consider before making a credit decision. This well includes your FICO scores. They look at the amount of your debt and figure out whether you will be a potential risk to their finance after extending new credit. They also go through your employment history and credit history. Based on their perception of this information and the specific underwriting policies, lenders may grant credit to you even if the scores are low, or decline your request for credit even if you have high scores.

Fallacy: A poor score will haunt me forever.Fact: This is not true. Your credit scores depict your financial picture at a particular point of time. It keeps on changing when new information is added to your bank and credit bureau files. Your scores will keep changing after your creditors report your account status to the bureaus. Lenders request a credit score when you have submitted a credit application. They will get the most recent information from the bureaus if you have already been paying regularly to your other creditors.Fallacy: Credit scoring is unfair to minorities.Fact: Scores are based on credit related information only. Gender, race, nationality and marital status do not put any affect on your credit scoring module. Equal Credit Opportunity Act (ECOA) prohibits lenders from taking this information when issuing credit. The policies should be same for minorities or people with little credit history.

Fallacy: Credit scoring infringes on my privacy.

Fact: Any lender will have to evaluate your credit potential on the basis of your credit bureau report, credit application and/or your bank file. They don’t need to go through any other information to decide whether to offer credit or not. Lenders using scoring sometimes ask for less information - fewer questions on the application form, for example.

Fallacy: My score will drop if I apply for new credit.

Fact: If it does, it probably won’t drop much. If you are applying for too many credit cards within a short time, there will be inquiries showing on the credit report. Looking for new credit might equate with higher risk. If you are having inquiries from auto or mortgage lenders, it will have a least affect on your credit scores and will show up as a single inquiry.