personal loans

Maintaining Good Credit
view below

Notes:
about your credit report

Notes:
preventing ID theft

CREDIT MANAGEMENT 101

First: what is credit?

• Credit allows you to "buy now, pay later".
  
  
• We use "credit" to buy things now with an agreement to repay the "credit" over a period of time.
  
  For example, the car you need may cost $12,000. Instead of waiting to save enough money to purchase the car with cash, you will use "credit" to finance the purchase. You will then sign an agreement to repay the "credit" over a period of years (months).
  
  Try our credit financing calculators to run some numbers.
  
  
• Credit cards are the most common forms of credit. Other credit plans include home mortgages, auto loans, student loans, small business loans, trade financing, etc.
  
  
• Credit is an important component in everyday life. You will use credit to reserve hotels, rent a car, book an airline ticket, get a home mortgage, and in some cases, apply for a job.
  
  
• Maintaining a strong credit rating is very important.
  
  Businesses will review your credit history when they evaluate your request for loans, insurance, employment, and even leases. They may choose to grant or deny your request based on your credit history provided that you receive fair and equal treatment.
  
  What is a credit history?
  
  Credit history is a record of all of your credit cards, loans, and other credit obligations that you have assumed over a period of time. It shows how much you have borrowed (or the amount of your credit limit), the number of payments made, and whether you have met the obligations of the repayment terms.
  
  Credit histories are maintained by credit bureaus that lenders use when evaluating applications for credit. We have more information about credit bureaus.
  

Next: what is the cost of credit:

• Credit comes with a price: interest rate charges.
  
  
• Banks and other lenders are willing to give you credit in exchange for interest rate charges on the "credit amount" that you borrow.
  
  For example: let's say you need to borrow $1,000. The lender agrees to give you credit for $1,000 under an agreement that you will repay the borrowed amount in full after one year at an interest rate charge of 10%.
  
  At the end of the year, you will need to repay the debt of $1,000 and interest rate charges of $100 for the use of the money. Your total repayment will be: $1,100.
  
  
• Most credit plans use repayment terms of 3, 5, and even 10 years or more. Home mortgage repayment plans can be as high as 30 years or more.
  
  
• Lenders will use "amortization schedules" when setting up credit repayment plans. The "amortization schedule" will calculate how much each month you will need to pay in order to reduce your borrowed amount with interest charges to zero over the repayment term of the loan.
  
  You can use our sample calculators to estimate monthly repayment amounts.
  
  You can also download FREE this amortization schedule worksheet to calculate and analyze loan repayment plans: click here

Applying for Credit:

• Lenders (or creditors) generally make an evaluation on your "application for credit" using three criteria known as the "three Cs":
  
  
  1. Character: the measurement of your "willingness" to repay the debt (measured by your past credit experiences, length of employment, length of residence, etc.)
     
     
  2. Capacity: the measurement of your "ability" to repay the debt (measured by your employment, income, current outstanding debts, monthly expenses, etc.).
     
     see example calculation of capacity ratios
     
     
  3. Collateral: the measurement of available "resources" that the lender can assume in the event that you fail to repay the debt (savings, property or investment).
     
     
• Creditors often merge the "three Cs" into a sophisticated computerized models to help them determine whether to grant or deny you credit.
  
  
• A credit scoring system awards points for each factor that predicts who is most likely to repay a debt.
  
  
• Using statistical programs, creditors compare your information to the credit performance of consumers with similar profiles. A total number of points — a credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.
  
  

Tell Me More About Credit Scoring

• The credit score is a numeric scoring system at a particular point in time. Lenders use the score to speed up the loan process and provide an unbiased assessment of your loan application.
  
  
• Although lenders and credit agencies have their own proprietary scoring systems, the most common scoring model used among lenders and agencies for consistency is the Fair Issac Company (FICO) model.
  
  You can find more information about the Fair Issac Company.
  
  

• FICO will grade your risk by analyzing the following credit factors:
  
  
1. Your Payment History:
   analyzes your payment of debts, whether they are delinquent or late
   
   
2. Your Amount of Outstanding Debt:
   considers the number of balances recently reported, the average balance among all credit lines or loans, and the relationship between the total balance and total credit limit.
   
   
3. Your Credit History:
   looks at the history of your accounts, the total number of "inquiries" made and new accounts opened over a period of time
   
   
4. The Types of Credit:
   looks at the type of credit you use such as mortgage loans, personal loans, credit cards, retail cards, travel cards, etc.
   
   
5. Negative Information:
   looks for bankruptcies, delinquencies or late payments, collections, too many credit lines charged to the maximum limit.
   
   
• These credit factors are compiled into sophisticated models that have analyzed credit behavior over the years. It generates a score, which in theory states that, the higher the credit score the less likely the lender is at risk that you will default on a loan.
  
  
• Every lender has a different credit tolerance level. One lender may reject your application because of a score while another lender approves it. Your score may be too low for one lending product but passes another.
  
  
• Basically, the score lets the lender know how to treat your application. If your score falls below their minimum threshold, they may require additional information in order to make an approval decision. Again, score determination varies by lender.

• Let us emphasize one more time: it is extremely important to build a strong credit history over time to be granted credit at favorable interest rates for home mortgages, consumer loans, consumer credit, business credit, insurance, and in many cases, good employment.
  
  
• More information about credit scoring:
  http://www.ftc.gov/bcp/conline/pubs/credit/scoring.htm
  

Additional Information about Credit Management at our affiliated site: SayPlanning.com

Credit Management
see above

Notes:
about your credit report

Notes:
preventing ID theft

MAINTAINING GOOD CREDIT

Step 1: Pay Your Bills on Time

• Make it your personal goal to pay your credit and other obligations on time and for the required amount each month.
  
  
• Debt obligations will include:
  
  
  • credit card charges
  • loan payments
  • rent or mortgage payments
  • utility bills
  • service or product bills
  • taxes
  • support payments
  • other
    
    
• Take advantage of automatic payments and other online bill payment strategies offered by lenders and credit card issuers. This will ensure timely payments.
  
  If you forget to make a payment, act promptly on any notices of non- or late payments. Call the bill servicer to notify them that your payment will be sent immediately.
  
  Do not ignore any creditor notices of non-payment. Contact the creditor to fix the problem.

Step 2: Build a Strong Payment Pattern

• Adverse conditions such as late or non-payments are two of the most common items that are reported to the credit agencies.
  
  
• You can avoid adverse conditions by making on-time payments.
  
  
• Your credit report will also list all open credit cards and loans, listing the amount borrowed and the amount owned on the account.
  
  Your objective is to build a pattern where you payoff large credit card balances in full each month.
  
  This pattern conveys a sense of responsibility for your debt obligations.
  
  
• You can build a strong payment pattern by charging everyday living expenses on your credit card, deducting the charge from your money account, and then paying off the monthly credit card charge in full each month with your money deductions.
  
  
• You can download FREE an outline plan that describes how to account for everyday purchases. The plan uses rebate credit cards to maximize your rebate options.
  
  Click here to download plan
  
  
• Important Note: you need to follow these rules before you undertake this credit payment pattern:
  
  
  1. you must set aside funds for every credit card purchase you make
     
     
  2. you must pay your credit card balance in full each month
     
     
  3. you must have an existing credit line or home equity line (with lower interest rate) to finance large ticket items — never finance purchases with your credit cards

Step 3: Maintain only a Few Credit Cards

• As your credit rating improves, you will soon receive pre-approved offers from credit card companies and lenders with attractive rates and programs.
  
  
• You should limit your credit to 3-4 cards maximum. Maintaining a large collection of cards can hurt your credit rating.

Step 4: Close All Retail and Gas Cards

• Since you maintain 3-4 credit cards (VISA, MasterCard, Discover, American Express, or other), it isn't necessary to hold gasoline cards, retail store cards, and other specialized credit cards. Simply use your credit card.
  
  
• Again, holding multiple cards can drag down your credit score.

Step 5: Don't Have Too Many Outstanding Loans

• Excessive loan balances (especially loans that exceed your Debt-to-Income ratios) can effect your credit rating:
  
  see debt-to-income ratio calculation
  
  
• Maintaining a good credit rating requires that you reduce your debt holdings by consolidating balances, closing unused credit card accounts, and paying off outstanding loans.
  
  See our debt consolidation plans for consolidating credit cards, personal loans and student loans.

Step 6: Avoid Charging Close to Your Credit Line Limit

• Using your credit up to your maximum credit line balance can impact your credit rating.
  
  
• Maximized credit lines (including home equity lines, credit cards and unsecured credit lines) indicate that you are a consumer who borrows willingly. Many lenders consider this a great risk and may not approve you for additional credit.
  
  
• A good rule to follow is to keep your balances at or below 60 percent of the available credit line.
  
  

Step 7: Review Your Credit Report Annually

• About 1-in-4 credit reports have errors. Either a payment on a loan amount has not been recorded correctly or another billing company has posted an incorrect non-payment information to your account.
  
  
• Your credit report also maintains records on your employment, salary, bank accounts, etc., especially the information that you supplied when making a previous credit application.
  
  
• You should review your report annually for errors and make the necessary corrections as instructed by the credit agency.
  
  Link to: reviewing your credit report

Step 8: Limit Inquiries on Your Credit Report

• Every time you apply for credit, seek some kind on contractual service, or in some cases employment, a credit inquiry will be made on your report.
  
  
• Multiple inquiries over a period of time may impact your credit score.
  
  
• Models show that multiple inquiries over a period of time indicate an applicant who is anticipating credit problems. So limit credit inquiries when only necessary.
  
  
• What about having multiple lenders compete for your loan?
  
  Many Internet services and brokers (including our lending network) allow you to submit one form and have up to four lenders review your credit information.
  
  Credit agencies understand that these services may require an inquiry by "multiple lenders" at the same time.
  
  These kind of inquiries, coming from multiple lenders within 20-30 days of each other, indicate that you are shopping for the best deal. Credit agencies will count these inquiries as being only one inquiry. This allows you to shop and negotiate best deal without being penalized on your credit report.

Additional Information about Maintain Good Credit at our affiliated site: SayPlanning.com