A First Step To Initiate A Good Credit Rating

One of the first things young adults need to know when they're just starting out on the road to the rest of their life, is how important it is to build and maintain good credit. In the world we live in today, your credit rating is the basis of how you are treated by the big businesses you will find you need to work and deal with in your day-to-day life.

It doesn't matter if it's renting an apartment, applying for insurance, a car loan, or even a credit card, your credit rating is taken into consideration. Sometimes when applying for a new job they may review your credit report as a reflection of your personal integrity.

Everyone realizes that life isn’t always perfect. There may be a time when some people are not able to meet their obligations temporarily. When a reasonable explanation is given and evidence that you are actively attempting to rectify the situation, financial institutions and other large companies understand and view this as a favorable indication of your veracity.

One of the easiest ways to begin to establish your credit, is by applying for a credit card. There are multiple choices of credit card features that will fit your lifestyle. When applying for your first credit card you will most likely be given a lower credit limit. It's after you've proven your credit worthiness, your credit limit will gradually be raised.

Before you begin to apply for that very first credit card or any credit card at all, you should know the key questions to ask.

- Does it have a low introductory offer?
- If it has a low introductory offer, how long does it last?
- Is the low introductory offer for transferred balances, new charges, or does it apply to both?
- After the introductory low interest rate, what is the regular interest rate?
- Does this credit card charge an annual fee?
- What is the amount of the late fee?
- Does this card have an over-the-limit fee?

These are just elementary questions to be prepared to ask when you are applying for a new credit card and want to compare offers. But before you sign on that dotted line, like with anything new, be sure to read the fine print. How you handle this card and meet your credit obligation is important. Your adherence to the terms and conditions will reflect on your credit rating and could effect you for years to come.

How Your Credit Score Determines The Size Of Your Bank Account

Every time you apply for any type of loan or you are issued credit or you pay any bill, it becomes a part of the equation that determines your credit rating.

The primary or big three credit agencies are: Experian, Equifax and Trans Union. The credit score they determine is what all major lenders and most companies use when deciding if they will lend you money or issue you credit and the terms that credit will have.

Your Credit Rating - What Does It Include?
All of your current debts are included when determining your credit rating. Basically, your credit rating is a history of all your debts, with special emphasis placed on anything that has gone wrong.

A few of the primary factors that determine your overall rating include: Late Payments - The number of times you've been 30, 60, 90 or more than 120 days late on any payment. This could include rent, mortgage, phone bills or any type of credit card. Defaulting (never paying) on a debt will clearly hurt your credit rating for a period of time. In some instances, up to 7 years but each company issuing credit has their own guidelines and in many cases it will cause a negative impact for 2 - 3 years. Owing a high percentage compared to your credit limit also brings down your credit score. For example: If you owe $10,000 on your credit cards you are much better off to owe $3,000 on two different cards with a credit limit of $5,000 each and 4,000 on another card with a credit limit of $6,000 than to owe the entire $10,000 on one card with a credit limit of $10,000.

It is also worth considering that the credit report of anyone you live with or more precisely anyone with whom you share a debt obligation with is also linked to your report and if they default or have a late payment, it will reflect on your credit score. This happens with when couples get divorced and one party decides to stop making payments.

What is FICO?
The standard method for expressing your credit rating is called FICO. In a nutshell, it's an acronym for expressing your credit worthiness with a number. FICO was named after the Fair Isaac Corporation, who invented it.

One common misconception about credit score is that every time your credit is pulled is that it hurts your credit score. This is how it works.

If it's pulled by a lender then it doesn't hurt your score because it's assumed they would only be pulling it to determine if you qualify for a mortgage. On the other hand, if you continually apply for department store credit cards or car loans or similar types of credit and those types companies pull it then it can hurt your credit score, if it's pulled too many times in a short period of time. The exact number of times it can be pulled in a particular time frame before it hurts your score is an industry secret but if you use common sense and don't over apply then you should be ok.

Why Your Credit Rating is So Important
Any time you get turned down for a any type of loan, chances are that it was because of your credit rating. Companies that are considering giving you a loan rely almost exclusively on this rating when making the decision whether or not to issue you credit. Regardless, the bottom line is this. In virtually all cases, the lower your credit score the higher the interest rate.

Your credit score directly determines the credit terms you'll receive for any type of loan - mortgage, car, credit cards, etc. And remember, all bills affect your credit rating so if you don't pay your phone bill or your utilities or your rent on time it will have an effect on the terms you receive or even if you qualify for a mortgage or car loan. So get into the habit or paying your bills on time and get a solid credit rating because the amount of money you'll save over your lifetime in interest charges will be huge.

Free Credit Reports
One of latest trends in credit reporting is for companies to offer individuals a free credit report. In and of itself, there's nothing wrong with this but I would like to point out a vital point that you need to be aware of.

I mentioned earlier that there are 3 primary credit agencies that lenders rely on looking at your credit. The key factor here is three and that's where you can run into trouble when you get your Free Credit Report. When you get a Free Credit Report you will only be getting the results from one of the primary credit agencies and this can misleading.

The reason it's misleading is because virtually ALL lenders will pull what's called a tri-merge credit report when you apply for a loan. They do this in order to get the full picture of your credit history. Then they throw out the high and the low score and use the middle score to determine your credit rating.

When you get your Free Credit Report you will only be given a credit report pulled from one of the agencies and so you have a pretty good chance of being misled as to what your actually credit score is. Unless, the credit agency that was used just happened to be the one with the middle credit score you won't have your 'true' credit score. And the reason this matters is because the difference between the three scores can be significant. So be wary of single agency credit reports and when applying for a loan always ask for your middle credit score because that's the only one that really counts.

How To Repair Your Credit With Credit Card

Very few people live their entire lives without inflicting any damage upon their credit scores. Whether it be high balances on credit cards, bankruptcy, collections issues or financing troubles, credit problems affect the best of us and are difficult to repair.

Fortunately, there are solutions to repairing bad credit and restoring faith with credit agencies and bureaus. All it takes is a little time and the right strategy, and before you know it, you’ll be receiving “Pre-Approved” credit offers in the mail again. One of the most effective ways to repair your credit is with credit cards, and I’m going to show you how.

Bad Credit” Credit Cards

Believe it or not, there are actually credit cards out there designed just for people who need to get back on their feet. Most of these cards have middle-of-the-road APR’s with annual fees ranging from $40 - $100. Some also require an account set-up fee and other charges, which are expected with customers whose credit reports have black marks.

Credit Reporting

The most important thing to remember when repairing bad credit is that your card will not help unless the financial institution reports it. There are three major credit bureaus: Experian (1-888-397-3742), TransUnion (1-800-888-4213) and Equifax (1-800-685-1111). When you fall into collections or fall short of a loan, the financial center reports the debt to one or more of these credit bureaus, and that is how your credit is damaged. In order to repair that damage, financial institutions must also report accounts in good standing.

The best way to ensure that this happens is to find a credit card that reports monthly (or at least quarterly) to all three major credit bureaus. This way, your credit continues to improve exponentially as you continue to pay off all of your balances.

Balances

Most people believe that to maintain a good credit score, you must always pay off your credit card balance each month. This isn’t true. When you are attempting to repair damaged credit, it is much better to keep a small balance on each card, and pay it off gradually over a period of three-to-four months. When you apply for a loan, mortgage or line of credit, financial institutions want to see that you are able to effectively manage your finances. Keeping a balance and paying it off shows that you are able to manage your debt in an efficient and systematic manner.

Secure Credit Cards

If your credit rating is too low, then you won’t be able to obtain a Visa or MasterCard. Instead, apply for a secure credit card. This works similarly to a debit card; you deposit money each month, and that amount determines your credit limit. If you choose a secure card that reports monthly to the credit bureaus, then you will be eligible for an unsecured card in a matter of months.

With Secured credit cards, you deposit money into a savings account, and the amount you deposit acts as your credit limit. The amount can be anywhere from $200.00 to $10,000, and it acts as a type of security deposit. It is never removed from your savings account unless you become delinquent on payments, and it accrues interest the same way a normal savings account would.

Repairing your credit with credit cards can dramatically increase your chances of achieving an “A” credit rating, and you’ll be able to effectively manage your finances. Take the time now to research credit cards – both secure and unsecured – and make today the first step toward a better credit score.