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An Insight on Credit Scoring and Steps to Upgrade It

Published December 13, 2011

Have you ever wondered how to get approval for your credit online application within minutes, even when there are thousands of applications with the lenders? With the help of FICO scoring model, the fastest way to evaluate the creditworthiness, the lenders calculate the likelihood that the person will make repayments of his debt or not.

All those financial service industries such as banks, lenders, utility companies, phone companies, and other businesses that are trying to decide whether you will be eligible for the loans make use of credit scores and ensure that you will not be a credit risk for them.

If it is your first time applying for loans, then you will have a number of questions regarding the scoring model, so that you can get approved at your first attempt. Find out all about credit scoring here:

Calculating Your Credit Scores:

FICO score, the most popular scoring method used by lenders, determines if you are creditworthy. The scale runs from as low as 300 to as high as 850. The negative skewed distribution is with 60% of the score, which lies approximately between 650 and 799.

The components which affect your credit scores are:

  • Your payment history
  • Credit utilization
  • Types of credit used
  • Length of credit history
  • Amount of debt you owe

Credit Bureaus and Scoring Agencies:

Every individual has three credit scores for the FICO scoring model, which are available at the databases of the three national credit bureaus, which are Experian, Equifax, and TransUnion. The data from each of these bureaus may differ from each other.

Checking Of the Credit Rating Databases:

The lenders and other financial service industries are liable to get your reports from these agencies when you apply with them, to determine your credit history. You can also get a free annual credit report as each legal resident in the United States is entitled to a free copy of his or her credit report from of the above mentioned agencies, once every twelve months.

Advantages of a Good Credit Score:

Every U.S. citizen, who is over the age of eighteen, has a credit score. It speaks volume of how finically responsible you are. There are a number of things, affected because of your good or bad credit scores. Here are all the possible things that which your credit rankings affect:

  • Receiving A Loan:

Credit rankings are a dominant thing in determining if you are liable to receive a loan or not. A low or bad credit report shows that you are not capable of managing your bills or finances. The lenders render this as a risk in the repayments of loans.

  • Ability Of Renting A House:

Your credit rankings also affect the renting procedures for you. The proprietors determine if you are capable of making the rent payments each month or not.

  • Affects On Getting Jobs

Many employers are asking to access a job applicant’s credit score, especially when the job responsibility is for handling cash or accounts. A bad credit is therefore a hesitant for the employers.

  • Getting Daily Life Services:

Even though no company denies providing the essential services such as TV cable, electricity, water, and availability of gas, but having a good credit score greatly affects the way people pay for the deposits. Those who have poor scores have to give the suppliers some sort of reassurance of timely payments.

Now that you know the importance of credit scores in life, here are some simple ways, which can help you improve your scorings:

10 Simple Ways to Raise Your Credit Scores:

Dealing with bad scores in America is very frustrating, as it affects almost everything in your life, related to money. It is vital that you improve your credit score, especially if it is below 700. Here are a few things, which you can do to improve your low scores:

1. Get A Copy Of Your Credit Reports

It is important that you keep a check on your spending and your finances with the help of these reports. Also, check the reports, when you think that the costs have gone out of the way.

2. Dispute A Credit Report Error

There might be some negative items on your credit reports. Check your reports for any errors or mistakes and get them removed as soon as possible.

3. Avoid New Credit Card Purchases

If you have a low score, try to avoid getting new cards and put a hold on your expenses.

4. Pay Off Bills And Debt

It is important that you keep up with the payment of your bills each month, in order to keep up your scores. It is also necessary that, if you have debt, then you start paying it off the ones with the higher interest rates first. For that, you can seek the help of CreditGUARD of America, a non-profit credit counseling agency that can help you achieve a debt free, stable financial future.

5. Leave Accounts Open

Make sure that you do not close your old credit cards, especially those with balances.

6. Contact Your Creditors

Get professional help if you have bad credit. On the refusal of your applications, do not look elsewhere. Speak with your creditors and explain your financial situation. Try to get a remedy for it.

7. Get A Small Personal Loan

If you are rebuilding your credit, it is important that you ask your bank to get you a smaller loan.

8. Open A Secured Credit Card

When in debt, you can apply for a secured credit card, which will not affect your scores in anyway.

9. Avoid Store Cards

Remember that more store cards mean, more trouble. Try to get rid of your present store cards, and avoid the new ones.

10. Start Making Some Extra Bucks

To pay off debt and improve the scores, it is better that you start thinking of ways to make some extra cash and make advance payments, to get over your miseries as soon as possible.

In conclusion, a credit score is something, which moulds people’s lives, which they cannot escape. It increases and decreases based on your budgetary activities all the time. To have a good credit score, it is imperative for you to remain in secure lines of credit and pay off outstanding arrears in time.

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