Why do I have a bad credit score and how to improve it?

It isn’t nice being rejected by a lender. You may have set your heart on a holiday or new car, or simply want to roll all of your monthly payments into one, but your plans could be wrecked if you have a bad credit score. When you get that credit rejection, it’s highly likely that there’s something the bank or other lender is seeing on your credit record which is acting as a big red flag. This can seem like the end of the world: a big setback that has wrecked your plans and put you back at square one.

But it doesn’t have to be like that. Hundreds of thousands of people in the UK suffer from poor or bad credit records and many of them have been able to take concrete steps to fix them. And once you have put yourself back on a sound footing with your credit record, it’s just a matter of discipline to ensure that you continue to manage your finances wisely and ultimately get access to more mainstream credit again.

What is a bad credit score?

The three major UK-based credit reference agencies – Experian, Equifax and CallCredit – maintain data on every borrower in the country as well as records on utility and insurance accounts as well as mobile phone contracts. The information held on each person includes a list of existing and past addresses, the history of payments on each credit account going back six years and whether those payments have regularly been made on time. If a person has any defaults registered against them, county court judgements (CCJs) or bankruptcies, this information will also be recorded on his or her credit record.

Anybody has the right to see their credit record. An individual can can apply to one or all of the reference agencies for a copy of the record in return for a small fee. Alternatively, all three of the agencies offer online subscription services where you get access to your credit record as it is updated every month. Once you get hold of your report, you should be able to spot exactly where you’re having trouble and what constitutes a bad credit record.

While you will be able to see immediately where your payments have been late or you have defaulted, figuring out how the agencies and lenders use the data can be more difficult. These organisations use a credit score – usually a figure between 300 and 900 although this can vary – which represents the risk that a particular individual might pose to a lender. In short, the lower the score, the higher the risk, while those with the best credit scores will have higher figures registered against them. Furthermore, that degree of risk might be expressed by one or more of the agencies as ‘very poor’, ‘poor’, ‘fair’, ‘good’ or ‘excellent’. If you have a rating of somewhere between 300 and 400 then this might be classed as ‘very poor’ or ‘poor’ while those with scores of between 650 and 900 may be judged to be ‘good’ or ‘excellent’ risks.

If you are in the bottom categories, then you may well find it difficult getting accepted for most mainstream forms of credit. These include loans, bank account overdrafts, mobile phone contracts and credit cards. In some circumstances, utility companies may be reluctant to set up new contracts and offer you pre-paid accounts instead.

There are some lenders who will offer credit to people in these categories but these may come with higher interest charges, lower capital sums and, occasionally, conditions about security or guarantors.

If your score is somewhere north of 400 but below 600, you will probably be classed as a moderate risk by lenders. That means that you will have access to loans and credit cards but you will probably face higher interest rates and lower credit limits than people with good or excellent records.

Those with the best credit records will be accepted for most or all loans that they apply for and will benefit from the lowest interest charges.

How to Improve Things
It is eminently possible to repair a bad credit score given time and good financial management. While there is no magic bullet, the experience of thousands of other people proves that even those with the worst credit records can find themselves back in the ‘excellent’ category within one to two years if they stick to some fairly simple steps:

    1. Always repaying on time, every time

Financial mistakes don’t stay on your record forever. They only last for a maximum of six years and so long as you make your repayments on time from this point on, this will start to outweigh any of the negatives on your record which will gradually get pushed down the list over time.

   2. Close accounts that you don’t use

Paying off loans or credit cards when you can afford to is sound financial management. It’s no good saving money if you have got debts that you can afford to clear. Rather than spending money on something you don’t actually need, look at the cards that you may have reached your credit limit on. If you pay these off or substantially reduce them, this will reduce your debt to income ratio and this is one of the most effective ways of improving your credit score quickly.

   3.  Consider a guarantor loan

While it may not be obvious, a guarantor loan is a great way to rebuild a bad credit record. It works because a borrower uses the good record of somebody else to borrow the money they need – be that person a family member or friend. This guarantor is the security that the loan will be repaid and will be liable to make repayments if the applicant slips up. But the great thing about guarantor loans is that every time the borrower makes a repayment on time, this goes on his or her credit record and will gradually improve even the worst record.

   4. Choose the right credit card

There are plenty of credit cards out there designed specifically for people with poor or bad credit records. These may be advertised as ‘credit builder’ or ‘credit repair’ cards. They are generally offered with higher interest rates and lower credit limits than other, more mainstream cards, but they give people the opportunity to build up a record of financial discipline by making repayments on time.

Article provided by Mike James, an independent content writer working together with technology-led finance broker Solution Loans, who were consulted over the information in this post.

source: 20smoney.com

A Few Easy Ways for You to Improve Your Credit Score

Few people truly understand credit scores. This isn’t surprising, since the algorithm used for the calculation of a credit score are so complex that only a computer can perform them. Most people want to figure out how to improve their credit score, and this leads to a number of questions. Those questions (and their answers) are below, as well as five great ways to help you improve your score.

Questions (and Answers) People Have about Improving Their Credit Score

• Should I hire a credit repair company in order to improve my score? No, you can do it yourself and save money.
• Will my score improve if I get married? No, your score is personal.
• Will my score improve if I make regular payments on time? Yes, this is one of the most important ways to increase your score.
•  

Let’s take a look at some of the ways in which you can improve your score.

1. Get Rid of Any Issues

This is a slightly sneaky trick, but if it works, it’s worth it. Ask for a copy of your credit report and officially file a dispute against each of the negative marks on there. Chances are that the credit of at least one of them will not respond, which means the credit bureau will remove it. Of course, do also check whether there are any marks on there that actually need contesting.

2. Ask for an Increased Credit Line

If you have a higher credit line, then your credit utilization ratio will also improve. This is because you will use a smaller percentage of your actual limit. As a result, your credit score will improve. With credit cards, you can usually request an increase without them checking your credit score. It is always worth asking, therefore. However, if they want to do a credit check, cancel your application because that will give you a new negative mark.

3. Pay Your Debt

You have to make sure you have as little debt as possible on your file. The less debt you have, the better your credit utilization ratio. The best way, but not the quickest way, to achieve this is by paying your debt. Always pay the debt with the highest interest rates first, as that will improve your credit utilization ratio the quickest.

4. Use the Credit Card as Little as Possible

You may think that you are doing the right thing by always paying off your credit card, but your score is calculated on your balance once a month. If that happens to be the day before you pay your balance, it will actually look bad on you. Hence, use your credit card as little as possible so that your balance is good.

5. Keep Your Eye on New Tips

There are always new tips out there and you should check them out. Follow things like https://123moneyhelp.com/blog to be kept up to date with these new tips. All in all, this will help you improve your score.

source: marriedwithdebt.com

Preparing for a Mortgage 101

You’ve paid rent year after year and what do you have to show for it? Zilch. Zero. Nothing.

If you’re starting to dream about building equity, now is a great time to make the leap. Interest rates are still low, and real estate prices haven’t started to spike yet. Before you apply to a lender, though, there are a few things you should know.

Applying won’t damage your credit

“If you are shopping around for a mortgage and worried that the inquiries will ding your credit score, don’t worry,” said Roman Shteyn, co-founder of Credit-Land.com. “The credit bureaus know that people may go to different providers to check interest rates especially for a big purchase like a house. Loan inquiries within 30 to 45 days of each other for the same thing are lumped together and treated as a single request, and your credit score should not be impacted.”

Your past matters to lenders

They will look at previous mortgages on your credit report to determine your creditworthiness

“We all know a foreclosure has a negative impact on your credit score,” says Shteyn “but many people don’t realize a short sale can be damaging as well. It can knock your score down 85 to 160 points depending on your score at the time and how it was reported to the credit bureau.” Occasionally, a lender will agree to report a short sale as paid which will not negatively affect a credit score. But this is rare.

A short sale is not as bad as a foreclosure, which will make it more difficult to get a loan. It will remain on your credit score for seven years, and lenders will see this black mark whenever you apply for credit during this period.

Lenders handle couples with different credit scores in a special way

If you’re applying for a mortgage loan as a couple, the mortgage lender will check both of your credit reports and credit scores. The bank reviews your debt, the length of your credit history and current credit activity.

Paying bills late and too much debt can negatively impact a mortgage approval, plus influence the mortgage rate. However, some couples believe that they’ll receive a low interest rate as long as one person has excellent credit — but this isn’t always the case.

Typically mortgage lenders use the lowest credit score to determine the mortgage rate. Therefore, if you have a 790 credit score and your partner has a 670 credit score, you’re not likely to receive the most favorable rate due to your partner’s less-than-perfect credit history.

To ensure the best rate, both of you need to maintain good credit before applying for a loan. This includes paying bills on time, paying off debt and checking your credit reports for errors.

For a lender, there’s nothing like responsibility 

Make other loan and debt payments on time, especially over the months leading up to the filing of your mortgage application. Every 30-, 60- or 90-day delinquency on a loan or credit card is going to reduce the credit score the lender considers as part of the loan file. That score, in turn, will determine how good a loan you get — if you get one at all.

You need to be strategic about your personal finances

Consider paying off more debt and putting down a smaller amount at closing. This move leaves borrowers with larger mortgages, but it will allow them to replace non tax-deductible, high-interest rate debt (like credit card debt) with lower-rate mortgage debt that features deductible interest.

If you have a financial setback and need to miss a payment on your other debts, miss the credit card payment first, followed by the payment on any installment loan you might have and finally, the payment for an existing mortgage. That’s because credit scoring systems look at the performance of similar loans first when deciding what type of score to assign.

Before you apply, think about the future

If your next few years are full of big life changes and multiple new financial obligations, apply for a mortgage first. Numerous credit inquiries, such as new applications for credit cards, can hurt a borrower’s credit score, especially if they’re filed in the months prior to the home loan review process.

The value of your potential home can make or break the deal

Sometimes it’s not your fault that your mortgage application is denied. If your home isn’t worth enough, lenders might not approve your request for a mortgage. Say you agree to pay $200,000 for a home and are asking for a mortgage loan of $190,000. If an appraiser determines that the home is worth only $160,000, a mortgage lender might not grant you a loan, even if you are willing to pay the higher amount.

The 3 big don’ts

We can talk about the things you should do when applying for a mortgage all day long, but realistically, avoiding the big mistakes should be your first concern. Here are five things you should remember.

1. Don’t make any big purchases over the next couple of months. It makes less money available for the down payment and it might require you to get yet another loan.
2. Don’t upgrade too fast. Lenders consider what’s known in the industry as “payment shock” when approving loans. Somebody who goes from a relatively small monthly housing payment to a huge one either won’t qualify for a mortgage or will end up having to cover too much loan with too little money.
3. Don’t just get pre-qualified for a mortgage, get pre-approved. Home buyers must allow their lenders to pull credit reports, check debt-to-income ratios and perform other underwriting steps. But that puts a borrower much closer to obtaining a loan and locking in a rate and term.

source: totalmortgage.com

Eliminate Financial Stress With A Personal Line Of Credit

There are plenty of reasons you might find yourself in some financially dangerous waters. You might have had to run your child to emergency care and are left to deal with the subsequent bill; you could be in between work contracts and come up short for your next utility bill. Whatever the case may be, sometimes you aren’t prepared for what life throws at you – through no fault of your own. But that doesn’t make the reality of being strapped for cash any less harsh. When you find yourself momentarily short on money, do you know where you can turn?

Not everyone is blessed with family or friends who can help you balance the check book when you’re in need of some help. Even if it’s just $300 to smooth out the edges until your next contract starts up again, that can be out of your (and your social circle’s) abilities. Luckily, there’s an organization that you can turn to and no – it’s not the bank. In order to secure a loan with your local financial institution, you have to jump through hoops and hurdles just to speak with a bank representative, after which you’ll have to wait weeks while they review your application and credit score. When you’re bills are due in a few days, you can’t afford to wait and play by the bank’s schedule.

The alternative that you’re looking for is a personal line of credit with an accredited direct online lender. These lenders understand the importance of having cash for when you need it, so they’ve developed a process whereby your application won’t have to go through credit bureaus and other institutions before it’s approved. As opposed to the average traditional lender, they’re the lender that directly approves and facilitates your loan. By cutting down on the middle man, they can give you your loan that much faster.

A direct online lender like MoneyKey can approve your application quickly and deposit your approved limit in just 24 short hours. The limit of a personal line of credit from MoneyKey depends on your state of residence, as they pride themselves in following the rules and regulations provided by the state. That’s because they want to set you up with the appropriate tools for responsible lending habits. By following state sanction laws and providing you with information regarding online lines of credit, they want you to flourish. They don’t want you to take out a line of credit amount higher than you can reasonably pay back any more than you do.

Having a line of credit for whenever you find yourself short on cash (be it when your child is in the hospital or when you’re a couple of weeks away from the start of another contract), can take a stressful situation and make it more manageable. When you finance your credit with a responsible direct online lender, you can trust that you’re covered for when life puts a crick in your budget.

source: christianfinanceblog.com