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

Buying Your First Home in 2016? Start Now.

There are some very good reasons to buy a home in 2016. Mortgage interest rates are on the rise and leading economists predict that the longer you wait, the higher they will go, toping 4 percent by the fourth quarter. Home prices are also expected to continue their upward climb in the year to come, but at a slower pace than in 2015.

The State of the Real Estate Market

First-time homebuyers found the pickings to be slim for affordable starter homes in 2015, especially in hotter markers like Denver, Portland, Dallas, Seattle and much of California. Slim pickings in their price range kept thousands of potential buyers in rentals for another year. Will 2016 be any different?

New home construction is expected to improve considerably over last year as builders respond to rising prices. The will put the new-home market on track to reach 91 percent of its average norm by 2017, according to the National Association of Home Builders.[1] News homes are generally priced higher than first-timers can afford, but the new construction will still make a positive contribution to the inventory shortage.

More import is the outlook for existing homes. Supply of entry-level homes has been constricted by the unwillingness of current owners to sell and move up the housing ladder to a more expensive home, but that may change in 2016.

“Sales activity in 2016 will once again be primarily driven by the ongoing release of more pent-up sellers finally realizing their equity gains and using it towards the down payment on their next home,” says Lawrence Yun, chief economist for the National Association of Realtors. Yun predicts home sales will finish 2015 at a pace of 5.30 million and grow three percent next year to around 5.45 million.[2]

However, 2015 is ending with a question mark about the inventory outlook. Both NAR and Redfin reported that in October total homes for sale were down 4.5 percent from 2014[3] and NAR reported the inventor of unsold homes in October stood at a 4.8-month supply, below six months considered normal.[4]

When the spring season opens, one thing is certain. Inventories will be much larger than in the late fall, with fresh, new listings for sale. Again, the early birds will get the worms.

 How to Get Started

If you’re serious about becoming a homeowner in 2016, you need to be getting ready now. Here’s a checklist to get you started.

Get your credit in order. If you haven’t been managing your credit before, it’s too late to do much about big problems like bankruptcies or tax liens.  You should , however, still order reports from three top credit reporting agencies (Experian, Transunion and Equifax) to look for any errors or questionable calls that you might challenge. Here’s a list of credit do’s and don’ts:

Do:

    Pay all your bills on time
    Pay down as much debt as you can, especially smaller amounts on high interest cards. That will reduce your minimum monthly payments.
    Consolidate high interest credit card debt with a lower interest card or personal loan. Again, you will reduce your minimum payments, which lenders total to determine your debt-to-income ratio.

Don’t:

    Make any large purchases on credit.
    Open any new credit card or store credit accounts. Too much credit can be a negative and every time you apply for new credit, your rating takes a small hit.
    Cancel your oldest credit card. Lenders like to see a long history of good credit.

Get a down payment strategy. To buy a home, you will need cash for a down payment and closing costs, which roughly will come to about 3.5 percent of the total cost of your home. Of course, there are options to consider.

You don’t need 20 percent down for many mortgage options; the average down payment in 2014 was only 10 percent and among first-time buyers, only 6 percent.[5] That’s because most first-time buyers are using FHA financing these days to take advantage of its 3.5 percent down payment requirement. Look into your down payment options, including:


Down payment assistance with a low or no-down payment loan from a state or local housing authority. Feel free to contact us for information if you’re looking to buy a home in Connecticut—we’re kind of experts.

You can’t take out a loan for your down payment, but you can receive assistance from parents or relatives.

Both Fannie Mae and Freddie Mae initiated new loan down payment programs early in 2015. Fannie’s program is limited to qualified first-time buyers and requires a down payment as low as three percent and requires private mortgage insurance or other risk sharing.[6] Freddie Mac’s program also requires only 3 percent down but first-time buyers must complete a home education course, like Freddie Mac’s online CreditSmart course. Minimum credit scores for either program is 620.

You can qualify for a VA loan, which has no down payment requirement if you have 90 consecutive days of active duty service during war time, 181 consecutive days of service during peacetime, or 6 years of service in the Reserves or National Guard. You can also qualify if you are the spouse of a veteran who died in the line of duty, the spouse of a service member who is a prisoner of war or missing in action, or the surviving spouse of a disabled veteran whose disability may or may not have been the cause of death.
Get your documentation in order. Having your paperwork in order when you apply for a loan speeds the approval process along.

If you are emplolyed full-time, let your human resources office know that you plan to apply for a mortgage so that they will be ready to get you the right paperwork.

If you are self-employed, part-tine or seasonally employed or rely on income aside from full-time employment such as alimony, child support, royalties, sales commissions, dividends, etc. you will need documentation and at least three years of tax returns.

source: totalmortgage.com

Raise Your Credit Score with These Tips

When it comes to getting a good deal on a mortgage, your credit score may be even more important to you than you realize.

It’s one of the three most important metrics lenders use to decide whether or not to approve your mortgage application; the higher your score, the more confident they are that you will make your monthly payments on time. Most home buyers don’t know how much their credit scores impact the mortgage rates they will pay.

Let’s play with some numbers.* A $250,000, 30-year fixed mortgage will require monthly payment of principal and interest of $1,527, for a borrower with a 620 score. That’s a total of $299,821 of total interest paid over thirty years.

If you have a better credit score of 700, you are considered a less risky borrower. You can expect to pay $1,313 monthly for a total of $222,689. If you have an extremely favorable credit score of 780, you fall into the top-tier range of borrowers, and lenders will likely offer you a lower mortgage rate along with more loan choices. Your monthly payment will be $1,280 for a total of $210,681.

Here are some tips to help you get your credit under control and turn it into an asset if it is a liability today.

Start now. Credit scores don’t change overnight. If you plan to buy a home a year from now, you need to get to work immediately in order to get your credit in shape by the time you apply.

Do a reality check. Order your credit histories from the three primary credit bureaus: Experian, Equifax and Transunion. Review them for accuracy. You’ll see immediately how detrimental making a payment that is late by only a few days can be to your credit.

If you see errors that you can document, ask for them to he removed. Take note of any really serious marks against you like foreclosure, bankruptcy, tax liens and collections actions. If you have any of these, they will remain on your record for five to seven years and you will have to work extra hard to improve every other aspect of your credit to qualify. Sign up for a service that will notify you of changes in your credit.

Pay your bills on time. If you have missed payments, get current and stay current. Sign up for a “wallet” program through your bank or online service. Pay your bills through your bank so that there is no delay.

With today’s technology, there is no excuse for ever making a late payment to a regular monthly creditor. The longer you pay your bills on time after being late, the more your FICO Scores should increase. Older credit problems count for less, so poor credit performance won’t haunt you forever. The impact of past credit problems on your FICO Scores fades as time passes and as recent good payment patterns show up on your credit report

Reduce your use of credit. Most people use their credit too much. Create a budget and learn to live on a cash basis. Use your credit cards only for purchases you can pay off quickly or for emergencies. Keep balances low on credit cards and other “revolving credit”; high outstanding debt can affect a credit score.

Don’t close unused credit cards as a short-term strategy to raise your scores, but don’t open new credit cards just to increase your available credit. Reducing your balances is important, but taking the next step and closing cards won’t really improve your case; lenders like to see that you have credit available. A closed account remains on your credit report.

Especially, do not close your oldest credit card account. A long history of using and making monthly payments will improve your score. However, this is certainly not the time to open new credit cards. New accounts will lower your average account age, which will have a larger effect on your scores if you don’t have a lot of other credit information. Rapid account buildup can look risky if you are a new credit user.

Keep balances low on credit cards and other “revolving credit”. This is also not the time to make large purchases. Rather reduce your outstanding debt by increasing your monthly payments. If making minimum payments has been your practice, stop now and pay more.

Have credit cards – but manage them responsibly.
In general, having credit cards and installment loans (and paying timely payments) will rebuild your credit scores. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.

Don’t relax until you have closed on your new home. Mortgage lenders often pull the credit history of a customer the day before they close. If there is a significant change in their FICO or a new purchase that raises their debt, they are within their rights to raise the interest rate or cancel the mortgage altogether. Don’t relax until they hand you the keys to your new house.



*These are for demonstration purposes only. Your numbers may differ.

source: totalmortgage.com