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thousands with no credit and no collateral to help secure approval, or you
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hear is stories and more stories? Bad credit is a term used to describe a
poor credit rating. Common practices that can damage a credit rating
include making late payments, skipping payments, exceeding card limits or
declaring bankruptcy. Bad Credit can result in being denied credit.
Bad credit can result in a negative rating from the credit reporting
agencies. Many factors can contribute to someone getting a "bad credit"
rating, among these are non-payment of an account or late payments over an
extended length of time. Whether non-payment of an account is willful or
due to financial hardship, the result can be the same, a negative rating
which will result in a low credit score. However, lenders are more willing
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A credit score is defined as a statistical method of assessing an
applicant's credit worthiness. An applicant's credit card history; amount
of outstanding debt; the type of credit used; negative information such as
bankruptcies or late payments; collection accounts and judgments; too
little credit history, and too many credit lines with the maximum amount
borrowed are all included in credit-scoring models to determine the credit
score.
Raising your credit score
is possible. It's a well known fact that lenders will give people with
higher credit scores lower interest rates on mortgages, car loans and
credit cards. If your credit score falls under 620 just getting loans and
credit cards with reasonable terms is difficult.
Here are five things that you can use to raise credit score.
1. Correct obvious mistakes.
Your credit score is what shows up in your credit report. Review your
reports from all three credit bureaus for accuracy once a year as well as
several months before applying for a loan. Changing a mistake on your
report can take 30 days to three months, or more. Get Your credit report
from the three major bureaus: Experian, Trans Union and Equifax.
2. Pay Your Bills On Time
Your payment history makes up 35% of your total credit score. Your recent
payment history will carry much more weight than what happened five years
ago. Missing just one payment on anything can knock 50 to 100 points off
of your credit score. Paying your bills on time is the best way to get
started rebuilding your credit rating and raising your credit score.
3. Reduce your credit card balances.
A heavily weighted factor in your FICO score is how much money you owe on
your credit cards relative to your total credit limit. Generally, it's
good to keep your balances at or below 25 percent of your credit card
limit, said Jeanne Kelly, founder of The Kelly Group in Brookfield, Conn.,
which helps clients improve their credit scores.
4. Don’t Close Old Accounts
In the past people were told to close old accounts they weren’t using. But
with today's current scoring methods that could actually hurt your credit
score. Closing old or paid off credit accounts lowers the total credit
available to you and makes any balances you have appear larger in credit
score calculations. Closing your oldest accounts can actually shorten the
length of your credit history and to a lender it makes you less credit
worthy.
If you are trying to minimize identity theft and it's worth the peace of
mind for you to close your old or paid off accounts, the good news is it
will only lower you score a minimal amount. But just by keeping those old
accounts open you can raise credit score for you.
5. Avoid Bankruptcy
Bankruptcy is the single worst thing you can do to your credit score.
Bankruptcy will lower your credit score by 200 points or more and is very
difficult to come back from. Once your credit score falls below 620,
any loan you get will be far more expensive. A bankruptcy on your credit
record is reported for up to 10 years.
The reality of a
bankruptcy is it will limit you to high-interest lenders that will squeeze
out high interest rate payments from you for years.
It is better to get credit counseling to help you with your bills and
avoid bankruptcy at all costs. By getting credit counseling instead of
declaring bankruptcy you can raise credit score over a much shorter period
of time.
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