How is Your Credit Score Calculated?

You know that the information found in your credit report determines your credit score, but how do they turn the information into a number?

Every time you apply to borrow money from a lender, be it a loan or a credit card, your credit report and score will be scrutinized. This score often dictates whether or not you will be approved for credit.

Credit scores range from 340 to 850, and are used to determine whether or not it is likely that you will pay back the loan. The lower the score, the higher the risk that you will not pay back the loan. For example, a borrower with a score of 439 is less likely to pay back a loan than a borrower with a score of 712.

Before you apply for a loan, you should have an idea of what your credit score is. At least once a year you should review your credit report to make sure it is accurate. What is found on your report will reflect in your score.

The three credit bureaus -- Equifax, TransUnion and Experian -- all use different computer software that takes the information in your credit report and generates it into a numerical score. Each bureau may report a different score, which can range by as much as 100 points. For example, my husband actually is one of those people who has a 80 point spread between his highest and lowest score. Others, like myself, will have three scores that are all within a point or two of each other. It is just one of life's mysteries.

Your credit score is calculated using the following information from your credit report:

* 35% Payment History -- Do you pay on time, every time?
* 30% Amount Owed -- How much do you owe your lenders?
* 15% Length of Credit History -- How long have you been a borrower?
* 10% Types of Credit -- Do you only have credit cards?
* 10% New Credit Obtained -- Have you been on a shopping frenzy?

Your payment history looks at the last seven years of your accounts. Have you paid your bills on time each month? The history will include open and closed accounts, negative accounts and collections and any delinquent accounts you may have.

The amount owed looks at how much credit you have and how much you owe your lenders. You want to show that you have little revolving debt owed when compared to how much you have available. This shows how frequently you pay off your debts and how much is building over time. Lenders don't want to see borrowers that are maxed out on all their cards. This makes you a risk.

The length of your credit history shows how long since you have opened an account. A long credit history shows that you continue to make your payments and be a good borrower.

The types of credit you use reflects on what type of borrower you are. There are mortgages, credit cards, auto loans, secured loans and subprime loans. You should have several different types of credit, not all credit cards.

In the past six months, how much new credit have you obtained? If you have been on a shopping spree, it will lower your credit score.

Take steps to increase your credit score. Look at what will have the most impact -- your payment history. Start paying on time, every single month. Take care of any delinquencies and past due accounts. Then start paying down your debt as much as possible. Work on a longer credit history, which simply takes time. Make sure that you have a balanced amount of secured and unsecured debt. Finally, try to space out your financing so that you aren't obtaining all of your new credit at once.

Martin Lukac http://www.MartinLukac.com, represents http://www.RateEmpire.com, an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, investing, taxes and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information. RateEmpire.com also operates a financial portal #1 American Financial, found at http://www.1AmericanFinancial.com

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Improve Credit Score – Ways to Raise and Protect Credit Score

When a potential creditor pulls your credit report, they will learn your employment, address, and credit history. Details about credit history are their primary concern. For this matter, it is important to maintain a good payment history with creditors. This will likely result in a better credit score, which affords better financing options. If your credit score is low, making an effort to raise your score will serve to your advantage.

Benefit of Regular and Timely Payments

There is no secret method to obtaining a good credit rating. Even if you are unable to achieve a very high credit score, it is possible to maintain a good rating by simply paying creditors on time. Late payments and skipped payments can decrease your score by several points. If irregular payments become a habit, your credit score will continue to decline.

On the same line of thought, making regular payments will increase your credit rating. When outlining a plan for boosting credit rating, begin by paying all creditors on time. If possible, submit payments a few days before the due date.

Reduce Debts and Keep Low Balances

Too much debt will have a negative effect on your credit rating. Most consumers with maxed out credit cards are able to keep up with minimum payments. However, excessive debts make potential lenders nervous. In this case, it may be difficult to obtain prime rates on home loans and auto loans.

Low credit card balances will not have a damaging effect on your credit rating. Consumers are encouraged to keep credit balances below 25% of the credit limit. If your balance exceeds this amount, take the necessary steps to reduce debts. This may include paying triple the minimum payments, transferring the balance to a 0% interest credit card, or obtaining a debt consolidation.

Ways to Protect Credit Rating

In addition to boosting your personal credit rating, careful credit report monitoring is essential. Sadly, millions of people become a victim of identity theft each year. Proving identity theft is difficult. Thus, victims often have to live with the effects of having their identity stolen.

Try using one of ABC Loan Guide's Recommended Free Credit Report Companies.

The best method for safeguarding your credit rating entails reviewing your report every six months. For bonus protection, consider signing with a fraud alert company.

View our recommended companies for Credit Repair Services. Also, view our recommended sources for a Debt Consolidation Program Online.

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Secured Debt Consolidation Loans - How To Get Approved

The average person juggles numerous bills each month--credit cards, auto loans, personal loans and more! If you're getting buried beneath paperwork, you may want to consider a debt consolidation loan. Instead of dealing with multiple creditors, you'll only have to pay one bill each month. And you can get a debt consolidation loan--even if your credit is not-so-perfect--if you secure it with some type of collateral. Here's how to get approved:

1. Decide on your collateral

Whatever item you choose as collateral for your loan should be one you're willing to risk, since the lender could take it if you can't make your monthly payments. One of the least expensive options would be your home, since you could get a home equity loan, a home equity line of credit or a second mortgage. If you’re not willing to risk your house, you could also use an automobile or a boat. Some lenders will accept stocks or bonds, or even expensive belongings such as jewelry or electronics.

2. Find a lender

You'll need to find a lender that accepts the type of collateral you're using to secure your loan. Most major lenders and banks offer home equity loans, and many offer personal loans secured with a vehicle or boat. You may have to dig a little deeper to find a lender that will accept jewelry or other belongings as collateral. Check with your local banks and credit unions, and do a search online to find an appropriate lender.

3. Compare loan rates and terms

Before you sign up with any lender, make sure you compare their rates and terms with similar loans. Some unscrupulous predatory lenders may try to take advantage of your situation by charging you a high interest rate or extra fees. It's always best to compare at least two loans to ensure that you're getting the best possible rate.

Try using one of ABC Loan Guide's Recommended Lenders For A Secured Debt Consolidation Loan.

Secured Debt Consolidation Loans are possible even for those with less-than-perfect credit. By using an expensive item you already own--house, car, boat, jewelry--as collateral, you become less risky as a borrower, making it more likely that you'll get approved for a loan.

View our recommended lenders for Lowest Rate Home Equity Loans. Also, view our recommended sources for Credit Card Debt Help Online.

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