Understanding And Improving Your Credit Rating

The American economy is based on credit. If you don't have atleast an average credit rating, you will find that gettingapproved for any type of loan, or credit card, will be verydifficult - if not impossible. As the nation's economy worsens,the money supply becomes tighter. A major factor looming on thehorizon is the growth in the national debt. At this moment, thecountry's deficit is approaching a staggering four trilliondollars! That means something like twenty cents out of everydollar spent by the Federal Government goes toward paying offinterest on money borrowed!

You may be asking what does that have to do with you obtainingcredit? Everything! There is only so much money to go around. Acommon misconception is any government running short of cash cansimply crank out more by running the printing presses late intothe night. Wrong! It doesn't work that way. The government, justlike a business or individual, has to go out and obtain fundswhenever revenues from taxes and the sale of treasury notes fallshort of expenses. That's the easy part. Who wouldn't loan moneyto Uncle Sam? The hard part is the taxpayer has to pay the moneyback! The bigger the deficit becomes, the more money thegovernment borrows. That takes money away from the privatesector. Of course, that hurts the overall economy, and makesless money available for individuals and businesses. It's avicious cycle that feeds on itself.

This is a short, but important report. lt contains valuableinformation. Read it carefully, and you will have a betterunderstanding of how applicants are rated, and what you can doto improve your credit rating. The "Credit Scoring System" is anothing more than a numbers game. Most creditors use somethinglike it to rate applicants Like most games, the more "points"you score, the better you do. So get out a pencil and paper andwe will take a closer look at a typical system:

The first factor you can't do anything about: Your Age. Yes, youcould lie, but don't. With all the interlocking computer systemsin use today, somebody, somewhere, probably has the true story.While it's only one element, if a creditor catches you in a lie,even if it's just about your age, they aren't going to trust therest of the information you provide either, and you willprobably not get the loan.

Under 21? Score zero points. 24 to 64 years of age give yourselfone point. Over 65? Zero points.

The next question is your marital status. Unmarried, sorry palmost creditor's think you're a higher risk, no points for youWhat's that? You are married? Give yourself one point. Mostcreditors don't care if you divorced. If you are, and notremarried give yourself zero points.

Next question: How many dependents: Unlike Uncle Sam who givesyou bigger deductions as your family grow in size, creditorsthink differently. No dependents? Score zero. One to threedependents? Score one point. More than three dependents? Scorezero. The thinking is, if you don't have any dependents you haveno attachments, you could skip town, not pay off that loan. Youhave up to three mouths to feed, chances are good you can't pullup stakes and run away. More then three, you could get in debtover your head so you become a poorer risk again, but for adifferent reason.

Where do you live? In a trailer park, motor home, with parents,relatives, friends? Wrong answer. Same reasons as previousquestion. You could run, and not pay off the loan. You got toput down some roots. Score yourself zero points. Rent anapartment? Give yourself one point. Own a home with a big fatmortgage? Good for you. Score three big ones! Why? Somebodyalready checked you out pretty good for you to get thatmortgage, so you're probably a pretty good risk. Own your homefree and clear? Even better. Give yourself four points. Youalready established you can take on a sizable debt and pay itoff, so you get a bonus point.

Previous Residence? Zero to five years, some creditors only goto three years. Then score zero points. You move around toomuch! Over five years? Good. Score one point.

Years on Job? The longer the better. Less then one year atpresent employer? Sorry, no points for you! One to three years?Give yourself one point. Four to six years is worth two points.Over seven years at the same company score three points.

What kind of Job? Unskilled? You still get one point. At leastyou have a job! Skilled? Two points. Professional? Three points.The creditor decides the classification. Use common sense, whenscoring yourself.

Monthly Income? Should be obvious, the more the better! Under$800 a month earns you one point. Up to $1,000 gives you twopoints. Pull down $1,500 gives you three points. Over $1,800gets four points. This score can vary quite a bit with differentcreditors. Depends on part of the country you live in, type ofjob, many other factors.

How deep are you presently in debt? Nothing to $300 per monthearns you two points. $301 to $500 gives you one point. Anythingover $500 in most cases earns you no points.

Previous Credit History: Very important to all creditors. It'syour track record and is a good indicator of how you should payoff debt in the future. All creditors belong to at least onecredit reporting agency. Information is shared. If you have agood credit history with the company you're seeking the loanfrom, all the better. Of course they believe their owninformation more then somebody else's. So if you paid off a loanwith them with no problems, most give you four to five points.Good record with other creditors should earn you two to threepoints.

Other Information: Having a saving and or checking account witha balance over $500 helps, if it's not something you just openeda few weeks ago. Should have been at least a couple years to doyou any good. Most creditors give you a couple points. Phone inyour name? gets you another two points.

OK now ad up your score. Remember the more points you score thebetter credit risk you are. Most creditors have a cut-off aroundeighteen points. Some will go as low as fifteen points, otherhigher then twenty. Again, it depends on availability of fundsand built-in bias of the creditor that you applied to. If turneddown try somebody else!

A few points away from the cut off? Well, you may be able tocheat a little. Not recommended, but if you're only a couplepoints away you may get your employer to say you worked longerthen you have, or that you earn a little more then you do. Ifyou don't rent or have a mortgage try an improve this situationto earn more points. Also consider building up your creditrecord by getting a secured loan. You will be usually issued acredit card as well. Not every bank provides this service, but asurprising number do. The only catch is of course you can'ttouch the money in the account, and if you don't pay off yourcredit card balance in full each month you will rack up quite abit of interest charges on top of whatever you charge with thecredit card. Secured loans are not based on credit historybecause you put up funds equal to the loan. It's a safe deal forthe bank and can help improve your credit rating. The catch isit takes time to build up your credit rating.

Another method is to open a regular savings account and deposit$200-$500. Leave it there 30 to 60 days, then get a loan on theaccount. Pay the loan off before the due date. Withdraw part orall of the money. Open another account at some other bank.Repeat the process over and over. Your local credit bureau willget good reports on you, and before you know it, your mail boxwill be stuffed with offers for free credit cards - no moresecured accounts, and you should have an easier time ofobtaining credit. If all else fails, try to get a smaller loan,or see if someone is willing to co-sign.