Understanding And Improving Your Credit Rating

ReliefLoans.com "No man's credit is as good as his money." E.W. Howe, American
journalist, novelist 1853-1937

The American economy is based on credit. If you don't have at
least an average credit rating, you will find that getting
approved for any type of loan, or credit card, will be very
difficult - if not impossible. As the nation's economy worsens,
the money supply becomes tighter. A major factor looming on the
horizon is the growth in the national debt. At this moment, the
country's deficit is approaching a staggering four trillion
dollars! That means something like twenty cents out of every
dollar spent by the Federal Government goes toward paying off
interest on money borrowed!

You may be asking what does that have to do with you obtaining
credit? Everything! There is only so much money to go around. A
common misconception is any government running short of cash can
simply crank out more by running the printing presses late into
the night. Wrong! It doesn't work that way. The government, just
like a business or individual, has to go out and obtain funds
whenever revenues from taxes and the sale of treasury notes fall
short of expenses. That's the easy part. Who wouldn't loan money
to Uncle Sam? The hard part is the taxpayer has to pay the money
back! The bigger the deficit becomes, the more money the
government borrows. That takes money away from the private
sector. Of course, that hurts the overall economy, and makes
less money available for individuals and businesses. It's a
vicious cycle that feeds on itself.

This is a short, but important report. lt contains valuable
information. Read it carefully, and you will have a better
understanding of how applicants are rated, and what you can do
to improve your credit rating. The "Credit Scoring System" is a
nothing more than a numbers game. Most creditors use something
like it to rate applicants Like most games, the more "points"
you score, the better you do. So get out a pencil and paper and
we will take a closer look at a typical system:

The first factor you can't do anything about: Your Age. Yes, you
could lie, but don't. With all the interlocking computer systems
in 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 the
rest of the information you provide either, and you will
probably not get the loan.

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

The next question is your marital status. Unmarried, sorry pal
most creditor's think you're a higher risk, no points for you
What's that? You are married? Give yourself one point. Most
creditors don't care if you divorced. If you are, and not
remarried give yourself zero points.

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

Where do you live? In a trailer park, motor home, with parents,
relatives, friends? Wrong answer. Same reasons as previous
question. You could run, and not pay off the loan. You got to
put down some roots. Score yourself zero points. Rent an
apartment? Give yourself one point. Own a home with a big fat
mortgage? Good for you. Score three big ones! Why? Somebody
already checked you out pretty good for you to get that
mortgage, so you're probably a pretty good risk. Own your home
free and clear? Even better. Give yourself four points. You
already established you can take on a sizable debt and pay it
off, so you get a bonus point.

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

Years on Job? The longer the better. Less then one year at
present 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 least
you have a job! Skilled? Two points. Professional? Three points.
The creditor decides the classification. Use common sense, when
scoring yourself.

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

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

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

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

OK now ad up your score. Remember the more points you score the
better credit risk you are. Most creditors have a cut-off around
eighteen points. Some will go as low as fifteen points, other
higher then twenty. Again, it depends on availability of funds
and built-in bias of the creditor that you applied to. If turned
down try somebody else!

A few points away from the cut off? Well, you may be able to
cheat a little. Not recommended, but if you're only a couple
points away you may get your employer to say you worked longer
then you have, or that you earn a little more then you do. If
you don't rent or have a mortgage try an improve this situation
to earn more points. Also consider building up your credit
record by getting a secured loan. You will be usually issued a
credit card as well. Not every bank provides this service, but a
surprising number do. The only catch is of course you can't
touch the money in the account, and if you don't pay off your
credit card balance in full each month you will rack up quite a
bit of interest charges on top of whatever you charge with the
credit card. Secured loans are not based on credit history
because you put up funds equal to the loan. It's a safe deal for
the bank and can help improve your credit rating. The catch is
it 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 the
account. Pay the loan off before the due date. Withdraw part or
all of the money. Open another account at some other bank.
Repeat the process over and over. Your local credit bureau will
get good reports on you, and before you know it, your mail box
will be stuffed with offers for free credit cards - no more
secured accounts, and you should have an easier time of
obtaining credit. If all else fails, try to get a smaller loan,
or see if someone is willing to co-sign.

About the Author

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