Credit Cards For Anybody?
Credit Cards are widespread all over the US as well as worldwide
and are accepted Internationally as a very convenient mean of
payment either in person at stores, via the phone and the
Internet or on signed forms via the fax.
Does anybody can obtain this much quested plastic money?
Well, to answer that we would have to understand how this credit
screening and rating system work and what are the qualifications
to be approved.
Credit History
There are three major credit bureaus that keep track of our
bill-paying habits and credit history reports that are
collected, stored and sold by credit bureaus.
Credit reports are also called credit records, credit files, and
credit histories.
There are three major credit bureaus and thousands of smaller
ones. Experian Credit Bureau (formerly TRW): -
http://www.experian.com/ Tel: 800-301-7195 (Cost: $8) Equifax
Credit Bureau: - http://www.equifax.com/ Tel:800-685-1111
Trans Union: - http://www.transunion.com/index.jsp Tel:
800-916-8800
Federal law was passed in 1970 to give consumers easier access
to, and more information about, their credit files. The Fair
Credit Reporting Act gives you the right to find out the
information in your credit file, to dispute information you
believe inaccurate or incomplete, and to find out who has seen
your credit report in the past six months.
The Fair Credit Reporting Act states that if you dispute
information on your credit file that you believe to be
inaccurate or incomplete, you can ask the credit bureau to
investigate the problem. If the credit bureau's investigation
does not resolve the dispute, you can file a brief statement
explaining the nature of the dispute. Your statement becomes a
permanent part of your file and will remain on the report as
long as the negative information is reported.
If you have been denied credit, you can request that the credit
bureau involved provide you with a free copy of your credit
report, but you must request it promptly. Otherwise each of the
bureaus will provide you a copy of the report for a small fee
($8 or less). You can request a copy from their web sites or 800
numbers.
The good news: credit blemishes are cleared from your credit
history after seven years. The bad news: seven years is a long
time. Many people with no credit history find it nearly
impossible to get a major credit card or, to a lesser extent,
other credit. Scoring systems are not designed with the
first-time credit user in mind.
Exactly as people who need a small loan from a bank, they have a
checking account with this Bank and their salary as well as all
their expenses are managed through this account but when they
need a loan of say $2,000 the Banks' branch manger asks for a
deposit of $2,000 or any other solid collateral. The natural
reaction of the average person would be something like: If I had
$2,000 in cash why would I need a loan from the Bank?
What these people don't understand is that a Bank is a business,
A good business, an excellent business, in this business the
Bank almost never take any risks and it lends money to people
who proved to the bank they will be able to return the money
with interest.
This proof is either a cash deposit or savings account or other
collaterals like a house, so in case the client will default on
his loan the Bank would be able to quickly transform the
collateral into cash.
The Problem of many people is that they never cultivated their
credit history. They never took a small loan and paid it
promptly on schedule month after month. All their life they just
deposited their salary and handled their expenses.
How to start creating a "Credit History"
There are some ways to start building you credit "history".
Bankcard issuers generally want to see at least a year's worth
of timely payments on other accounts before issuing a card.
If you do not have a credit record, you may have to start small.
You may want to start by getting a gasoline card. Chevron
reports payments to the credit bureau monthly, while most other
oil company cards do not.
In addition try getting a few department store cards.
Your best option for establishing a positive credit history may
be a secured Visa or MasterCard. These credit cards are offered
through bankcard issuers who have customers put up several
hundred dollars in collateral in exchange for a card with a
small credit limit. As you use the card, your bill-paying
behavior is reported to a credit bureau and your credit history
improves.
Another Important advice is to try as best as you can to Pay
your bills on time.
In addition minimize your payments by choosing credit cards that
have low rates and no fees. Try to limit credit card purchases
to emergency situations only. (This one is true with your Cell
Phones calls as well...).
Take a collateralized loan with a bank or credit union and pay
it on time every month to help establish or reestablish credit.
What Is FICO and how it affects you
FICO is a mathematical model created by the Experian credit
bureau as a tool for lenders to use in evaluating the risk
associated with lending you money. FICO stands for Fair Isaac
Company, the company that created the original scoring model.
FICO scores consider your credit history over several years,
making it difficult to increase your credit score in a short
time frame. Over the long term you can improve your
credit-worthiness by:
- Reducing your total indebt ness.
- making your debt payments on time and in full.
- closing unneeded credit accounts.
- avoiding bankruptcy and foreclosures.
How is your Score Calculated?
Your score is calculated by a series of questions based on both
your credit report & debt-to-income ratio. Each answer
accumulates a certain number of points that are then added
together for your final score. A typical scoring considers:
* How long you've lived at your current address
* Your job or profession stability.
* Your financial obligations (debt-to-income ratio)
* Any late payments
* The amount of credit you have outstanding
* The amount of credit you are using
* The amount of time you've had credit established
Most Weighted Factors: Current balances on accounts, too
few bank revolving accounts, too many bank revolving accounts,
number of accounts with balances, number of accounts opened in
the last 12 months, length of time accounts have been
established, amount of past due accounts, number of delinquent
accounts, too few accounts rated "current," recent derogatory
public record of collection, past due balances, number of credit
inquiries made.
What is Considered a Good Score?
The magic FICO number is 620. If you score below 620 you are
considered to have a very high default risk giving you the
possibility of being declined. If you score between 620 & 650
you will be put into a "questionable" category where you will
have to provide further documentation to get approved. A score
of 650 or above is considered golden or "cream of the crop," and
most likely you will be eligible for the best rate on your loan.