Credit Management Guide

You need to understand first and foremost that your credit score is simply a reflection of how the lending institutions view the data that is presented to them by the credit bureaus and how they ‘expect’ you will be able to repay your bills based on historical recording of data from a vast number of other people.

You need to look at that same data and look at how you can improve your position in the eyes of the lending companies.

If you can make your position more favorable to the lenders by helping them see that you are the type of debtor who can pay your bills on time you will get funds more easily.
The information that the credit bureaus get comes from various different sources including the credit card companies and utility companies.

From the time that you open a bank account, start paying bills or borrow money from someone the credit bureaus will start a credit file on you.

This file will document any defaults of payment, late payments and anything else that will affect your credit score by providing potential lenders a snapshot of your financial performance.

If you pay your bills late the companies you owe the money to will inform the credit bureaus and then will note this on your profile.
The more of these bad transactions that are noted the lower your credit score can become.

There are other factors that will also affect your credit score and these are also noted on your profile including the types of debts that you have, how much debt you have, and how well you pay these debts back.

The credit bureaus won’t disclose how they calculate their formulas but recent financial history will generally have more affect on your credit score than older information.

The industry standard is a system called FICO.
FICO stands for Fair Isaac Corporation Company.
FICO is software for calculating credit score and is regarded as the leader in the calculation of credit score within the finance industry.

The fact that it is commonly accepted as the most suitable way to rate a person’s credit score is why many people will talk of FICO scores or FICO ratings rather than calling them credit scores.
The software that is used to calculate credit score, whether it is FICO or other software uses research and mathematics to decide upon the rating.

This information is important to you as it will help you to have a better understanding of what you can do to give your credit score a boost in its rating.

The best way to explain how credit score is calculated is to compare it to insurance premiums where you will pay a higher premium based on various factors in your life.
With insurance those factors will be your age, your occupation, your health and even your choice of sport where dangerous activities will make you a higher risk for the insurance company.

The insurance company can then look at their research data and calculate your risk.
Obviously older people and those participating in dangerous activities will be a higher risk and those people will be expected to pay higher premiums.

Credit bureaus have similar research data that relates to peoples ability to repay debt in certain circumstances, and it is this data that they will use when they input your information to decide whether they will lend you money and if so at what interest rates.

Most people accept these when they are applied to their accounts without ever questioning them but you should understand that contacting your creditors and asking for them to waive these fees will often be met with a positive reply.

Creditors want the repayment of the money owed to them and if they know that this will be hindered by adding their late fees and penalties they will be more receptive to waiving them if you explain that it is making it difficult for you to make your payments as required.

When people employ credit repair companies to work for them boosting their credit score one of the first things they will do is look through all the clients accounts and then contact those creditors who have been charging additional fees and see if they will waive them in order to get the account current and keep it so.

You can do this for yourself and save money and you should never feel embarrassed to ask for this as it is quite common for it to happen and you are only trying to get your account paid which should make the creditor happy.

You will probably need to offer them some sort of incentive for removing these fees and that will be in the form of prompt payment of their account.

You will need to understand though that whenever an arrangement like this is entered into the creditor will soon start applying penalty fees again if you don’t keep your end of the bargain and make the payments on time.

Fees are applied to accounts, as an incentive to pay on time so waiving them will only happen if they are sure that your account will be brought into line. If you are unable to maintain regular payments all the time then tell your creditor in advance and let them know that you are working towards getting in a better position and appreciate their help.

Good communication can do wonders for your finances.

It will certainly make your budgeting and financial management easier by only having a few debts to remember.

One of the benefits of debt consolidation is often a reduction in the repayments due to getting all your loans under a lower interest rate.

If you own your own property then mortgage rates will usually be lower than the interest rates you will be paying on personal loans and hire purchase agreements.

With the extra savings you will be getting from the lower interest rates the money can be applied to the outstanding debt and debt reduction will be faster.

This in turn will boost your credit score and that will help you to get any further loans at better rates should you need them.

With lower monthly repayments your risk factor will be reduced and this will be reflected in a better credit score.

Even minor savings in interest rates will make the repayments over the course of a year or so a lot more manageable and if you use the savings to pay off debt you will be fast tracking your debt reduction and improving your credit score faster.

Most people with more than one debt will have some of their debt at higher interest rates so it is uncommon for savings not to be achieved when consolidating debt and this is one of the first areas that financial managers will look at when they are preparing a budget and management plan to get someone back on track financially.

This is affected by the number of loans you have and many other conditions however you can use, as an approximation, the figure of 15 percent for a guideline when determining your course of action to boost your score.

The reason this figure is quite high is simply because people who haven’t had any, or have had very little credit, haven’t given the credit bureaus enough information from their history to determine whether they will be a risk or not.

A person who has their first loan and has only had that loan for a short while, whether they have made the repayments on time or not doesn’t have a track record and while they might be excellent candidates for lending they could also start defaulting on their repayments after the first few months.

You can see now why finance companies are reluctant to lend to such people and the only way that the person can improve their situation is to get more credit and build a favorable profile of their lending and debt repayment.

This is situation is quite easy to reverse as all you need to do is get a credit card or two and maybe a small loan or two and start paying them off on time and in full.
This will establish a favorable credit history for you and allow you to get bigger loans and also get those loans at better interest rates.

Even if you have had credit in the past but haven’t had any recent history, this can also have a negative impact on your credit score, as the credit bureaus like to see that you have recent good financial management as a sign that you currently aren’t a high risk.

Once again this can be addressed in the same manner as someone who has never had any credit by getting some smaller amounts and making sure you pay on time.

It can be better to keep accounts open even if you haven’t been using them rather than closing them when you pay them off.