It can happen to anyone: Miss just a credit card payment or two and the next time you check your credit score, you’re stunned to find a low number that makes lenders shun you.

But with patience and discipline, you can move that score from the depths to the stratosphere.

We talked to several people across the country who dug themselves out and brought up their credit scores in a big way — sometimes in just one or two years.

We asked them to pass along their best tips to share with folks who might be dealing with the low-score blues.

Melissa Chinwah
Homewood, Ill.
Credit score before: 348
Credit score after: 702

Tips for Maintaining a Good Credit Score

Credit score danger zone

Rock bottom: After getting divorced, Chinwah, an office manager, was shocked to find that her credit score had sunk to an average of 348, with the lowest reported score among the three bureaus at just 316. There were 43 collections and a repossessed car on her report — “Not one thing was positive, except for my student loan,” she said. “I started to look for housing for me and my two small children and no one would even look at me.”

Turning point: Melissa started researching the ins and outs of her credit report on the forums at MyFICO.com, where people shared their tips for raising their credit scores. For example, she learned that being 120 days late on a payment is basically the same as being repossessed, according to a credit bureau. “The average layperson doesn’t know these kinds of things,” she said.

Her motivation: “The motivation was I needed a place to live,” she said. “I was 44 years old at the time, and I had to start all over anyway.” When Melissa’s credit score reached 648, she applied for a mortgage and bought her dream house.

Lessons learned: Melissa approached building her credit like a part-time job. “Every day I would promise myself I would look at my score on my lunch break, and I would make myself do something, like write a goodwill letter,” she said. Melissa wrote a lot of letters and made phone calls to lenders after paying her debts, asking them to remove blemishes from her report. She was persistent in her efforts over the course of two years and was successful in getting at least 15 collections removed.

Her best advice: “Patience is one thing you must have,” she said. “There’s no magic pill, no magic wand. You have to sit down, make those phone calls and pay your bills.”

Paul Seago
Apopka, Fla.
Credit score before: Less than 500
Credit score after: 785

Rock bottom: “I got out of graduate school in 1998. By 1999 and 2000, paying bills on time wasn’t that important to me, so they’d pile up,” said Seago. “And I’d be 30 days late or 60, sometimes 90. A couple of those piled up. All the sudden I thought, ‘Look, I’m going to want to buy a car someday, get married and buy a house.’ I couldn’t do those kinds of things with the score I had.”

Turning point: “One of the first things I did was start paying everything on time,” said Seago, president of the Apopka Area Chamber of Commerce. “I set up a auto bill pay so I’d never be late again. The easiest thing to do is start paying your bills on time. The late payments came off eventually. Then I’d pay extra on my bills — more than the minimum — so my debt ratio would go down. I got rid of all my store cards and kept all my major credit cards.”

His motivation: “I just buckled down and wanted to get [my score] turned around,” he said. “At some point, I’d be married and looking at a house, and I could just see that played out someday, sitting down with a mortgage broker looking at my credit and [the broker] saying, ‘Yeah, you can’t have a house.’ I probably looked at my score every four months, and I’d see it go up. It’s like when you’re dieting and you see yourself losing a bit of weight.” Seago is now married and in the process of looking for a house.

Lessons learned: Seago researched credit score advice online and in magazines. His major focus was on making payments on time. “If you find yourself in trouble and you’ve got a low score, you can’t spend your way out of it,” he said.

His best advice: “No. 1, as simple as it sounds, is just pay on time. Pay a little bit extra every month to get that balance down. And don’t get any more cards. Do whatever you’ve got to do to pay them off and keep your balances down.”

Fiona James
Baton Rouge, La.
Before: 422
After: 512

Rock bottom: She knows she’s got a long way to go before her credit score can be called excellent, but she also sees that she’s come a long way from when things were their darkest. “When I first went to college, everyone was offering me credit cards,” said James. “A few years later, I was getting behind on bills and not being able to afford certain things and taking out loans. I went to get a vehicle in 2008 and realized my credit score was way low.”

Turning point: James started following the advice in the book “Good Debt Riches,” by Elon Bomani. She had a lot of cards with small amounts of debt and began paying those off, slowly working on lowering her debt.

Her motivation: James was motivated by her need to get reliable transportation so she could work at her two jobs. “I went for six months without a vehicle,” she said. “It was actually quite difficult.”

Lessons learned: “I applied some of the basic principles of paying off creditors where I had a small balance, then began to work out payment arrangements with other creditors,” she said. “I also invested in a secured credit card that reported to all three major credit bureaus and made sure to pay them on time and off each month.”

And though she’s managed to lift her score nearly 100 points, she knows that her work isn’t nearly done. “Each day, I am still working towards repairing and rebuilding my credit as well as becoming financially sound,” she said.

Her best advice: “I would honestly have to say first and foremost to have faith that you can do it,” she said. “The end results are far greater than what you’re dealing with at that particular time.”

Tips from the top
We also talked with David C. Jones, president of the Association of Independent Consumer Credit Counseling Agencies, and Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling, to get their best tips for building credit.

Here’s what they had to say.

* Check credit reports regularly. At least once per year or three months in advance of applying for a loan or credit, check your reports, which are free annually through AnnualCreditReport.com. “Dispute any incorrect entries,” Cunningham said. “Make sure it’s about you and only you.”
* Pay on time. It seems simple, but paying on time is the highest weighted component of your credit score, accounting for 35 percent of the score, according to Cunningham. “If you’re a procrastinator, unorganized or if you travel for work, set up automatic bill pay in an amount that will at least pay your minimum [payment] by the due date,” she said.
* Don’t max out your credit. Aim to use no more than 30 percent of your available credit to avoid costly fees and being put into a risk category. It’s also a good idea to pay down your cards. “As your cards are paid down, it is likely that you will see an improvement in your credit score, as the computation takes into account your ability to repay your debt more easily,” said Jones.
* Be careful about closing unused accounts. Have a few credit cards paid off that you don’t want to use anymore? You might be better off keeping them open. “Closing unused accounts will lower your overall available credit and negatively impact your credit utilization ratio,” explained Cunningham.
* Resist paying for everything on credit. “Chances are that using cash more often will make you a better steward of the money you have each month after paying necessary bills,” Jones said. “As your spending patterns improve, so will your credit score.”

Source: foxbusiness.com

New reports out show that about 43-million of Americans have a credit rating so poor that getting a loan is much more difficult, and when they do much more expensive.

“It can affect your borrowing costs, the amount you’ll pay to finance cars or homes or, certainly credit card rates,“ notes Morningstar Financial’s Christine Benz.

A bad credit score can even affect your ability to get a job.

“Some employers actually check up on credit ratings when they’re hiring,“ Benz says.  “So, it can actually affect your future employment history as well.“
Personal finance advisors are busy these days doling out advice on how to raise your credit rating and shed the reputation of a being credit risk.

Credit cards are usually where they begin, because that’s usually where poor credit is born.

“If you have a credit card with a $10,000 credit limit and you have $5,000 in debt on there, that’s not going to look good,“ says personal finance consultant Bob Sullivan.

Advisors say getting credit card debt below 20-percent of maximum limit should be a priority.

“Do that to all your credit cards, march through them one at a time and that’s the best way for you to quickly raise your credit score,“ advises Sullivan.

AnnualCreditReport.com is one place to get a history of your credit, but you’ll have to pay to see your credit rating.

Contrary to what you see on some tv commercials there is no way to get your credit score free of charge.

Source: counton2.com

Millions of Americans have seen their credit scores fall amongst the lowest levels possible. FICO is reporting that almost 44 million people, 25.5 % of consumers, currently have a credit score less than 600. A credit score this low makes a borrower a very high risk for lenders. These low credit scores will make it almost impossible for these consumers to obtain a mortgage, auto loans, or credit cards. Over the past two years the amount of people with credit scores below 600 has gone up by 2.4 million people.

A very important group to look at is those with moderate credit scores, 650 to 699. The amount of people in this bracket is currently 11.9 percent of consumers, down from 12 percent in 2008. While the drop off is not that significant it is worth noting that the average number of consumers with these credit scores is usually 15 percent.

The consumers with moderate FICO credit scores could be in the most trouble when it comes to lending. Consumers with scores below 600 most likely would not try to borrower but those with moderate scores may try to obtain loans. In previous years these were seen as good credit scores for obtaining loans but standards have toughened and these scores aren’t as good as they once were. These tightened standards may make it much tougher for these people to obtain loans, especially with the best mortgage rates.

There are some positives when looking at the trends in our consumer’s credit score. The amount of consumers with an 800 credit score, a perfect score, has gone up recently. Currently 17.9 percent of consumers have a perfect score. This is significantly larger than the past average with is about 13 percent. These consumers with good credit scores should have no trouble obtaining any type of loan.

It is pretty easy to ruin a good credit credit score but it can me very difficult to fix credit scores.

Source: totalmortgage.com

Even though it’s more important than ever to be familiar with your credit score and what affects that crucial number, experts say a lot of Americans don’t know nearly as much as they should about what they do that can impact their score. WalletPop got on the phone with John Ulzheimer, president of consumer education at Credit.com to find out more. We also caught up with Barry Paperno, consumer operations manager for FICO, via email to ask him to spill some credit score secrets.

For instance, many people think that if they pay their bills on time, their credit score must be good. Right? Wrong, say our experts. Even if you always pay on time, if your cards are close to being maxed out, your score isn’t going to be as high as it could be, since borrowing up to the hilt looks like a risk factor to the credit bureaus. Surprised? Read on to find out five more credit secrets that can help you get the credit score you deserve.

1. Pay off revolving debt first. There are two different kinds of debt most of us carry: installment debts, which are generally secured by collateral (such as a car loan), and revolving debt, such as credit card balances. Since credit card balances are unsecured — the company can’t repossess the spoils of your last shopping spree if you don’t pay up — they’re viewed as much riskier in the FICO equation. As a result, paying off revolving debt boosts your credit score more than paying off a comparable amount of installment debt. “Paying off installment debt has such a small impact on your score,” says Ulzheimer. “Last year, I paid off a $284,000 mortgage and my score went up four points.” In other words, put that overtime check, bonus or tax refund toward credit card bills if you want the most bang for your high-score buck.

2. Payments to collection agencies don’t boost your score. By the time a debt goes to a third-party collection firm, the original lender (your credit card company, for instance) has already written off the loan as a loss and noted that delinquency on your report. While there are a host of good reasons — such as not getting sued and not being pestered with phone calls at all hours — to pay the bill once a third party collector has it, those payments won’t count toward your FICO score and won’t erase the notation of delinquency.

Likewise, if you get dinged with an insufficient funds fee at your bank and “retaliate” by closing the account or not putting any more money into it, you can get slapped with a collection action by your bank that will negatively impact your score. “In addition to bank account debt, such collection accounts can also arise from utility bills, parking tickets, and even library fines – and can often impact your score as much as unpaid credit card or loan debt,” Paperno warns. Bottom line: Pay those bills before they’re sent to a collection agency if you want to preserve your score.

3. Accentuate the positive. While you obviously want to make sure that black marks like missed payments don’t stay on your report any longer than necessary, it’s perfectly okay and even desirable to have old accounts that were in good standing still listed. For instance, say you paid off a car loan and never made a late payment on it. While you could lobby the bureaus to take that information off your report, it’s more beneficial to leave it on, says Ulzheimer. “This is a great example of when less is more. Don’t ask them to take it off if it’s in good standing.”

4. Opening and closing accounts can lower your score. “FICO’s research has found that opening a new account is predictive of increased risk, and opening any type of credit account or loan action can lower one’s score,” explains Paperno. The good news, he adds, is that your score will rise back to its original level within a few months if you keep the balance low and make your payments on time.

Closing cards can ding you because it skews your credit utilization ratio — that is, how much of your available credit you’ve used — when that line of credit suddenly vanishes. For this reason, experts say to use all your cards at least occasionally. An unused card does you no good if the issuer cancels it due to inactivity.

5. Borrowing more to pay down your debt is dicey. Despite the fact that Americans are often pitched offers of “consolidation” loans by their bank or mortgage lender, taking on more debt to eliminate your credit card bills is a risky proposition. “You’re borrowing from Peter to pay Paul,” says Ulzheimer. Since most consolidation loans are home equity loans backed by your house, failure to get a handle on your spending and pay off your debts as intended could have catastrophic consequences, he points out. “If you miss these payments, the down side is much more significant.” There’s also the fact, as we pointed out above, that opening new accounts can at least temporarily lower your score.

However, taking out an installment loan to pay off your credit card bills could prove beneficial — with one significant caveat. As Paperno points out, installment debt doesn’t drag down your score the way a bunch of maxed out credit cards can, so if — and this is the big “if” — you have the discipline to pay off your cards with that new loan money and stop using the cards until the installment loan is paid off, you could raise your score. But as Paperno points out, it takes a super-sized helping of discipline in order to make this tactic successful.

Source: walletpop.com

Q. I am 67 and retired. I have an American Express gold card and an American Express Hilton branded card. I would like to cancel the gold card and retain the Hilton card because the gold card costs $110 per year and we rarely use it anymore. I’ve had the gold card since 1971 and the Hilton card is newer, since 1988. My credit scores are 765 to 800 and we have no credit card debt or mortgage, just an $11,000 car loan and a $28,000 home improvement loan. How much of a hit do you think I will I take if I cancel the gold card?

A. For you, the hit should be minor and temporary. Still, there are considerations to make before you cancel.

Ask yourself if you’ll be applying for any major loans, such as a mortgage or car loan, in the near future.

“You might want to keep the card until that credit is obtained to get the best possible rate of interest on the loan,” said Jody D’Agostini, a certified financial planner with AXA Advisors/RICH Planning Group in Morristown.

Take out any loans first because canceling your oldest card will have an effect on your length of credit history, which makes up about 15 percent of your credit score. Keeping the oldest card is good for that part of your score, but given the rest of your credit history, it sounds like you’d make up any decline rather quickly.

“The nick on your credit should be minimal, and as long as you continue to pay your bills in a timely fashion, then you should have little cause for concern,” she said.

If there was no annual fee, D’Agostini said she’d recommend sticking the card in a drawer and not using it, though sometimes inactivity will cause the lender to close the line of credit.

Although you’d be closing your oldest card, you still have the Hilton card, which goes back to 1988 — not bad and certainly proof of a long credit history.

Something else to consider before closing the card is your credit utilization ratio, which compares how much credit you have available and how much you’re actually using, said Michael Gibney, a certified financial planner with Highland Financial Advisors in Riverdale.

Gibney said closing the card will lower your available credit, and together with your outstanding auto and home improvement loans, your credit utilization will move higher — and higher in general is bad for your credit score.

This again, given your overall solid credit history, will be a temporary hit.

“I agree with canceling the gold card because of the annual fee,” Gibney said. “I find it hard to justify an annual fee on a credit card because there are many offerings available with no annual fee.”

Source: nj.com

Although there are several scoring methods, most lenders use the FICO method from Fair Isaac Corporation. Each of t­he three major credit bureaus (Experian, Equifax and TransUnion) worked with Fair Isaac in the early 1980s to come up with the scoring method.

A credit score is determined much like a grade in school. Consider how a teacher calculates grades by taking scores from tests, homework, attendance and anything else they want to use, weighing each one according to importance to come up with a final, single-number score. It’s the same for a credit score. But instead of using the scores from pop quizzes and papers, it uses the information in your credit report.

Your credit score is calculated by weighing information in your credit report.

The number ranges from 300 to 850. Although the exact formula for calculating the score is proprietary information and owned by Fair Isaac, here’s an approximate breakdown of how it is determined:

* 35 percent of the score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if (and how promptly) you pay your bills. The score is affected by how many bills have been paid late, how many were sent out for collection and any bankruptcies. When these things happened also comes into play. The more recent, the worse it will be for your overall score.
* 30 percent of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 25 percent or less of their limits.
* 15 percent of the score is based on the length of time you’ve had credit. The longer you’ve had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.
* 10 percent of the score is based on new credit. Opening new credit accounts will negatively affect your score for a short time. This category also penalizes hard inquiries on your credit in the past year. Hard inquiries are those you’ve given lenders permission for, as opposed to soft inquiries, which include looking at your own score and have no effect on the score. However, the score interprets several hard inquiries within a short amount of time as one to account for the way people shop around for the best deals on a loan.
* 10 percent of the score is based on the types of credit you currently have. It will help your score to show that you have had experience with several different kinds of credit accounts, such as revolving credit accounts and installment loans.

This information is compared to the credit performance of other consumers with similar histories and profiles. The three major credit bureaus each have their own version of the credit score, all of which are based on the original Fair Isaac scoring method. Equifax has the BEACON system, TransUnion has the classic FICO Risk Score system, and Experian has the Experian/Fair Isaac RISK system. Some lenders also have their own scoring methods, which may include information such as your income or how long you’ve been at the same job.

When it’s all said and done, just how important is this magic number? And what does it mean for your interest rates?

Are you living life in the fast lane? And tired of keeping up with all your expenditures? Life is like that, sometimes you get what you want, and sometimes you don’t. And since this is a fact of life, is there anything you can do to improve your life?

Don’t be desperate; it’s not the end of the world. It’s but natural to incur expenses as you go on with your daily life. Most especially now that almost every price of an item you need is soaring high. This is one reason why people find loans, credit cards, and other credit transactions more attractive.

Transactions involving credit is not that easy to apply for, you will need to have a good credit rating based on your credit report. Your credit report holds your credit score, or formally known as the FICO score.

The FICO score of each person applying for credit is very important. This is usually the deciding factor for any company to approve your application for credit. This will determine whether you’re eligible or not.

You should not disregard your FICO score. This means that from the very start, you should have handled all your credit transactions in a good manner and pays your bill on time. If you’ve been living your life like this, then you can expect a high FICO score. Having a high credit score means that you have great chances in getting secured loans, credit cards, and the like.

A high FICO score indicates that you’re a low risk for creditors, which means that once they extend you a loan (or any credit transaction), you can pay off your dues on time.

FICO scores have different ranges. If you’ve scored 500-559, it means that you should start improving your score. 560-619 scores have great troubles in obtaining credit, and for you to have a decent score, you must get a score of 675-699. Scores from 700-719 can expect a favorable response when it comes to financing terms. For people having FICO scores from 720-850, a big round of applause for you, because you’ve attained the best score of all; you will certainly have no trouble in applying for any credit term.

Aside from the different score-range, the FICO score is divided into five categories: the payment history, the credit history’s length, amounts owned, new credit, and the type of credit that you have used. These categories have a direct relation to your credit scores.

Your credit report will contain information such as retail accounts, credit cards, mortgages, installment loans, unpaid accounts, bankruptcy, and other pertinent information regarding your history (on credit). You can’t lie because the records are pieces of evidence which proves your eligibility.

However, there are also times when some information contained in your credit report are not that accurate, so you need to check with the bureau along with your supporting papers at least once every year to have your records updated.

You are free to visit the bureau. In fact, three known bureaus gather credit reports. They are Experian, Equifax, and TransUnion.

The FICO score is your credit score, and remember, you must get a high score to have any application on your favor. One of the best ways to cope with your expenditures is through credit, so it is a must that you get a high FICO score. Be responsible with your finances.