Improve Your Credit Score: Determine Your CreditWorthiness

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Sure, the economy may be flailing, but learning to preserve and maintain your creditworthiness and improve your credit score is still extremely important. If you've spent any time watching or reading the news, you're aware that bad mortgages obtained with faulty credit lending practices and other flawed methods have sent the economy into a tailspin.

Creditworthiness is defined as being financially established to the point where lending credit is deemed a sound judgment by a bank or financial institution. Your credit score determines many things - if you're responsible enough to re-pay a loan on time and not default as well as your experience handling lines of credit and interest rates. In the eyes of a financial institution, your creditworthiness will help you acquire a loan for a car, house, or other large asset much easier.

The Dynamics: Maintain and Improve Your Credit Score

Developed as a mortgage tool in the mid 1990s (1), your credit, or FICO (R), score essentially determines what, if any, loans you are eligible for and the amount of interest you'll be required to pay. As your score decreases, the rate of interest increases. Credit companies often say that timely payments are perhaps the most important factor to foster and continually improve a credit score that is high or within an acceptable range.

Your credit score is broken down into many factors: 35% is your payment history; 30% is the current amount you owe; 15% is the time you've had your credit lines open and active; 10% comprises new credit lines; and the remaining 10% is the type of credit you use (2). If you've fallen behind on payments and the amount you owe is increasing, your creditworthiness (in the eyes of the lending institutions) may be floundering.

Send Away for Your Credit Report - for Free!

Are you interested in seeing what's on your credit report and determine your creditworthiness for yourself? It's easy to get this information. Simply write a letter stating that you wish to receive your credit report from the three following credit reporting agencies, and you'll be mailed your report free of charge when requests are made once within each year. Please note that there is an additional fee to obtain your credit score from the credit reporting agencies.

  • Experian, www.experian.com: receive your credit report free of charge by visiting the Experian website; requesting a copy by writing to P.O. Box 2002, Allen, TX 75013; or by calling 1-888-397-3742.
  • TransUnion, www.transunion.com: request a copy of your credit report by writing to P.O. Box 1000, Chester, PA 19022 or view your report online with a free trial subscription. You can also call the credit agency at 1-800-888-4213.
  • Equifax, www.equifax.com: write a letter of request to P.O. Box 740241, Atlanta, GA 30374 or call 1-800-685-1111 for more information. You can also view your credit report online with a free 30-day trial (3).

Knowing the dynamics of and working proactively to improve your credit score will help you boost your creditworthiness and perhaps even protect you from identity theft or credit fraud. And, if the numbers on your report are less than favorable, there are ways to improve your credit score further.

How Lenders Judge Your Ability to Re-pay a Loan

If you receive your credit report and there a few items on it that you are less than happy with, you do have some recourse in the situation. Most of all, however, do not pay someone to help you out of your mess. A credit counseling agency will offer advice on how to improve your credit score and boost your creditworthiness but will charge you extensively for this information. Basically, working to improve your credit score and fostering creditworthiness is a three step process: 1. Request and review your credit report from multiple agencies; 2. Pay in full your overdue accounts; and 3. Open new lines of credit, starting slowly with either a pre-paid or unsecured credit card.

When lenders or creditors pull up your credit report, they apply the word 'risk' to the situation. If someone with a low credit score is looking for a home loan, a lender will likely view this individual as high risk and perhaps deem him unable to re-pay the loan in a timely or even responsible manner. However, lenders will also consider your current income, occupation, and the amount of credit you need.

If you're reviewing your credit report yourself, the following scale will come in handy:

  • Below 550 to 599: Your credit problems need to be addressed. Lenders and/or creditors consider these credit scores to be terrible.
  • 600 to 649: Within this range, you will have trouble finding loan approvals and you may receive poor interest rates. Lenders will consider you to be high risk.
  • 650 to 699: While close to 700 is considered healthy, as you get closer to 650, the tables begin to turn. A score of 650 is not great but is considered average. You need to think about a course of action to improve your credit score.
  • 700 to 750: Anything between these two scores is considered financially stable and you will receive the best interest rates.
  • 751 to 850: While 850 is the highest on the FICO scale, the high 700s are ideal and are considered the least risky for lenders. Your creditworthiness is considered quite high.

Creditworthiness Means Heightened Diligence

Poor credit can really come back to haunt you. That's why diligence in making your payments on time and regularly checking your report to improve your credit score or maintain your creditworthiness are two of the most important things you can do to ensure you remain in balance financially.

Ultimately, your credit determines what loans you are eligible for, and if you have less than spectacular credit, you may have a hard time securing a loan for a car or a home. And if you do receive that loan, the interest rates will kill you in the long run. A little diligence goes a long way - work to improve your credit score and lenders and/or creditors will help you embark on your path to financial health and stability.

Sources

1. http://www.privacyrights.org/fs/fs6c-CreditScores.htm
2. Ibid.
3. http://www.fightidentitytheft.com/credit_bureaus.html

Darrel Giann, a financial consultant and businessman, is the founder of Just $14.95.com, a website that helps people earn extra income by embarking on a career in finance. Giann, who faced financial struggles in his own life, now works to teach others how to get ahead in life, eliminate credit card debt, and achieve financial freedom. For more details or to begin making money for yourself, please visit www.Just14-95.com.

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