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Where Is Your Credit Score Heading?

Just one late payment can trigger a decrease in your credit ranking, costing you thousands of dollars in the years following. Your credit score can substantially impact your life in many ways. Not only does this three-digit number determine whether or not you can qualify to obtain financing for large purchases, it is the primary factor in establishing terms of repayment, including interest rates and the amount you can borrow. Your score can also influence insurance rates, your ability to rent a home, and employment opportunities. Although this number is a derivative of an undisclosed statistical formula, having a better understanding of the factors that make up your credit score and what you can do to initiate improvements will help insure your credit rating is at the highest level possible.

________________________________Components of a Credit Score__________________________________

Payment History – about 35%

The easiest way to raise an ailing credit score is to make all of your payments on time each month. Consider setting up automatic payments and pay more than the minimum due whenever possible. This will help reduce the amount of interest you incur and make you a more desirable borrower.

Amount of Debt – about 30%

Keep the ratio of your outstanding balance to available credit as low as possible on all of your credit cards; less than 50% is good, but below 30% is ideal. Splitting a high balance among multiple cards may work to improve your debt ratio, but opening new accounts to do this can counteract the benefit. If you do not plan on applying for new credit or a loan in the near future, it may make more sense to carry the balance on the card with the lowest interest rate so that more of each payment goes toward the principal.

Length of Credit History – about 15%

Hold on to at least one low-interest card and keep it active by using it regularly, even if you pay off the balance completely each month. The accounts with the longest history of regular payments help with your rating.

New Credit – about 10%

Avoid applying for new credit accounts if you plan to secure a major loan in the near future. Multiple credit inquiries are a sign that you are having trouble successfully securing a loan and may represent a high risk to the lender. However, multiple inquiries from the same type of creditor, such as a mortgage banker, are only counted once if submitted within a short period of time.

Other Factors – about 10%

Accurate negative information included in your report can affect your score for many years. If you plan on applying for a mortgage or car loan, consider waiting at least twelve months from the date the matter was reported. You are penalized less for negative issues that are more than a year old.

Disputes and Discrepancies

Be wary of credit repair clinics promising to correct inaccurate or incomplete information on your report for a fee. Anything they can do legally, you can do yourself at little to no cost and the benefit you will receive will be well worth the investment of your time and effort.

Complete a form online or send a letter to the consumer reporting company to notify them of what information you think is inaccurate. Include copies of documentation that support your claim. Be sure to provide your complete name and address and be clear about your request for each item to either be removed or corrected. Send documentation through a tracked service so that you have proof of when it was received. Any item that cannot be verified must be removed from your report. Upon request, the consumer reporting agency is also required to send notices of corrections to anyone who received your report in the past six months.

Lower your debt.

Raise your credit score.

Nearly everyone faces financial hardship at some point in their lives. Many turn to credit for immediate relief. Unfortunately, outstanding credit debt can prove to be extremely expensive and difficult to eliminate. However, with determination and a plan, anyone can take control of debt and improve their credit score in the process.

Prevent New Credit Card Debt

The first step toward reducing credit card debt is to stop adding to it. If you are currently charging most of your purchases and are unable to pay the balance each month, try one (or all) of the tips below to break this habit:

Carry cash. Give yourself a weekly allowance for expenditures. You’ll become more aware of how much you actually spend and be less likely to make unnecessary purchases.

Use debit, not credit. For times when a card is required, use your debit card instead of credit.

Out of sight, out of mind. Keep your credit cards at home so that you can’t use them for spontaneous purchases.

Think strategically. Choose two to four credit cards with which you have a long and positive history, and close all other accounts. Maintaining a few good accounts will boost your credit score, while having too many will hurt it.

Negotiate a Better Deal

Terms of many credit accounts can be modified; often all it takes is a phone call.

Negotiate rates. Call your credit card issuers and request a better rate. Explain that you plan to transfer the balances to another card unless your rate is decreased.

Ask for help. Contact your creditors if you are having trouble making your payments each month. You may be able to agree upon a more manageable option. Make sure to keep detailed records of your communications for future reference.

As you begin to take control of your debt, beware of advertisements that offer quick fixes. This usually refers to filing for bankruptcy, which stays on your report for 10 years, hindering your ability to acquire new credit. Ask for details before committing to any debt-relief services.

__________________________________________Reduce Your Debt__________________________________________

Implement the following strategy

Make a list of each credit card you have, its existing balance, minimum payment and interest rate. Pay as much money as you can on the card with the highest interest rate, while continuing to pay slightly more than the minimum on the other cards. Once the highest interest rate card is paid off, take the same amount you’ve been paying on that card and add it to your payment on the card with the next highest interest rate (this is commonly referred to as “snowballing” or a debt-reduction rollover of your payments). Continue to pay slightly more than the minimum on the remaining accounts, repeating the process until you’re debt free.

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