fix credit rating

coola asked:


I have overdrafts, loans and credit cards and I have missed many payments on all of them and am overlimit on my overdraft and credit card. Apart from making payments on time how can I get a better credit rating? Will it only get better once I don’t owe anything or if I begin to make regular payments on time will that improve it? How long does it take for it to begin to improve? I’m in the UK so need info for here please. Thank you!

Steve

Mike Singh asked:




All of us at one point or another have to refer to our credit reports. It can be for credit for a new dress, a new car and even a new house. It can be for applying for a new job. It can be for renting a new apartment. Indeed, there are many situations that require your report with your rating and score outlined in it.

Of course, your report also includes personal information such as full name and address, employer’s name and address and information regarding bankruptcy filings, court suits, foreclosures and short sales and trends in bills payment, to name a few. Credit bureaus collect all this information so as to calculate your score and rating.

Now, you will be asking what the difference is between a credit score and a rating since they appear synonymous. Yes, there are differences but the aims are basically similar – provide an objective gauge for third parties regarding your ability to make payments on time.

Credit Scores

These scores are your Fair Isaacs Corporation (FICO) score. This corporation developed the system used by all three major credit bureaus in the United States: Equifax, TransUnion, and Experian to calculate scores.

Your scores are expressed in the hundreds such that the lower the figure, the higher the risk. If you have a score of 350, you are a high risk debtor while a score of 850 means that you are a very low risk.

Also, it must be noted that the three major credit bureaus use different sets of criteria with varying weights to determine score although the same set of report information is used. You will most often be issued three different credit scores! Still, the three credit scores are often approximate their figures so you basically fall within a specific category of low, medium and high credit risk.

The criteria used to determine credit score include credit payment history, time length of credit history, current debts, frequency of applications for new credit and credit type mix. Again, it must be emphasized that the credit bureaus will assign different weights to each criterion. However, it is safe to assume that previous credit performance and current level of indebtedness get the most weight at about 30 percent each while the types of credit available and the time credit has been in use gets 15 percent each and pursuit of new credit is at 5 percent.

Credit Rating

Aside from the scores, most countries also use rating using a scale of 0 to 9. There are two types of credit rating signified by the addition of the letter “I” for installment credit such as home or auto financing and “R” for revolving credit like credit card debt.

Unlike the credit scores where the three bureaus collect the information from many creditors, the rating scheme is such that each creditor will provide its own rating for you. Thus, you may have an R1 in Visa but an R5 in MasterCard because you neglected to pay the latter in favor of the former.

Indeed, you have to be aware of your credit score and rating because these numbers have a very real impact on your life.

Suzanne

Jello asked:


How does Credit rating agency evaluate individual credit? How can I start a Credit rating agency?

Jeanne

matt asked:


I have three credit cards but only use one, and pay it off in full every month. I am planning on making a big purchase at Best Buy and can save a lot of money if I open a credit card with the purchase. (I believe like 20% which would be almost $150). I would never use that card again.

Is it bad for my credit rating to have credit cards that I never use?

Esther

Molly Wider asked:




Something that many individuals with bad credit have in common is that they do nothing about it. They accept that they have bad credit and live with the consequences. Many don’t realize that it is actually not that difficult to fix a credit score. It does take patience as it can take a year, or many years depending on how bad your score is, but it is possible. The key is taking action and being consistent. The following are steps that you can take to improve your credit rating.

- Request your credit report. In Canada this means contacting Equifax Canada and TransUnion Canada. In the US this means contacting Experian, TransUnion, and Equifax. Many people are unaware that a poor credit rating could be due to clerical errors. Typos and duplicate entries on a credit report are not uncommon. Once you have your reports, review them closely to ensure that there are no errors. If there are errors, dispute the charges with the reporting agency and you could be back to an acceptable credit rating sooner than you think.

If you have established that your credit report is accurate, and would like to improve it, the following should be your next steps:

- Pay all of your bills on time. If you can’t pay the bills on time, call the company(s) you will be late in paying and let them know when you will be paying. Some companies will note these calls in your customer file and it may prevent them from reporting a non-payment. This will not always work, but it’s worth a try.

- Don’t cut up your credit cards. Many think that if they don’t use credit for a while their score will be fixed and this is not the case. You must use credit to gain credit. Reduce the amount of available credit on each card and reduce the number of cards you carry. Don’t just cut up a card, but call to have the account closed. Call or write to your credit card companies and ask them to reduce your interest rate. Paying a yearly fee for a lower interest rate on a card on which you carry a balance may be well worth it in the end. Again, if at all possible, be sure to pay your bills on time.

- If you have no cards, try to obtain a secured loan, or a secured credit card to re-establish your credit. Asking a friend or family member to co-sign on a loan or credit card is another method, but beware, if you don’t pay this debt, you may lose a lot more than a good credit score, so this should be a last resort.

Fixing your credit score is not impossible, but it does take patience, persistence and commitment. Following these steps should help you to improve your credit rating.

Nicole