Tag Archives: Credit Repair

Learning How Credit Works: Managing Your Spending

Learning How Credit Works: Managing Your Spending

Many Americans have a working knowledge of how credit works and yet still continue making costly mistakes that impact creditworthiness, interest rates on financing, and overall economic stability. Take time to learn how credit influences your life and the decisions you could make to improve your credit score. It can be surprising how a few simple changes can dramatically change your credit score for the better.

What Is A Credit Score?

Various credit bureaus track credit-related information for all U.S. adults. These bureaus use various formulas to calculate a person’s credit rating, a numerical value of his or her creditworthiness.

  • A bad credit score is any credit score under 640.
  • Fair credit scores hover in the 640 to 700 range.
  • Any credit score between 700 and 750 qualifies as a good score.
  • Excellent credit includes credit ratings of 750 to 850.

This scale may seem straightforward at first, but countless factors go into an individual’s credit scores. It is very important for anyone who seeks any type of financing or credit line to know the terms and conditions and how interest will apply to avoid significant credit-related problems in the future. Defaulting on loans or failure to pay your bills on time can negatively impact your credit score for years to come.

Things That Impact Your Credit Score

If you intend to apply for a credit card, a small business loan, or financing for a home or vehicle purchase, one of the first things a creditor will look at is your debt-to-income ratio. This ratio basically defines your financial flexibility. If you have a low debt-to-income ratio, this means you make more than enough money to pay your debts based on your average income. A high debt-to-income ratio means that you likely have very little income leftover after paying your bills each month. If you have a high debt-to-income ratio, a creditor will likely feel less inclined to extend you credit since there is a lower chance you will pay your bills on time and in full.

Credit bureaus also take your bill paying habits into account when assigning your credit score. Some of the various factors that can influence your credit score include:

  • Failure to pay a bill on time, or multiple late payments on a credit line. Consistent timely payments can comprise as much as 35% of your overall credit score.
  • Defaulting on a loan or failing to pay back a loan as required by the loan contract.
  • Attempting to defraud a creditor.
  • Changing jobs frequently.
  • Frequent or too many credit requests in a short timespan. This could indicate to the credit bureau that you are attempting to open several lines of credit at once.
  • Periods of unemployment.
  • Private and government liens. Some liens may remain on your credit report for up to ten years.
  • Unpaid utility bills.
  • Ignoring potential inaccuracies or identity theft. It is essential to carefully monitor your credit lines and address fraudulent or suspicious activity as quickly as possible.

Ultimately, whenever you take on any type of loan or debt it is essential to pay it off as soon as possible while abiding by the terms of the contract. A lender will stipulate when and how payments are due, how your payments apply to your principal and your interest, and your interest rates.

Working Your Way Out Of Bad Credit

If you want to increase your credit score, your first step is to prioritize your spending in a way that reduces your debt. Paying down the balances on your open lines of credit and active loans is the best way to increase your credit score, but this takes time. If you are trying to recover your credit score or are just starting to build credit, a few tips can help you avoid astronomical interest rates and set you up for a better credit score in the long run. Some of the things you can try to boost your credit score more quickly include:

  • Paying off liens as soon as possible. Liens are one of the most detrimental factors in your credit score, so work toward paying them off as quickly as you can.
  • Paying off higher-interest debts first. The higher the interest rate on a line of credit, the more you will pay overall to settle the debt. Target your highest interest rate loans and lines of credit and work on paying those off before your lower-interest rate debts. Of course, you want to keep making payments on all your debts, but prioritizing extra money toward your higher-interest loans will benefit you more in the long run.
  • Limit frivolous spending. Eating takeout every day for lunch at work is more expensive than many people realize. You could very likely buy groceries and cook your own meals for a fraction of what you spend on takeout. The money saved could make a major difference in your outstanding balances.
  • Limit the number of credit inquiries you request in a short time. If you are shopping for credit cards, research available offers on your own and wait to request an inquiry until you are sure the credit line meets your needs and budget.
  • Keep outstanding balances as low as possible. If you need credit for a sudden and unexpected expense this could be difficult, but ultimately you should strive to keep all outstanding balances as low as possible.
  • Pay more than the minimum payment. If your credit card requires a $50 minimum payment, remember that this amount will not entirely go toward paying down the principal on the account, but also the interest. However, whatever you pay over the minimum payment amount usually goes toward the principal. For example, on the credit card with the $50 minimum payment, paying $60 would ensure the extra ten dollars goes toward the principal, which in turn lowers the overall interest you will pay on the account.
  • Set up payment reminders. Most Americans pay their bills online now thanks to the ease and convenience of online bill paying software and most creditors having proprietary apps. Find out if your creditor offers any type of app or payment reminder program you can use to build a solid payment schedule for yourself.

Bad credit can happen to anyone for various reasons, so use these tips as a starting point and develop a repayment plan that helps you tackle your debts in the most beneficial way possible to escape debt and increase your credit score.

Everything You Need to Know About Your Free Yearly Credit Check

Everything You Need to Know About Free Yearly Credit Check - Red Mountain Funding

Lenders determine whether to extend a loan to you based on the information in your credit report. If they decide to offer the loan, they will use that information to determine what interest rate and payment terms they will provide. It is important that your credit report be accurate and that you are aware of the information it contains before seeking a loan.

As a part of the Fair Credit Reporting Act, the national credit reporting companies – TransUnion, Equifax and Experian – are required to provide you with a free copy of your report once every 12 months at your request.

What Is Contained in a Credit Report

The three national credit reporting companies each produce a separate report, and the information on each may be different. Some lenders report to one or more agencies, but not the others.

Your credit report will be formatted slightly differently for each company. The basic sections, however, are the same.

Personal Information

The section with your personal information contains details about your name, current address, Social Security number and telephone number. It may also contain information about previous employers with their address and the position you held. Finally, it will include any information about bankruptcies, civil judgments or tax liens against you.

Creditor Information

This is the heart of your credit report and contains all your current lines of credit. Each section here will contain the:

  • Creditor name
  • Type of loan
  • Credit limit or highest credit balance
  • Monthly payment amount
  • Current balance
  • Payment history

The payment history section shows any time a balance is 30, 60 or 90 days late. The creditor information section is what lenders use to determine if you are maxed out on credit cards, frequently late with payments or already paying a lot of debt.

Creditor Inquiries

The final section of the report contains any recent credit inquiries. When a potential lender asks for a copy of your credit report, you will see it noted in the creditor inquiries section. Several recent credit inquiries may indicate that you are looking to take on new debt.

How to Request a Copy of Your Report

There are three ways of ordering your reports from the credit reporting companies:

  • By phone
  • By mail
  • Through a central website

When ordering your reports, you may request all three reports at once, or merely one particular report. You are entitled to one report from each agency every 12 months.

Whichever way you request your report, you will need to provide your name, address, Social Security number and date of birth. You may also be asked to provide identifying information, such as the amount of a particular loan payment or the name of the county you lived in five years ago. The identifying information requested will vary with each report you request.

To order your report by mail, print out the Annual Credit Report Request Form and mail it to:

Annual Credit Report Request Service

P.O. Box 105281

Atlanta, GA 30348-5281

Or call 1-877-322-8228 to request your report over the phone.

The easiest method of requesting your report is to visit annualcreditreport.com and complete the request online. This will also allow you to receive the report immediately after completing the request as a download to your computer.

The above source is the only official website to request your free credit report. The personal information it asks for is only to verify your identity; you are not signing up for any service or product.

There are many websites available that allow you to request a copy of your credit report, but they may also charge you fees or sign you up for a service after a free trial. Annualcreditreport.com will never email you asking for personal information, call you to request information or suggest other services you may need.

Correcting Mistakes on Your Report

If you find information on your report that is inaccurate or fraudulent, each of the three reporting agencies has a process by which you can dispute and correct your report. You must go directly to the reporting company’s website to dispute the information.

To file a dispute with Equifax, go to: https://www.equifax.com/personal/disputes.

To file a dispute with TransUnion, go to: https://www.transunion.com/credit-disputes/dispute-your-credit.

For filing a dispute with Experian, go to: https://www.experian.com/blogs/ask-experian/credit-education/faqs/how-to-dispute-credit-report-information/.

You will need to provide copies of any receipts or loan agreements that prove the information is incorrect, as well as a description as to why the information reported is incorrect. The credit reporting company will investigate your dispute – a process usually completed in 30 days. They will then either remove the information from your report and provide you with another free credit report showing the change, or give you the reason for rejecting your dispute.

You should also contact the lender reporting the incorrect information and request that they correct their reports.

Trustworthy Partners

The lender you do business with should be someone you can rely on, someone who understands the needs of those who have less-than-perfect credit. You need dependable transportation, but you may be asking, “How do I get a car with bad credit?”

Red Mountain Funding provides auto financing for bad credit. We are an Arizona-based family company that finances auto loans for everyday people. Red Mountain Funding is a trustworthy company that wants to help everyone get the financing they need – when they need it.

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