Understanding And Improving Your Credit
"No man's credit is as good as his money." E.W.
Howe, American journalist, novelist 1853-1937
The American economy is based on credit. If you don't
have at least an average credit rating, you will find
that getting approved for any type of loan, or credit
card, will be very difficult - if not impossible. As the
nation's economy worsens, the money supply becomes tighter.
A major factor looming on the horizon is the growth in
the national debt. At this moment, the country's deficit
is approaching a staggering four trillion dollars! That
means something like twenty cents out of every dollar
spent by the Federal Government goes toward paying off
interest on money borrowed!
You may be asking what does that have to do with you obtaining
credit? Everything! There is only so much money to go
around. A common misconception is any government running
short of cash can simply crank out more by running the
printing presses late into the night. Wrong! It doesn't
work that way. The government, just like a business or
individual, has to go out and obtain funds whenever revenues
from taxes and the sale of treasury notes fall short of
expenses. That's the easy part. Who wouldn't loan money
to Uncle Sam? The hard part is the taxpayer has to pay
the money back! The bigger the deficit becomes, the more
money the government borrows. That takes money away from
the private sector. Of course, that hurts the overall
economy, and makes less money available for individuals
and businesses. It's a vicious cycle that feeds on itself.
This is a short, but important report. lt contains valuable
information. Read it carefully, and you will have a better
understanding of how applicants are rated, and what you
can do to improve your credit rating. The "Credit
Scoring System" is a nothing more than a numbers
game. Most creditors use something like it to rate applicants
Like most games, the more "points" you score,
the better you do. So get out a pencil and paper and we
will take a closer look at a typical system:
The first factor you can't do anything about: Your Age.
Yes, you could lie, but don't. With all the interlocking
computer systems in use today, somebody, somewhere, probably
has the true story. While it's only one element, if a
creditor catches you in a lie, even if it's just about
your age, they aren't going to trust the rest of the information
you provide either, and you will probably not get the
Under 21? Score zero points. 24 to 64 years of age give
yourself one point. Over 65? Zero points.
The next question is your marital status. Unmarried, sorry
pal most creditor's think you're a higher risk, no points
for you What's that? You are married? Give yourself one
point. Most creditors don't care if you divorced. If you
are, and not remarried give yourself zero points.
Next question: How many dependents: Unlike Uncle Sam who
gives you bigger deductions as your family grow in size,
creditors think differently. No dependents? Score zero.
One to three dependents? Score one point. More than three
dependents? Score zero. The thinking is, if you don't
have any dependents you have no attachments, you could
skip town, not pay off that loan. You have up to three
mouths to feed, chances are good you can't pull up stakes
and run away. More then three, you could get in debt over
your head so you become a poorer risk again, but for a
Where do you live? In a trailer park, motor home, with
parents, relatives, friends? Wrong answer. Same reasons
as previous question. You could run, and not pay off the
loan. You got to put down some roots. Score yourself zero
points. Rent an apartment? Give yourself one point. Own
a home with a big fat mortgage? Good for you. Score three
big ones! Why? Somebody already checked you out pretty
good for you to get that mortgage, so you're probably
a pretty good risk. Own your home free and clear? Even
better. Give yourself four points. You already established
you can take on a sizable debt and pay it off, so you
get a bonus point.
Previous Residence? Zero to five years, some creditors
only go to three years. Then score zero points. You move
around too much! Over five years? Good. Score one point.
Years on Job? The longer the better. Less then one year
at present employer? Sorry, no points for you! One to
three years? Give yourself one point. Four to six years
is worth two points. Over seven years at the same company
score three points.
What kind of Job? Unskilled? You still get one point.
At least you have a job! Skilled? Two points. Professional?
Three points. The creditor decides the classification.
Use common sense, when scoring yourself.
Monthly Income? Should be obvious, the more the better!
Under $800 a month earns you one point. Up to $1,000 gives
you two points. Pull down $1,500 gives you three points.
Over $1,800 gets four points. This score can vary quite
a bit with different creditors. Depends on part of the
country you live in, type of job, many other factors.
How deep are you presently in debt? Nothing to $300 per
month earns you two points. $301 to $500 gives you one
point. Anything over $500 in most cases earns you no points.
Previous Credit History: Very important to all creditors.
It's your track record and is a good indicator of how
you should pay off debt in the future. All creditors belong
to at least one credit reporting agency. Information is
shared. If you have a good credit history with the company
you're seeking the loan from, all the better. Of course
they believe their own information more then somebody
else's. So if you paid off a loan with them with no problems,
most give you four to five points. Good record with other
creditors should earn you two to three points.
Other Information: Having a saving and or checking account
with a balance over $500 helps, if it's not something
you just opened a few weeks ago. Should have been at least
a couple years to do you any good. Most creditors give
you a couple points. Phone in your name? gets you another
OK now ad up your score. Remember the more points you
score the better credit risk you are. Most creditors have
a cut-off around eighteen points. Some will go as low
as fifteen points, other higher then twenty. Again, it
depends on availability of funds and built-in bias of
the creditor that you applied to. If turned down try somebody
A few points away from the cut off? Well, you may be able
to cheat a little. Not recommended, but if you're only
a couple points away you may get your employer to say
you worked longer then you have, or that you earn a little
more then you do. If you don't rent or have a mortgage
try an improve this situation to earn more points. Also
consider building up your credit record by getting a secured
loan. You will be usually issued a credit card as well.
Not every bank provides this service, but a surprising
number do. The only catch is of course you can't touch
the money in the account, and if you don't pay off your
credit card balance in full each month you will rack up
quite a bit of interest charges on top of whatever you
charge with the credit card. Secured loans are not based
on credit history because you put up funds equal to the
loan. It's a safe deal for the bank and can help improve
your credit rating. The catch is it takes time to build
up your credit rating.
Another method is to open a regular savings account and
deposit $200-$500. Leave it there 30 to 60 days, then
get a loan on the account. Pay the loan off before the
due date. Withdraw part or all of the money. Open another
account at some other bank. Repeat the process over and
over. Your local credit bureau will get good reports on
you, and before you know it, your mail box will be stuffed
with offers for free credit cards - no more secured accounts,
and you should have an easier time of obtaining credit.
If all else fails, try to get a smaller loan, or see if
someone is willing to co-sign.
About The Author
For a wide range of personal finance articles, loans,
credit cards, and debt reduction resources, visit http://www.ReliefLoans.com.