|
|
Discover What to do When Your Credit Worthiness
is Damaged Due to Circumstances out of Your Control
First of all, let’s examine exactly what credit worth means and how
it affects your financial life.
Your credit worth, as defined by the financial industry, is the
overall picture of your financial health that is used by lenders to
determine your ability to repay debt. By looking at a combination of
factors, lenders, such as banks, credit card companies, and utility
companies, estimate how worthy you are of receiving a line of credit
or regular services based on a payment schedule.
The most common factor used by lenders to determine credit
worthiness is your credit score. Your credit score is a number
generated by a mathematical formula that estimates how likely you
are to pay your bills. Based on the information in your credit
reports from the three credit bureaus, Equifax, Experian, and
TransUnion, your credit score is a factor affecting your ability to
get loans and good interest rates. Lenders compare your credit
report with millions of others to determine your score.
But your credit score is not the only thing that lenders look at to
decide whether or not to give you a loan or a good interest rate.
They also evaluate the individual entries on your credit report and
the information you provide on your loan application. Some creditors
consider your occupation, length of employment, and whether or not
you own a home.
Each creditor creates a credit scoring system based on factors
important to that institution, so you may receive different results
with different lenders. For this reason, it is also important to
talk to the credit manager about why you received the credit limit
and interest rates that you did. You may have mitigating
circumstances that affect how your credit history is viewed, or you
may be on the margin between two score categories. Negotiation may
be possible if you are open with the creditor about your ability to
pay.
If you are turned down for credit, law states that you are entitled
to a free credit report if you request it within 60 days. A few
steps you can take to improve your credit worthiness include paying
your bills on time, paying down your existing debt, and refrain from
taking on new debt. But the points awarded by creditors for each
factor varies, and an increase in your credit score depends on how
one factor relates to another factor in their particular scoring
model.
Collections, bankruptcies, and late payments have the greatest
negative effect on your credit score, and, therefore, on your credit
worthiness. Paying your bills on time may seem like a small thing
when you’re writing that monthly check, but an accumulation of
timely payments says a lot to a potential lender looking for a
reliable client. Prompt payments in recent months can actually make
a big difference in your credit score.
Your debt is a factor as well. Keeping your account balances between
25% and 50% of your available credit signals a responsible borrower.
For example, if you have a credit card with a $2000 limit, keep your
debt below $1000. For this reason, consolidating your credit card
debt can actually lower your credit score, as it raises your debt to
available credit ratio. The best solution is to simply pay off your
existing cards as quickly as possible.
The length of your credit history is another determining factor in a
good score. Lenders want to know that you are able to maintain
prompt payments and good standing for a reasonable period of time.
Most credit scoring models consider the length of your credit
history, but low points in this area can be outweighed by good
payment history and low debt balances.
Some creditors consider the type of accounts you have as a
determining factor in your credit worthiness. While it’s a good idea
to have established credit accounts, some companies consider loans
from finance companies or too many accounts to be negative factors.
Checking your credit report regularly (at least once each quarter)
helps you in numerous ways:
1. You need to know who is checking on your credit at any given
time. Inquiries factor into your overall credit score and it is
illegal to run your report unless you have given written permission.
2. Makes you aware of accounts reported incorrectly, which is
extremely important in situations such as a company reporting a late
payment incorrectly.
3. You may discover big surprises like a collection account filed
against you that you weren’t even aware of. It happens!
4. And the really big one – someone has stolen your identity and is
using your credit!
With the number of identity theft cases increasing steadily, you
can’t afford to ignore your credit – especially if you are
considering borrowing.
In a recent court case number 02CC13327, a 4th District Court of
Appeals upheld the first $1 million judgment against a large retail
company by a victim of identity theft. One of the interesting facts
of this case is that the court recognized a recently developed
procedure for measuring credit damage.
Up until recently, lawyers for victims of credit damage had little
chance of collecting damages beyond medical treatment, lost wages
and property loss. With the development of credit damage
measurement, that has all changed.
For more information about identity theft prevention contact Cathy
at 949 635-4923
|
Identity Theft Articles
|
