Your Credit Standing
As a citizen of this country, it’s very likely that you’ve accrued some debt. As of April 2004, the average American owed approximately $2,900 in credit card debt — so you’re not alone. The first order of business in determining your financial standing is to obtain a credit report. This is the easy part. Go online and look up TransUnion, Equifax, and Experian. From all three these companies, request a comprehensive report of your entire credit history. On each report, your history will be summed up with one little number called a FICO score. If you’re like most Americans, your FICO score will fall somewhere between 600 and 700, though the actual range runs up to 850.
Whether or not your credit history will affect your ability to obtain a loan depends upon several factors, all of which can be viewed on your report:
- Maxed accounts: Lenders are more suspicious of debtors who appear to take credit as a (nearly) blank check. If you’ve stayed well below your credit line, you’re in better shape than if you’ve maxed out an account.
- Delinquencies: Have you been more than 30 days overdue with a credit card payment or two? This will significantly lower your credit score.
- Repeated late payments: Even if you haven’t been 30 days delinquent, recurring inability to get your check in the mail on time will certainly bring down your FICO score.
- Numerous open accounts: Lenders fear that with several open credit card accounts — even with no balances — you may be gearing up for a free-for-all at the mall.
- A FICO score of less than 660: Though a credit score of 600 or higher is respectable, banks and lenders consider anyone with a score lower than 660 to be a risk.
Repairing Your Credit Standing
Suppose you do have a blemish or two on your credit report. How can you regain your financial integrity in a lender’s eye?
- Don’t close out unused accounts just yet. Doing so will negatively affect the ratio of your available credit to actual debt, and that will quickly damage your FICO score.
- Make sure that there are absolutely no errors on any of your credit reports, and if there are, have them corrected immediately. Believe it or not, at least half of all credit reports include at least one error. If you do find one, like an outstanding payment that doesn’t exist, write an explanatory letter to the affected agency. Be sure to include copies of the incorrect reports along with supporting documents (like bank statements and charge slips). If the credit reporting agency can’t confirm the accuracy of its claim within 30 days, it’s legally bound to erase the offending error from your report.
- Begin paying off your balances. Yes, it’s easier said than done. That’s why you’ll have to draw up a very strict budget and make a solemn pact to not stray from it. It may be painful, but it will hurt a whole lot less than your pride will at being denied a loan.
- If at all possible, open up an emergency savings account and start making small deposits. Lenders appreciate solid planning and responsibility. A monthly deposit that you never touch, no matter how small, displays both.
- Call Consumer Credit Counseling Services. This is not a company that consolidates your debt for a fee. Instead, it’s a not-for-profit counseling service that offers free budgeting and debt management aid. It may be your best option if you are in over your head.
It does take some time and effort to improve your credit rating. Negative information stays on your record for seven years unless the reporting agencies have made an error. Thus, if you do have major blemishes, it’s best to begin repairing your credit immediately. If you’re doing fairly well, keep yourself on track and continue to pay your balances in a timely fashion. Once you’ve inched your FICO score over the 660 mark, you can start browsing the realty section and building your dreams.
By Nicole Zillmer