Paul Ferraresi

Amount of Time Credit Has Been In Use (Length of Credit) 15%

Generally speaking, the longer the credit history the better your score. However, this factor only makes up 15% of your total score so even young people, students or others with short histories can still score high overall as long as the other factors show good. If you are new to credit then there is little you can do to improve this part of your score. Open an account and be patient: Read the rest of this entry »

What factors affect your credit score?

There are five factors which are used in credit scoring calculations that determine your overall credit score.

Previous Credit Performance (Payment History) 35%

A lender wants to know what your payment history is like. Have you paid everything on time, are you late on anything now, and so on. Your payment history is just one piece of information used in calculating your score, although it can be the very important. Read the rest of this entry »

How much does a low score cost you?

Credit Cards

Most if not all prime credit cards are entirely out of reach to consumers with bad credit. And the few credit cards that are available to them (known as “sub-prime” cards) typically require exorbitant setup fees or recurring monthly fees, offer very low credit lines, often require cash deposits, and in most cases do not even report your positive credit activity to the credit bureaus. Read the rest of this entry »

Since January 2005, more than 100 million people have been affected by identity theft. Even when financial losses from them are low, there is still stress, frustration and hassle in putting your credit and finances back together. Here are some ways to avoid becoming another identity theft statistic:

• Place fraud alerts on your credit report. These alerts, available through credit bureaus, require your verbal approval before a new credit line can be opened under your name.
• Order all three free credit reports—not just one. Take advantage of your free annual credit reports, now a right under federal law. Get one from each bureau, since many companies will only report to one or two bureaus.
• Review your credit report carefully. Look for accounts you do not recognize and look at the “inquiries” section for names of creditors from whom you haven’t requested credit.
• Opt out of unsolicited credit card offers. Opt out of pre-approved offers of credit at www.optoutprescreen.com. You can choose between a five-year opt-out period and permanent opt-out status.
• Remove your name from direct-mail marketing lists. You can do this at www.dmaconsumers.org.
• Become acquainted with a shredder. Merely tearing up your mail just won’t do anymore. All your discarded mail (including the envelopes) should go through a shredder before it goes to the trash.
• Encrypt your wireless internet connection. At least 80% of Americans who access the Internet through a wireless connection use an unsecured network, which makes a hacker’s job really easy.
• Consider an identity theft protection service. There are a number of options, take your time. Make sure the service you choose can prevent identity theft—credit monitoring services will only notify you after something happens.

Part 2 of 8

What does your credit score mean?

This rating system is meant to develop a snapshot of the risk you currently represent to a lender. Several parameters in your credit file, including length of credit history, number of open accounts, loans, mortgages, public records, and others are formulated to produce a three-digit score between about 300 and 950. There are other scores used by lenders and insurance companies (some of which are developed by FICO) such as Application and Behavior scores. These other scores take other information into account. Usually a lender will use a combination of your credit score with other factors when determining your risk. They all have the same objective, to determine the borrower’s potential risk. Regardless of whether the score was generated by FICO or a system based on FICO parameters, they all yield an industry standard three-digit score. This score places the borrower in one of three main categories (we named the third one ourselves).Keep in mind… of the three reporting agencies the middle score, of the three, is used for evaluation.

Prime, sub-prime, and shafted

Prime – If your credit score is above 680, you are considered a “prime borrower” and will have no problem getting a good interest rate on your home loan, car loan, or credit card.

Sub-prime – If your credit score is below 680, you are sub-prime, and will likely pay a much higher interest rate on your loan.

Shafted – Below 560 is the shafted score. At least that is how most lenders and credit issuers perceive it. You can still get a credit card but you will likely be hit with a security deposit or high acquisition fee. In addition to that your interest rate will likely be 28 to 29%. You can forget about most home loans and the majority of new car loans at this score. Below 560 is no place to be. You will pay much, much more in higher interest and unnecessary fees. You may even pay more for your insurance rates. A very low score can even prevent you from getting a job with many companies.

End of Part 2 of 8

Continued Next Week