Credit Score Components

Credit Score Components

If you have found this post because you have either been turned down for a mortgage application or you are concerned you may, you’re in luck. You should find more information than you may have thought you need.

Since credit scores started being used to determine financial worthiness there has been a lot of talk about “unfair” the process can be. If you know a few simple facts about how to make sure you achieve and maintain an acceptable credit score, I believe you will come to agree the credit scoring models are quite fair.

There are far too many articles on the internet already about the history of credit scores, the ranges of credit scores and the companies who provide credit scores and the scoring models. It would be a waste of your time to repeat that here. Instead we are going to talk straight about how you probably came to have low credit scores and what you need to do about it.

Step One – It’s time to get to work. If you have a low score one of four things have probably happened:

  1. You defaulted on a loan and it went to collection
  2. You have been late on payments, probably more than one
  3. You have abused your credit privileges and all of your accounts are “maxed out”
  4. You have had a repossession or foreclosure

If you have lower scores and you qualify for a loan you may not qualify for the rates or terms you see advertised. Those 0.0% auto financing ads? They require almost perfect credit. Those no interest, principal only furniture company loans likewise. Those low interest rates you see advertised on your favorite mortgage website … ditto. To get the best credit treatment you need to show evidence you are dependable to repay and that’s what a high credit score can demonstrate to the lender.

Step Two – Fix it.

Credit repair companies don’t usually care for me. It’s usually because I tell everyone there are too many credit repair scams and your chance of finding a reputable company are pretty low. This is not to say there are not legitimate companies out there. I am simply saying you stand a fair chance of overpaying for something that you could have done yourself for free. You also stand a great chance of getting some really bad advice which could further worsen your credit. In the very worst of cases you could face criminal charges for credit fraud.

There is no need to be afraid of the process. You came here to get peace and that’s what I want you to have. Let me tell you there are ways to take control of your credit, restore your score and move yourself back into the qualified applicant category. It starts with paying all of your payments on time but it does not end there.

If you have applied for a home loan and you have been denied go back to the lender and ask them if they have access to a credit analyzer. If they do ask them to use it on your credit report. It generally costs about $15 to have the credit analyzer program used on your credit. You should pay them for the $15 plus your credit report. For an individual that should be no less than about $25 total. It may be a little more but should not be over about $60 and you should pay them for that service but only the exact amount of the charges.

When they have used the credit analyzer system on your credit it should make some recommendations about how to manage your balances, whether or not you need to establish new credit accounts, whether or not you should pay off any existing credit. DO NOT BLINDLY ASSUME you know what you need to do and completely pay off accounts and close them. This, in fact, could be highly detrimental to you.

If they do not have access to a credit analysis platform you should either find someone who does and follow their recommendation. I know Suze Orman likes to say “you are not your credit score” but in reality, at least to the lender, you are exactly your credit score so take care of it. Tend to it and nurture it and it will help you get the things in life you truly need and cannot or do not wish to pay cash for. Your credit score is a snapshot of your financial well-being – unless you can pay cash for what you need. Paint a good picture and be treated like you want.

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