Credit Scores

If you are thinking of making a major purchase, or applying for a loan, this question will eventually pop up.

What is my credit score? And how was that number calculated?

Think of your credit score as a grade in school. A teacher calculates your grade from test results and homework and class participation. The teacher will weigh each category and come up with a grade. Your credit score works in a similar way. Lenders use your credit score as your grade to determine the level of risk there is to lending you money and the interest rate that should be charged for the loan. It is a snapshot of your current debt.

Credit scores are graded on five different factors: how much new credit you have, what type of credit you have, how much total debt you have, how long you’ve had credit and how you’ve handled that credit, otherwise known as your payment history.

A credit score can range anywhere between 300 and 850 and, just like a grade in school, the higher the credit score the lower the risk, and the better chance you have in receiving a loan with a better interest rate. It is also important that your credit report is accurate. You can receive one free credit report per year from each one of the three credit reporting agencies under the Fair and Accurate Credit Transactions Act.

The free credit report can be obtained online at: www.AnnualCreditReport.com

Here is how your credit score is determined:

PAYMENT HISTORY – 35 PERCENT: This score is affected by late payment of bills and collections. The more recent the activity, the worse your credit score will be.

OUTSTANDING DEBT – 30 PERCENT: This is based on how much you owe on a home, or car, or credit cards. The more credit cards you have that have reached their borrowing limit, the lower your score will be.

LENGTH OF TIME YOU HAVE HAD CREDIT – 15 PERCENT: The longer you have established credit, the better it is for your credit score.

NEW CREDIT – 10 PERCENT: Applying for new credit cards or loans will lower your credit score. Be careful about accepting new credit card offers that you don’t need.

TYPE OF CREDIT YOU HAVE – 10 PERCENT: The number of loans that you have and the overall mix and available limits will make a difference. Try to limit your lines of credit to three or four. Creditors like to see that you’ve been able to handle fixed loans such as a mortgage, car or student loan as well as revolving credit accounts such as credit cards.

If your credit score is low, you must rebuild it over time. Filing a bankruptcy is one way of improving your credit score because, in a Chapter 7, you are wiping out your unsecured debt and starting over. A Chapter 13 will allow you to repay the amount of unsecured debt that you can afford.

Talk with us at Steidl and Steinberg so that we can discuss your options in not only dealing with your creditors and current debt, but also advise you on how to rebuild your credit rating and look ahead to the future. We will meet with you in person during a free consultation to discuss your options.

Bankruptcy is a fresh start and, with our experience, why go anywhere else?