The Number that Determines It ALL: Your Credit Score

FICO scores AKA Credit scores are one of the most important things attached to you. They open or close a lot of doors to you, set your interest rates and determine if you can even get credit, even tell employers if they should hire you. They are pretty important.

Credit scores are made up of several aspects:

1. Payment history -- about 35 percent. Think those late payments and overdrafts on your bank account really don’t matter? Think again, they can stay with you for years. These dings can negatively affect your credit score and make you look a lot worse than is really the case.
2. Amount owed -- about 30 percent. This means everything you owe, to everyone. Remember the debt-to-credit ratio I talked about before? Don’t close accounts and make sure to pay off debt.
3. Length of history -- about 15 percent. The longer your credit has been around, the better. The longer your credit is good, the better.
4. New credit -- about 10 percent. Applying for credit too much or too often is bad for your credit. Apparently, this makes you look desperate. If you need credit, shop around for a short period (30 days) and don’t overdo it.
5. Miscellaneous-- about 10 percent. This is a mix of everything credit related.

Credit scores range from 300 to 850, anything under 620 is considered sub-prime. Sub-prime is the act of financing someone who has “blemished credit, low income, or limited documentation” and means your interest rate will be MUCH higher than if you had a higher score. The score actually comes from a combination of the 3 reporting credit agencies: TransUnion, Experian, and Equifax. You can, and should, check your credit reports for free once a year by going to annualreditreport.com to see what exactly is on your credit reports. What is on your credit reports determines how high or low your credit report will be.

Your credit report shows your personal information, credit cards –balances and credit limits, all loans, any accounts in default, and anyone who has checked your credit recently. (One of the first steps to getting out of debt is getting a copy for your credit reports.)

Once you have a copy of your credit reports you know who and how much you owe. You can begin contacting and paying off your debts. If you have debts or defaults you can either phone the agency or write a letter. Make sure to state that when the debt is completed you want it removed from ALL credit bureaus. Here is a sample:

Your name
Address
City, State and Zip
Today’s date

Creditor Name
Address
City, State and Zip

Re: Your Name
Creditor’s Account Number
Your Social Security Number

I (name) wish to settle the outstanding debt with (creditor). (Explain why you’ve fallen into debt.) I strongly wish to pay back this debt.
Currently, the outstanding debt balance is (dollar amount). I am willing and able to settle this amount for (amount you can afford to pay). As part of this settlement I am making the following requests:

My account will be shown paid in full.
Any litigation is dropped.
All negative listings will be deleted from the three credit bureaus below.
Equifax
Experian
TransUnion

Upon acceptance of this letter (creditor name) agrees to the terms and settlement conditions and I (name) will send an overnight money order in the amount of (settlement amount) paid to (creditor name).
(Creditor name) agrees to forward this letter to the three credit bureaus listed so negative listings may be deleted.

(Print Your Name) (Print Date)

(Sign your name)

You can either agree to pay in full or set up a payment plan. Something many don’t know is once your debt is sold to a collection agency you can most likely settle for a fraction of what you owe. You can do this because the original agency basically writes off your debt and sells them to the collection agency for pennies on the dollar. This is how collection agencies make money, off of you. By convincing you to pay the full debt, they make a profit on the difference. Try to negotiate. It couldn’t hurt.

With each debt or default you settle your credit score will raise, overtime. To quickly raise your score when you pay off items in default, make sure you get a letter from the agency stating you are free from this obligation. Once you have this letter send a copy to each of the credit bureaus to have it removed from your reports.

Your credit score will begin rising and you will be clawing your way out of debt. This can often be a slow process, so try to stick with it.

If you need help with this process, I will be glad to help.