Credit Management Kit For Dummies
Establishing and maintaining good credit is easier if you know what’s in your credit report. Get a free copy of your credit reports every year and quickly correct any errors. Managing your credit also involves understanding how your credit score is calculated and how you can increase your score. If your credit is in trouble because you’re overextended or behind on payments, you have strategies at your disposal to help get back on track.
Contacting the Big Three Credit Bureaus
Examining your credit reports closely is important because the reports often contain errors, and those errors can affect what interest rates you receive, what jobs or promotions you get, and how much you pay for insurance. You want to correct any erroneous, incomplete, or out-of-date information as quickly as possible. Reviewing your credit reports regularly also helps you spot identity theft early. Here’s the contact info for the big three credit-reporting agencies:
Equifax, P.O. Box 740241, Atlanta, GA 30374; phone: 800-685-1111; website: www.equifax.com
Experian, P.O. Box 2104, Allen, TX 75013-2104; phone: 866-200-6020; website: www.experian.com
TransUnion, 2 Baldwin Place, P.O. Box 1000, Chester, PA 19022-1000; phone: 800-888-4213; website: www.transunion.com
You’re entitled to a free copy of your credit report each year from the three major credit bureaus — Equifax, Experian, and TransUnion. Whether you get a copy from one bureau every four months or all three at once, you can order your free annual reports from the Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281; phone 877-322-8228.
How to Handle an Overdue Mortgage
Falling behind on your mortgage payments can put you in a financial bind and, worst-case scenario, can lead to foreclosure. If your mortgage is late, you need to take immediate actions. Fortunately, you do have options to help you if your mortgage is past due. Here are some ideas to consider:
Call your lender or servicer immediately if you’re going to be late. The worst thing you can do is nothing. After you’re late, your grace period disappears, so a foreclosure action may be two weeks closer than you think.
Contact a HUD-certified counseling agency for more options. (Go to Department of Housing and Urban Development or call Project HOPE at 888-995-4673). A HUD-certified counselor can advise you for free, help you with your mortgage servicer, and refer you to local resources that you may not know about.
Don’t allow your mortgage to become 90 days past due. Partial payments may not be accepted after 90 days.
Think twice about strategic default. If you owe a great deal more on your mortgage than your home is worth and are considering walking away from your home, research all the negatives before mailing in your keys.
The Mortgage Forgiveness Debt Relief Act of 2007 has conditions that expire after 2012, and not everyone is eligible. However, if you qualify, you and your spouse can avoid taxes on up to $1 million of forgiven mortgage debt. No one wants to pay taxes if he doesn’t have too! You can find more information on this important act for homeowners at Internal Revenue Service.
Inside Your Credit Score
The two major credit scoring models are FICO and VantageScore. The FICO score is better known among consumers, but VantageScore is gaining in usage every year. The components and weightings that are used to calculate credit scores are different for each model. Knowing how the scores are computed allows you to take actions to maximize your score.
Payment history (35 percent)
Amount and type of debt (30 percent)
The length of time you’ve been using credit (15 percent)
The variety of accounts (10 percent)
The number and types of your new accounts and credit increase requests (generally in the last six months or so) (10 percent)
Recent credit and line increases requested by you (31 percent)
Payment history (28 percent)
Utilization of your credit lines (21 percent)
Balances (9 percent)
Depth (length and types) of credit (9 percent)
Available credit limits on all your accounts (2 percent)
Top Tips for a Top Credit Score
Building good credit takes time. Follow these tips to get a great credit score the first time around or, if you’ve made some mistakes in the past, to recover in the shortest time possible.
Review your free credit report every year. Use the Annual Credit Report Request Service and dispute errors and out-of-date data to boost your score! Up to 25 percent of credit reports have errors; yours may, too.
Keep balances below 50 percent of your credit limits. High balances mean lower credit scores.
Pay your bills on time. It’s that simple.
Keep accounts open longer. Older accounts score higher because they establish the length and stability of your credit history.
Limit new credit because it lowers your score. New credit and more inquiries on your account increase your risk profile and lower your score, especially if you don’t have a long credit history. Only add new credit when it makes sense, not just to have another card or to get an incentive gift.
Use more than one type of credit. Doing so shows you can manage different types of credit and different types of payments (fixed or variable). Have a variety of credit cards, retail accounts, installment loans, and other types of credit.
Use secured cards to help establish or reestablish credit. Secured cards are accepted by merchants and scored like a regular credit card, and their balances are guaranteed by a bank deposit. This makes credit easier to get and builds or rebuilds your score faster.
Avoid cosigning because it’s dangerous to your credit score. If the person that you cosign for defaults, you may not know about it for months. You’re 100 percent responsible for the debt, including any penalties, and your credit score will suffer as well.