Credit Resources

History The credit scoring system became prevalent during the 1960's as a way for lenders to quickly evaluate a potential borrower's creditworthiness. The system was found to accurately predict financial risk over time and grew to several different industries. Now credit scoring is used by lenders, insurers, landlords, employers, and utility companies to evaluate your credit behaviour.

Algebra Thousands of different credit scoring formulas exist today for various evaluation purposes. Each unique credit scoring system is accurate and correct for its own application. The credit scores you can order online use an algorithm created for consumers that approximates these different formulas. Your online credit score may vary a bit from the score your lender uses, but they should be in the same range.

Chemistry The basic credit scoring formula takes into account several factors from your Credit Profile. The impact of each element fluctuates based your own credit profile:

• Payment history - A good record of on-time payments will help boost your credit score.
• Outstanding debt - Balances above 50 percent of your credit limits will harm your credit. Aim for balances under 30 percent.
• Credit account history - An established credit history makes you a less risky borrower. Think twice before closing old accounts before a loan application.
• Recent inquiries - When a lender or business checks your credit, it causes a hard inquiry to your credit file. Apply for new credit in moderation.
• Types of credit - A good record A healthy credit profile has a balanced mix of credit accounts and loans.

There are steps you can take to ensure that each time a new "credit picture" is taken, it shows your best side. By observing the following guidelines, you can influence your credit worthiness for the better:

1. Be punctual - Pay all your bills on time. Late payments, collections, and bankruptcies have the greatest negative effect on your credit score.
2. Check your credit profile regularly and take the necessary steps to remove inaccuracies - Don't let your credit health suffer due to inaccurate information. If you find an inaccuracy on your credit profile contact the creditor associated with the account or the credit reporting agencies to correct it immediately.
3. Watch your debt - Keep your account balances below 50% of your available credit. For instance, if you have a credit card with a $1,000 limit, you should try to keep the balance owed below $500.
4. Give yourself time - Time is one of the most significant factors that can improve your credit score. Establish a long history of paying your bills on time and using credit responsibly. You may also want to keep the oldest account on your credit profile open in order to lengthen your period of active credit use.
5. Avoid excessive inquiries - A large number of inquiries occurred over a short period of time may be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties or overextending yourself by taking on more debt than you can easily repay.

Collect all your account, loan and credit information and go over the records with a fine tooth comb. Write down the monthly payment, debt amount, interest rate and term of each debt on a sheet of paper. Next, write down your total monthly income and list your estimated monthly expenses. Order your Credit Profile and Credit Score online to get a baseline for tracking your improvements. 

Calculate your monthly budget and find a way to reduce your expenses so that you are saving 10% of your income each month. Apply these savings toward paying off your debts. Use the following “accelerator margin” formula to decide what to pay first:

• Create a list of all your debts.
• For each debt, divide the total amount that you owe by the monthly payment.
• Put the debts in order, starting with the lowest division answer.
• Each month make the current minimum payment on each debt.
• Except debt No. 1 (lowest division answer), to which you apply about 10% of your monthly income.
• Repeat until debt No. 1 is paid.
• When the first debt is paid repeat the process by paying the minimum monthly payment on all bills except the No. 2 debt.
• Pay the 10% amount plus the amount you previously paid for debt No. 1.
• Continue until debt No. 2. is paid.
• Begin eliminating debt No. 3 with your 10% savings and the amount you owed on former debt No. 1, No. 2 and so on ...
  

While you are working on reducing those balances with the &ldquot;accelerator margin” schedule, try lowering the interest rates on some of the highest interest debts. Call your creditors and negotiate for a rate reduction or consider moving your balances to less expensive credit cards (this may cause a slight drop in your credit score if you open a new credit account). Also, take this opportunity to see if you have any account balances above 50% of the available line of credit. Having high balances can harm your credit score, you can help this by transferring some of the debts to different accounts.

After taking control of your credit card and small loan debts, take a look at your major loans. Would it make sense to refinance your mortgage or auto loan? Reducing your interest rate by a few points can potentially save you hundreds each month. Talk with your lender about a home equity loan, you can apply the amount you pull out toward reducing your high interest debts.

Create a payment calendar with the due dates and the payment amounts you just calculated. Sign up for automatic bill payment through your bank or register for online payments to keep you on schedule. Track improvements in your credit profile by registering for a credit monitoring product. Set goals for reducing your debts and don’t forget to celebrate when you reach a major debt-reduction milestone!