A credit score is a Credit Rating. There are 2 different Credit Rating sources, Equifax and TransUnion. Equifax is by far the more popular.

All the Creditors you deal with including Car Loans, Credit Cards, Communication Services etc., all report to Equifax on a monthly basis about your debt servicing. They report missed payments, how much you owe, bankruptcies, how many months you are late with a payment and so on.

they report on:

R – Revolving credit (Credit Cards)

I – Installment Debt (Car Loans)

M – Mortgage

C = Line of Credit

O – Open Account (a new account where they borrower hasn’t had to make a payment yet)

From there they develop a Rating represented by a number. So the higher the number the better of rating to a maximum of 900.

Typically anything above 680 is considered very good. Below 680 is considered a little bruised. So Prime A institutional lenders generally deal above 680. Where Subprime Lenders deal below 680.

Even if you have a history of bad credit, its not to late to start to repair it.

Here are some ways to repair Damaged Credit Ratings:

1. Create a Budget – this helps you be realistic about  your spending habits. Be honest with yourself though about needs and wants when creating a budget.

2. Pay Down existing debt – this may be overwhelming but with a budget it will be much easier.

3. Pay bills on time – This is very important. In fact it counts for 35% of your credit score.

4. Credit Utilization – Try to keep you balance below 35% of the limit. In fact if you have one Credit Card maxed out and you have another Credit Card with a very low balance, you should transfer some balance to this card.

5. Apply for new credit sparingly – every application for credit is reported as a “hard inquiry” and all though this has limited impact on your score, a hard inquiry can work against you  (if you already have bad credit).

6. Get a Secured Credit Card – this is credit secured by cash. So if you deposit $2000 toward your card, you now have $2000 to spend.

7. Transfer balances with caution – its a good idea to balance your debt with Credit Utilization in mind but be careful of the Interest rates. This may negatively affect you.

8. Keep old accounts open – once paid off it is very tempting to close that account, but actually your credit “history” is more easily tracked and calculated with older accounts as you appear more credit worthy to Lenders with older accounts. Also if you have a lot of credit cards maxed out, closing an account can affect your credit utilization (average credit) negatively as opposed to having Zero owing on an account.

Thanks for reading

Tom Parent – Mortgage Agent.

Parenting people to their dreams.