by Andrew on January 31, 2010
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It is surprising to many people when they find that their current debts affect their credit score almost as much as their previous history.
In fact almost a third of your credit score is determined by your current levels of debt and the types of debts that you have.
The reason why current debts are so important is because they can indicate to a potential lender that you might already be strapped for cash and have difficulty making repayments on your loans.
Even if you can show that you have been making your payments and you have a good record with no defaults they will take into account that any additional loans will make your repayments increase and that might be all that is needed to ‘break the camels back’ and that places all your loans into a higher risk situation.
Another factor that the credit bureaus will take into account apart from the level of current debt is when the debt money was initially borrowed.
If a lot of the debt has been borrowed recently this will alert them to the fact that there could be problems with finances that have necessitated additional borrowings.
The best way then to increase your credit score is to start paying down your current debts so your financial position and ultimately your ability to make your debt repayments will look more favorable and your level of risk will be lower.
If you can increase your income then this will also help, as it will make repayments easier thereby lowering your risk, however for most people an increase in income is not an option.
The number of loans that are current has an effect on your score also. Reducing the number of loans, even if the total debt remains the same can help in some circumstances.
by Andrew on January 28, 2010
With the knowledge of how your credit score is calculated you can focus your attention on making the right moves to help boost your ratings no matter what your current financial position might be.
You need to understand first and foremost that your credit score is simply a reflection of how the lending institutions view the data that is presented to them by the credit bureaus and how they ‘expect’ you will be able to repay your bills based on historical recording of data from a vast number of other people.
You need to look at that same data and look at how you can improve your position in the eyes of the lending companies.
If you can make your position more favorable to the lenders by helping them see that you are the type of debtor who can pay your bills on time you will get funds more easily.
The information that the credit bureaus get comes from various different sources including the credit card companies and utility companies.
From the time that you open a bank account, start paying bills or borrow money from someone the credit bureaus will start a credit file on you.
This file will document any defaults of payment, late payments and anything else that will affect your credit score by providing potential lenders a snapshot of your financial performance.
If you pay your bills late the companies you owe the money to will inform the credit bureaus and then will note this on your profile.
The more of these bad transactions that are noted the lower your credit score can become.
There are other factors that will also affect your credit score and these are also noted on your profile including the types of debts that you have, how much debt you have, and how well you pay these debts back.
The credit bureaus won’t disclose how they calculate their formulas but recent financial history will generally have more affect on your credit score than older information.
