20
May 2013

What Credit Score Do I Need To Get A Credit Card

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There was a time in the not so distant past that credit card companies were literally mailing credit cards to almost anyone with a US address. Credit scores were taken into account but they did not hold the weight they should have. As a result, many banks and financial institutions went under during the financial crisis of 2008 and 2009.

Today it is much more difficult to qualify for a credit card and premium credit cards are available to only a select few with a nearly perfect credit history. So what is the relationship between a credit score and the availability of credit cards and how does a personal credit score affect how lenders view your creditworthiness? Here are a few points the team at www.realbusinessrescue.co.uk have put together you may wish to consider.

Take Time to Understand Just What a Credit Score Is

One of the big mistakes which consumers make is in failing to understand exactly what a credit score is. Oftentimes they get a credit score confused with their credit history and this can be a grave mistake. It is true that your credit history plays a big role in determining your final score, it is not the sum total of your score. Your credit history only accounts for a portion of your credit score so it is incumbent upon you to take a few moments to understand how your score is tallied.

Also, it is vital to understand that many lenders do not rely solely on your credit score to determine creditworthiness. Some will take certain types of accounts into consideration and give them more or less weight accordingly. For example, it is widely recognized that banks and other lenders will place less weight on such things as medical bills but will focus on unsecured debt such as other credit cards and personal loans. Even so, you should keep your score sufficiently high to rank at least above 620 if you hope to qualify for any type of credit whatsoever.

Breakdown of Widely Used Fair Isaac Corporation (FICO) Scores

While the Fair Isaac Corporation (FICO) credit score is the most widely used by lenders in the United States, it is not the only credit rating score available. Perhaps 90% of lenders use your FICO score so it makes sense to understand how they rank you and what your score ‘should’ be in order to qualify for credit. First, understand that they use a highly complex formula to calculate credit scores so it would be a huge waste of time trying to do your own computations. Instead, try to focus on the categories that carry greater weight so that you can make improvements to give you the biggest boost quickly.

In effect, a FICO score is comprised of five (5) major categories which include:

  1. Payment/Credit History (roughly 35% of your total score)
  2. Total amount currently owed (roughly 30% of your total credit score)
  3. How long your credit history is (roughly 15%) of the score
  4. Newer credit – recently opened accounts (roughly 10% of your score)
  5. Miscellaneous factors (roughly 10% of the score)

As you can see, your payment history and the amount you currently owe (all totaled) make a huge impact on your FICO credit score. Even if you have a nearly perfect history of paying in full and on time, you may be maxed out based on your income. Bear in mind that lenders will look at this when reviewing your application.

Key Points to Understand When Making Credit Card Applications

Not only will lenders look at the total amount due when deciding whether or not to extend credit to you but they will also look closely at the number of new applications you have made within a given timeframe. Many consumers aren’t aware of the fact that applying for too many credit cards too quickly can raise a red flag. Any lender is likely to ask why that consumer is in such need of credit.

However, there is also the fact that every time you apply for credit a few points will be subtracted from your overall score. Therefore, if you are in the market for a credit card, it is suggested that you research rates and fees before making applications and try to keep all those within a 30 day timeframe. This will indicate that you are looking for a credit card and are shopping around for the best rates. Lenders will take this into consideration if the number of applications and the intervals between them are within an acceptable period.

What to Expect within Pre-Defined Credit Score Ranges

Now that you have a better understanding of how credit card companies view a credit score, what can you expect when shopping around for a new card? The quick answer is that you want a score that is over 720 if you want good interest rates and fees. The lower your score falls, the more apt a credit card issuer will be to charge higher and higher rates and fees. A brief outline of credit ranges would be as follows:

  • Less than 500 – If you can get a credit card it would be a miracle!
  • Between 500 and 579 – Very poor score and while you may get a credit card the interest would be sky high.
  • Between 580 and 619 – Poor credit score but some lenders ‘may’ consider extending credit.
  • Between 620 and 679 – This is an average score and credit is available but rates will not be wonderful.
  • Between 680 and 719 – Quite good credit and this is where you will find decent rates and abundant choices.
  • Between 720 and 800 – Here is where the best interest rates and premium cards will be available.

Of course there are very few people who can actually maintain a credit rating over 720 but it is possible to do! If you are in the market for a credit card and your credit score is less than favorable, it may be in your best interest to seek professional help to repair your credit. Sure, there is a fee but that fee may make the difference between exorbitant interest rates and those which are manageable.

What Credit Score Do I Need To Get A Credit Card

In short, if you are searching for a credit card and your score is lower than 620, it would be wiser to repair your credit before applying or you may find yourself in greater debt than you anticipated. Unless you have a good credit score, your chances of getting good rates are slim to none and that’s the bottom line. Good credit = good rates.

 

Bio:  Keith Tully is Managing Director of Real Business Rescue, a team of business advisors who specialize in both corporate and individual insolvency.  He enjoys writing about all aspects of finance and credit and helping people to understand sophisticated elements of finance jargon.

 

 

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07
Nov 2012

Credit Guidance – Should I Pay Charged Off Accounts?

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Until the recent economic meltdown, large charge offs on credit histories were a fairly rare occurrence. With the economy still struggling to regain its footing, this is changing rapidly, and more people will be facing the necessity of dealing with charge offs on their credit histories. Everyone who obtains a charged off account on their credit history wonders “Should I pay charged off accounts?”

Charge offs are one of the worst entries that can be made on a credit report, and are the leading reason for being denied credit in the future. This is because unlike a late account or an account in collections, by declaring a charge off the debt issuer is letting future creditors know that no payment was collected on the debt. This makes lending to a person with charge offs on their credit history

Should I Pay Charged Off Accounts

less desirable, since future creditors will fear the risk that the debtor will force them into a charge off situation.

Checking your credit report regularly is the best way to spot charge offs reported in error; you certainly don’t want a charge off you don’t owe to impact your creditworthiness. But what happens if you know you really do owe the debt, and now you’re stuck in a charge off situation?

Frequent Misunderstandings about Charge Offs

Charge offs are usually reported after six months of non-payment. If even a token amount is paid during that time, the creditor will typically restart the six month count down. After a charge off is reported, there are several things that can happen to that debt – but it won’t just disappear. Don’t fall for these common mistaken assumptions about charge offs.

  • “After a charge off, you no longer owe the debt.” The fact is, even after the debt is charged off, the debtor owes the debt. A charge off is a declaration that the creditor did not receive payment for six months.
  • “Once a debt is charged off, they won’t collect.” Actually, even if a debt is charged off, the creditor has the right to collect, or to assign the right to collect to someone else. What’s happening here? Frequently, creditors will sell your debt to a third party collection agency, sometimes for pennies on the dollar. The third party then can collect the whole amount; this is why many collection firms are so aggressive.
  • “After seven years, a charge off disappears from your report.” If no updates to the debt are made within seven years, depending on the type of debt the mark on your credit may fade. But if a third party is trying to collect, they may continually update your report to keep the debt active, meaning it can remain visible to all until the debt is paid. Paying off charged off accounts is the only way to guarantee that the debt will eventually be removed from your credit history.

Paying Off Charged Accounts

For those wondering “Does paying off charge offs help your credit?” lenders’ increased willingness to work with you is one way that your credit will benefit from paying off such an account. Additionally, paying off a charged off account will ensure that eventually, the debt will be too old to be considered relevant to your credit profile. If the debt is constantly updated by an aggressive collector, this will not be the case.

Paying off charged off debt makes financial sense in the long term. Although an initial charge off immediately impacts your credit score and overall credit risk profile, charge offs that remain unpaid can cause further damage to your score. A paid off charge off, on the other hand, can improve your score, although it will take time for your score to return to what it was before the charge off was reported.

Now you are definitely asking, “So, should I pay charged off accounts?” In short, the answer is yes, you should pay off a charged off account. However, if you’re in financial straits, you don’t want to risk getting another charge off from a creditor you can’t repay because you spent the money you had fixing the charge off.

Ask the creditor handling the charge off for repayment terms that you can afford on a schedule you know you can meet. Settlement, in which you pay less than the original debt owed, is also an option; just be aware that a note will be made on your credit report that the debt was settled and not collected in full. The important thing is paying off whatever you can so that your credit can recover quickly.

Categories: Credit Reports Tags: , , ,
23
Jan 2012

What Are The Different Types of Credit Scores?

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What Are The Different Types of Credit scoresNot all credit scores are created equal, not even close. Did you know there are actually different types of credit scores?

Here are the 5 most popular types…

1. FICO

Hands down, FICO is the most popular type of credit score. It was first launched in 1958 and today, well over 90% of the largest lenders use it. All of the best credit cards and loans will take into account your FICO score when reviewing your application.

The FICO range is 300 to 850, but rarely will you find someone near the bottom or top. To put things in perspective, only 2% of Americans have a score between 300 and 499. And to be above 800 puts you in top 13%. The median is reportedly 723.

2. VantageScore

The credit bureaus have to pay Fair Isaac (the owners of FICO) to use their formula. So for that reason, they decided to join forces a few years ago and come up with another type of credit score – the VantageScore – but so far it hasn’t gained much traction.

It runs on a 500 to 990 scale and every 100 points corresponds to a different letter grade; 500 to 600 = F, 601 to 700 = D, 701-900 = C, 801 to 900 = B, and 901 or higher = A. This helps you gauge quite easily how good (or bad) your score is, unlike FICO which doesn’t have a neat breakdown like that.

But does the VantageScore matter? Well it is used by some lenders, but the estimated market share has been pegged at less than 10%. So while it may be a good way to see where you stand, it definitely is not a replacement for knowing your FICO score.

3. PLUS Score

You know those annoying commercials for FreeCreditScore.com? Well, they give you the Experian PLUS Score. If you look in the fine print on their website, you will see this:

Yep that’s right… the PLUS Score isn’t even used by lenders! So I would take it with a grain of salt.

Its scale runs from 330 to 830 which is somewhat similar to FICO, but because this type of credit score model is different, there’s no way to use it for an apples-to-apples comparison with FICO.

4. TransUnion TransRisk Score

Like Experian, the credit bureau TransUnion also decided to develop their own scoring model. They call it the TransRisk score and it runs on a 300 to 850 range. Sure, that is the same as the FICO range, but again you have to remember we are dealing with a totally different formula hear. So just because you have a 730 TransRisk, it doesn’t mean your FICO would be 730, too.

Just like the PLUS Score, this one is yet another so called “educational score.” So when you apply for a credit card or mortgage, the lender won’t give diddly-squat about what your TransRisk number is. The only places that use this are some websites which sell or offer credit scores directly to consumers.

5. Community Empower (CE) Score

Rounding out this list of credit score types is yet another which you will encounter on a few personal finance sites, but lenders rarely use it (Wikipedia says it’s also licensed to banks, but I don’t know of any which use it).

It runs on a 350 to 850 range and probably the most well-known site that uses it is Quizzle.com.

Rather than tying it to credit card offers, you will see this score mostly associated with mortgages. Why? Because the creators for this type of credit score – CE Analytics – use it for Community Empower, a lease-to-own program that is their bread and butter business.

Are You Mixing Them Up?

I have found that on my site CreditCardForum, many people erroneously use these scoring types interchangeably. Obviously that’s a bad thing, since they all use different formulas.

For example, someone might post a comment about the US Airways MasterCard and say “I got denied with an 800 credit score.” This confuses people reading it, because it probably would be assumed that was in reference to an 800 FICO. When in actuality, the poster was referencing an 800 VantageScore… which indeed might not be good enough to qualify for a US Airways MasterCard (nor many other airline credit cards).

So when you check your credit score, not only do you need to know what type you are getting, but you also need to know what types other people are talking about on the forums and blogs. Since there are only two websites which sell FICO to consumers (MyFICO.com and Equifax.com) there’s a good chance the score you are getting is something different.

This guest article was written by Mike, who eats, breathes and sleeps credit on his website. Not only is he constantly updating CreditCardForum.com’s “best credit cards” list, but also stays busy covering topics relating to credit scoring, debt, and other personal finance matters on there.

Categories: Credit Reports
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